Ethanol industry in sunset? Not so fast

By Russell Blinch and Ayesha Rascoe - Analysis

WASHINGTON (Reuters) - With soaring food prices and mounting criticism, it might seem the nascent U.S. biofuel industry has seen its best days. But don't underestimate the determination of Washington, the farm lobby and science to keep it alive.

The corn-gobbling ethanol industry is under fire from all sides, blamed for everything from rising food prices to environmental damage.

Ethanol is also driving a wedge in the farm community with grain farmers celebrating record prices while livestock producers and bakers grumble about rising costs due to the green fuel craze.

The ethanol industry itself is struggling to maintain profitability in the face of record corn prices, while fighting to win back its street cred as producer of a miracle green fuel.

"People are sort of desperate for something that will ease our dependence on foreign volatile countries, but unfortunately ethanol from food is not the answer," said Janet Larsen, director of research at Earth Policy Institute in Washington.

Larsen said that when consumers realize they are being squeezed at both the pump and the grocery store, they will quickly sour on Washington's policy that calls for billions of dollars to be invested in ethanol.

"If they begin to make the connection that these higher food prices are the result of a misguided U.S. policy to turn more corn into ethanol, I think ethanol's popularity is likely to drop dramatically," she said.

FOOD, FUEL, FOLLY?