Ethanol/Grunwald 4: Instead of burning oversupply, pay farmers to maintain ecosystem functions!

Farming, ethanol and the economics of living landscapes — part 4 of 4

Thorsten Arnold is an environmental scientist and farmer in Grey County, Ontario, working with the National Farmers Union on its ethanol campaign.

Ethanol mandates and ecosystem-service programs have one thing in common: both use public policy to support farm income. The question is not whether society supports agriculture. It already does. The question is what society pays agriculture to produce.

Two architectures

The previous essays traced the ethanol and farmland system and explained its inner dynamics. Three farm-economic treadmills — technology, land debt and machinery — push farmers toward more production and more acreage even as yields rise (Part 2). Each turn of the treadmills raises the private cost of keeping a wetland, hedgerow or woodlot, because the carbon and water retention and the habitat that land provides appear on no farm ledger. Part 3 explained what happens if one strips enough of that ecological infrastructure out: degradation itself drives further expansion. Ethanol turns all three treadmills at once.

Here is the architecture we have now:

commodity oversupply → public policy → ethanol demand → new commodity scarcity → higher prices → stronger production incentives → higher land values → higher fixed costs → pressure for more production.

In today’s agricultural context, ethanol ups crop prices in the short term, which helps farmers pay the bills. It also restarts the treadmill — a never-ending driver of ecosystem conversion, here and wherever displaced production goes.

Ethanol turns all three treadmills at once

Here is the alternative:

manage commodity abundance → stabilize farm income → pay farmers directly for ecological function → wetlands, trees and buffers become revenue-producing farm assets.

The first architecture pays for removing corn oversupply and gets less landscape. The second pays for landscape and stops needing the corn.

Society can rent ecological function from farmers

Farmers see their enterprise balance sheets – which lists different items than a society’s balance sheet. Reconciling this mismatch is what it’s all about.

Society cannot tell farmers that farmland is worth tens of thousands of dollars an acre, require them to finance it commercially, encourage them to buy ever-larger machinery — and then expect them to dedicate a meaningful share of those assets, voluntarily, to functions that earn no cash and don’t help pay down debts. If society wants those functions, it should pay for them.

In effect, society can rent ecological function from farmers: wetlands and riparian vegetation and grassed waterways and windbreaks and woodlots and perennial cover and naturalized field corners. Canada already has a working model. ALUS pays farmers annual per-acre rates to establish and maintain natural areas on their land [1], on design principles that are well established in the literature on payments for environmental services [2]. What is missing is scale, permanence and a design built around the treadmills.

Designing contracts around the treadmills

Payments layered blindly on top of the treadmills will be absorbed by them. Contracts have to answer each one:

1. Paid to the operator, tenants included, so the income services the operation rather than the landlord’s asset value — answering the land treadmill.
2. Priced to compete with cropping returns, including the land and machinery cost the acre carries — so the non-crop acre stops losing the opportunity-cost contest by default.
3. Multi-year and renewable, so lenders can count the payment like crop revenue and it can service debt.
4. Targeted at watershed-critical land — riparian zones, wetlands, headwaters and recharge areas, erosion-prone slopes and concentrated flow paths, wind-exposed light soils, wellhead and intake protection zones — mapped from data that conservation authorities and source protection committees already hold.

The objective is not to pay landowners for owning ecological features, and turn nature into an investment asset for the rich. The objective is to make producing ecological function a viable farm enterprise — and to carry the carbon, water and habitat values that climate science counts onto the ledger where land-use decisions are actually made.

Who pays, and how much

The first question from any finance ministry or municipality is always cost. Who pays for this, and how much?

A workable benchmark is the average net return per acre from cropping in the county — in the ballpark of $200 an acre a year for field crops in much of southern Ontario, a figure that can be calibrated county by county, township by township. This ballpark marks a fair rent for good land. For the wet corners, eroding slopes and field edges that lose money in many years [12], it is a very good deal: at $200 ecosystem payment, farmer likely earns more from ecological function than from corn.

The arithmetic is modest. Every 100,000 acres enrolled at $200 costs $20 million a year. A windbreak one kilometre long and eight metres wide covers 0.8 hectares — about two acres. At $200 an acre, that is roughly $400 a year to keep snow off a kilometre of municipal road, hold soil on the field behind it, and shelter the crop beside it. Few public investments buy that much protection that cheaply.

The comparison that matters is with what we pay now. The ethanol mandate is paid for at the pump, in blended fuel costs that no government reports as farm support. It should be costed publicly, so that Ontarians can compare the price of burning corn with the price of renting landscape.

