The backlash against US moves to extend tax support for the ethanol industry gathered pace, as dairy farmers decried the proposal as "indefensible", hours after Brazilian sugar producers threatened a trade war.

The Milk Producers Council, warning that the recent rise in corn costs had lifted the annual feed costs of a California dairy farm by nearly $900 per cow, said that the policy of subsidising the grain for ethanol use was "truly threatening our ability to grow a domestic food supply".

"Dairy families are scratching their heads trying to figure out how Congress can justify this taxpayer giveaway to the corn and ethanol industries at the expense of our livestock industries," Rob Vandenheuvel, the council's general manager, said.

The comments followed a warning by Unica, the Brazilian sugarcane industry association, that the continuation of an ethanol import tariff would "escalate Brazil-US trade conflict".

"Unica will urge the Brazilian government to initiate dispute settlement proceedings at the World Trade Organization as soon as this legislation passes Congress and is signed by President [Barack] Obama," Marcos Jank, the association's chief executive, said.

Trade battle

The threat comes only months after Brazil and the US settled a dispute over American cotton subsidies, a wrangle which also went to the WTO.

The WTO gave Brazil the right to impose sanctions in retaliation for the subsidies, of which as much as $4bn were found in 2004 to be breaking world trade rules, although Brasilia and Washington reached agreement before a string of threatened penalties was implemented.

And it followed President Obama's decision on Tuesday to strike a deal with congressional Republicans over extending a string of tax cuts, including a perk of $0.45 per gallon of ethanol blended into forecourt fuel.

This so-called "volumetric ethanol excise tax credit", or VEETC, may be cut to $0.36 a gallon.

The deal also called for the one-year extension of an import tariff of $0.54 on imported ethanol.

"It is clear that the United States is not committed to open and fair trade in clean energy, particularly ethanol," Mr Jank said.