Fidel Castro and Hugo Chavez have been on a major international campaign against the use of ethanol and other forms of bio fuels.
I agree that massive Federal subsidies for ethanol production will likely run astray. Federal subsidies have a history of creating false economies. Subsidies tend to concentrate wealth in the hands of a few politically connected people. Subsidies also tend to mask market signals. In other words, like most big government programs, subsidies lead to a false economy where a very small number of extremely rich people make questionable decisions based on bad information.
In such a world, it is highly likely that the government program would divert food resources from the mouths of babes into the belly of the machine.
Although it is likely that the proposed ethanol subsidies will be little more than an expensive boondoggle, I believe it is possible for the government to support ethanol production without messing up the market. It is even possible that for a government to support ethanol without hurting the food supply.
The challenge with the food supply is that the food supply is controlled by the weather. In years of famine, there is insufficient supply of food. Prices rise, and the amount of food stored decreases. Interestingly, the years of abundance are often worse for farmers than years of famine. In years of abundance, the market is flooded with food, and prices drop as farmers try to unload perishables in a crowded market.
To help even out this unpredictable market ruled by feast or famine, the United States government has all sorts of subsidies, price controls and tariffs in place.
Rather than creating a new ethanol subsidy, the US government could spur development of ethanol by replacing several of the existing farm subsidies with a strategic bio-fuel purchasing program. This program would purchase excessive corn in years of abundance and convert the excess into bio-fuels. This program would only purchase grain in times of abundance. The program would then sell fuel from the reserves on a gradual basis (helping offset the cost of the reserves.)
By coordinating the purchase of bio mass for bio fuels with climatic cycles, the government would actually end up enhancing the food supply by stabilizing the food market. They would encourage the development of the ethanol market by creating a stable source of ethanol.
By developing a strategic reserve that concentrates solely on buying excess production during years of abundance, the government would effectively create a bio fuels subsidy that enhances both the fuel and food production cycles. Such a system would work within the existing market, and would allow the government to answer strategic security needs of providing fuel and food with a minimum of direct interference in the market.