MARK SIMKIN: It's harvest time in corn country. This year's harvest will be massive: more than 50 billion kilos worth. Iowa is smaller than Victoria, but its corn production dwarfs Australia's overall grain production.

Dave Reisz is racing to get his crop in before the weather turns.

DAVE REISZ, AMAIZING ENERGY: The corn price is up to a little over $3 now. I can remember, just a few years ago, I sold corn for $1.37. I can't believe how much change the last couple of years there has been. I just can't imagine what's going to come the next few years. But it's changing fast. It kind of reminds me of the computer.

MARK SIMKIN: David Reisz has been farming this land near Denison for nearly half a century. He used to plant corn and soy beans, but now it's exclusively corn. Every kernel goes to the same place: the local ethanol plant.

This is one of the smaller plants in Iowa, but its appetite for corn is voracious. It swallows 17 million bushels a year, all of it locally produced. Dave took me on a tour.

MARK SIMKIN: What have we got here?

DAVE REISZ: These tanks here are holding tanks for corn when it comes in. We have 2.6 million bushel storage and that would last us 40 to 50 days per grain.

MARK SIMKIN: There are scores of plants like this operating or under construction in Iowa. It looks and smells like a cross between a distillery and a brewery. In fact, it's both of those things. Enzymes, yeast and heat are used to turn corn into alcohol.

DAVE REISZ: It will take roughly 48 hours to ferment after it's in that tank.

MARK SIMKIN: This is the finished product: 200-proof ethanol.

DAVE REISZ: Ethanol is great. I just can't say enough good things about it. We can produce it right here, we can grow this corn, plant it in the spring, harvest it in the fall and make ethanol into it in a matter of a few days, where it takes hundreds of years for oil to reproduce under the ground.

MARK SIMKIN: The ethanol industry's insatiable demand is driving up the price of corn and fuelling a Midwest miracle. Rural communities are thriving, Dave Reisz's income has doubled and the price of land is skyrocketing. Denison has fewer than 6,000 residents, but it's been able to build a new convention centre overlooking the expanded golf course, a new multimillion-dollar school and a new church.

DAVE REISZ: What it's done for the state of even the local economy and the State of Iowa and the whole country is just amazing. The people have put the work and it's helped put money in people's pockets and it's just a snowball effect.

MARK SIMKIN: Jim Hansaker certainly has more money in his pockets. The third generation farmer's rarely seen things so good.

JIM HANDSAKER, CORN FARMER: This happened over 20, 30 years. In fact, Henry Ford started to make his cars run on ethanol and his good buddy had all this gasoline to do something with, so they converted it to run on gasoline. So, it's an old fuel that way.

MARK SIMKIN: The soaring corn price means this truckload is worth about $3,000. Jim Handsaker's land is worth 20 per cent more than a year ago. His investment in two ethanol plants earns him thousands of dollars in dividends and he still get a $10,000 subsidy cheque from the Government.

JIM HANDSAKER: The subsidies have been going down substantially. Millions of dollars less payment now this year than last year.

MARK SIMKIN: By some estimates, corn is the United States most heavily subsidised crop and ethanol gets extra special protection. Ethanol imports are hit with a hefty tariff. Ethanol refiners get a generous tax break. All up, the industry receives about $6 billion a year.

The Government support comes in other forms too.

POLITICIAN; Mr Speaker, the President of the United States.

(CHEERING AND APPLAUSE)

MARK SIMKIN: George W. Bush wants to dramatically increase ethanol use and he's called on Congress to mandate higher production levels.

GEORGE W. BUSH, US PRESIDENT: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology.

MARK SIMKIN: The farmers are riding high, and that makes them targets. What's happening here is creating international shockwaves. Even farmers in Australia are being affected.

BRUCE BABCOCK, IOWA STATE UNIVERSITY: So when US ethanol industry really took off, because the US is such a large producer and supplier of feedgrains, the whole feedgrain complex around the world went up. So wheat prices in Australia, feed wheat prices in Europe, corn prices around the world went up, and so what happens to US... US energy policy is right now driving world commodity markets to a certain degree, that's for sure.

MARK SIMKIN: Corn is used for feed and appears in one form or another in most supermarket items. As the price of corn rises, so do the prices of the other products. It's estimated ethanol's cost Americans $14 billion in higher food prices.

BRUCE BABCOCK: We found that once all the corn has gone through into the retail food prices, that maybe egg prices would be the most affected because they... they're very corn intensive, that might have gone up about eight per cent, pork pricesfour per cent, cattle and dairy prices three to four per cent.

MARK SIMKIN: Is ethanol really the culprit here, though? Wouldn't the drought in Australia and rising transportation costs because of the price of oil be other factors?

BRUCE BABCOCK: That's right, the United States food prices have gone up about four per cent for two years in a row, which is pretty high, and we attribute at most maybe half of that or less than half of that to ethanol and to feedgrain prices.

MARK SIMKIN: Randy Hilleman under both sides of the food-versus-fuel debate. He grows corn and raises hogs.

RANDY HILLEMAN, PIG FARMER: Feed is our most expensive product. That's what consists... our highest percentage of our cost is feed. And so we have to watch that very closely.

MARK SIMKIN: Randy Hilleman has 15,000 pigs, and their feed comes from corn. Because he grows his own grain, he'll escape the price squeeze but the rest of the hog industry is nervous.

RANDY HILLEMAN: It doesn't look too rosy for this next year. There might be some times where it might be profitable, but it looks like a lot of people could be not making much money or even losing money just because of high feed costs and fuel and everything else. Everything's up.

MARK SIMKIN: It's people, not pigs, who are particularly vulnerable. In many countries, the poor rely on grains. Already tortilla prices in Mexico has jumped 60 per cent. Wheat in India is up more than 10 per cent.

LESTER BROWN, EARTH POLICY INSTITUTE: The grain it requires to fill a 25-gallon SUV tank with ethanol will feed one person for a year. And so what we're beginning to see now at the global level, for the first time ever, is direct competition between the 860 million people who own automobiles and want to maintain their mobility competing for grain with the two billion poorest people in the world who are simply trying to survive.

MARK SIMKIN: Lester Brown is an author and environmentalist. He believes the ethanol boom could create unprecedented global insecurity.

LESTER BROWN: It's reached the point where it's really distorting reality in a way that can be very damaging over the long term.

MARK SIMKIN: Those arguments aren't welcome in Iowa. The corn lobby blames high petrol prices and the drought in Australia for inflating food costs, and farmers talk of an anti-ethanol conspiracy.

JIM HANDSAKER: It's an easy scapegoat because everybody's heard about alcohol and everybody's heard about the price of corn and so we're going to just, "blame the farmer and raise the price." And it's done that for as long as I've been farming, which has been 40 years.

MARK SIMKIN: At the ethanol plant, Dave Reisz showed me a giant store room. It houses distillers' grains, one of the by-products of ethanol. It feels like the crumbs you find in the bottom of your Corn Flakes packet.

DAVE REISZ: The protein content of kernel corn is nine per cent protein. When you get the alcohol out, the starch, the CO2 out, you have a product that's 28 per cent protein.

MARK SIMKIN: The by-product can be fed to some animals and the plant hopes it might one day be able to make it fit for human consumption, development that would take some of the heat out of the food-versus-fuel debate.

BOB DINNEEN, RENEWABLE FUELS ASSOCIATION: So, we're not just robbing food from the mouths of babies. We are taking the starch, leaving behind a feed product and producing a very valuable energy product.

MARK SIMKIN: Bob Dinneen heads a national ethanol industry association. He's an unabashed ethanol evangelist.

BOB DINNEEN: It is helping to reduce pollution in our nation city, because ethanol will reduce all the criteria pollutants. It's helping us to reduce our dependence on imported oil and it is, for the very first time, helping us to make a major step towards reducing global climate change. The five billion gallons of ethanol that were produced last year was the equivalent of taking 1.2 million vehicles completely off the road.

MARK SIMKIN: A growing number of people dispute those claims. Sceptics say ethanol can't reduce America's dependence on imported oil because even if the entire corn crop was converted to fuel it would only displace 15 per cent of petrol consumption. They question ethanol's green credentials, pointing out many ethanol plants are powered by coal and a lot of ethanol is transported by truck.

LESTER BROWN: We plough up more land in this country - some of it probably shouldn't be ploughed up. We use more fertiliser, it takes more water. Corn is a very nitrogen-hungry plant. It using a lot of nitrogen fertiliser, and it's the run off from this that ends up in the Gulf of Mexico and creates that huge dead zone each year as big as the State of New Jersey. Just eliminates fish, period, from that area.

JERRY TAYLOR, CATO INSTITUTUE: Well, it's a con. About 100 years ago, a lot of people got rich by going into farm country and selling the rubes on the farm snake oil. The ethanol program is revenge served cold by the farm community. It's snake oil, except it's snake oil being sold by farmers to the rest of us.

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MARK SIMKIN: If ethanol is snake oil, why do people keep buying it? Certainly TV ad campaigns and promotions are generating enormous hype. America's IndyCar race is now run on ethanol.

An even bigger factor in the ethanol boom is the enormous political power of the corn lobby.

JERRY TAYLOR: The farm lobby is so powerful that even the oil lobby runs from the room scared for a confrontation. Nothing has been able to tame this program regardless in America.

MARK SIMKIN: Iowa is particularly powerful. It hosts the nation's first caucus and has a big say in choosing the presidential candidates. That's why ethanol sceptics, like Hillary Clinton and Fred Thompson, embraced ethanol when they started running for the White House.

JERRY TAYLOR: The frustrating thing for me is that all of the rationales for why we should worship at the alter of the corn god are utterly and easily disprovable and nonsensical. It's like trying to tell people they shouldn't buy that snake oil, but finding that no-one's listening to you and the snake oil is still the hottest thing on the shelves.

BOB DINNEEN: There are concerns, but none of them are things that the market place cannot work out, none of them are things that are not being addressed today, and none of them are any reason to stop the progress that we have made in developing a worldwide renewable fuels industry.

MARK SIMKIN: The ethanol price is fading but the frenzy isn't. Farmers are growing more corn, building more plants and distilling more ethanol. It's a Midwest gold rush with global consequences.