The hard problem: capitalization

Here the three-treadmill framework earns its keep in program design. Any predictable return attached to land tends to capitalize into land values and rents [3]. That is how ethanol’s price support became higher farmland prices. Ecosystem payments are not immune. A permanent, transferable payment attached to a property raises that property’s value, rewards whoever owned it on the day the program was announced, and hands every later buyer or tenant a higher entry cost. The land treadmill turns again — this time on conservation money.

Design can blunt this, though not abolish it:

• pay for the service performed, on time-limited contracts, rather than attaching an entitlement to the title;
• contract with the operator who performs the work, including tenants;
• tie payment to maintenance and outcomes, so the income requires ongoing effort rather than ownership alone;
• pair payments with land-access and tenure measures that reduce speculative pressure on farmland.

A program that ignores capitalization will end up as one more subsidy stream captured in rents. A program designed around it can make ecological work pay the people who do it.

Canadian farmers know this problem well, from supply management. Dairy and poultry quota is the textbook case of a policy return capitalized into a tradable asset: the total value of quota in Canada rose from $14.7 billion in 1998 to $36.9 billion in 2017, and in 2010 Ontario and Quebec capped dairy quota at $25,000 per kilogram of butterfat per day to keep entry possible [13]. Critics will say that this argument condemns supply management. It does not. It condemns tradable quota entitlements. Orderly marketing stabilizes farm income without the volume treadmill; selling the right to produce is what loads the next generation with debt. I believe that farm organizations should say so plainly: supply management and ecosystem contracts both work best when the entitlement cannot be sold — quota that is non-transferable or price-capped, and contracts tied to the work, not the title. And there’s plenty of room for innovating new market instruments: ones which avoid capitalization while keeping the lid on land expansion.

A regulatory floor is on the table

Payment alone is not enough where farm landscape decisions impose large costs downstream. Eroded soil fills municipal drains that neighbours pay to clean out. Runoff scours roads and culverts and raises flood peaks. Phosphorus feeds algal blooms in Lake Erie, Lake Huron and Georgian Bay. Stripping riparian vegetation damages streams far beyond the property line.

Where one landowner can externalize substantial costs onto neighbours and downstream communities, a regulatory floor is justified, e.g.:

• vegetated buffers along watercourses and municipal drains;
• protection of concentrated flow paths;
• retention of wetlands;
• retention of existing windbreaks and hedgerows where their removal imposes substantial off-farm costs.

Other jurisdictions show how floors are workable. Minnesota’s 2015 buffer law requires up to 50 feet of perennial vegetation along public waters and 16.5 feet along public ditches, reached about 99% compliance, and lets landowners substitute alternative practices with equivalent water-quality benefit [4]. Flexibility of that kind, and compensation above the floor, is what keeps a regulatory floor from reading as a land grab. EU farm payments still require farmers to retain existing landscape features and ban hedge cutting in the bird breeding season — although the 2024 repeal of the EU’s non-productive-land requirement shows how fragile such floors are politically [5]. I am listing these to point at valuable lessons, not propose either one as a blueprint.

A legal floor can also stop the treadmills from turning stewardship into a competitive handicap. The farmer who keeps hedgerows and wetlands should not be outbid for rented land, or at auction, by the neighbour who removes every non-crop feature to feed a larger machine. The rule is simple:

a floor where ecological damage is imposed on others; payment for services supplied above it; transition support for farmers who already provide them.

Doesn’t the world need more food?

This is the most common objection in urban circles, so I will meet it head-on. The world will need more food over the coming decades, as farmlands are degrading from highly intensive use. Yet North American agriculture overproduces now while also degrading its soil. These two truths describe different aspects. The first is about need — in particular places and for particular people. The second is about markets — more commodity output than buyers will absorb at prices that cover farmers’ costs. Five points dissolve the paradox:

1. Ethanol is the proof of overproduction. If commodity grain were scarce, no government would mandate burning it. U.S. ethanol plants use about 5.6 billion bushels of corn a year, roughly a third of the crop [8]; about a third of Ontario’s grain corn goes the same way [9]. Anyone who defends ethanol and warns about food supply is holding two positions that cannot both be true.
2. Grunwald’s own food gap is mostly a demand problem. His menu for closing it starts with less bioenergy, less waste and less beef in rich countries [7]. In his own framework, food security is an argument against ethanol – we agree on that.
3. Hunger is a problem of poverty, conflict and price shocks, not a global shortage of calories. World food supply crossed 3,000 kilocalories per person per day in 2023 [10], while about 673 million people went hungry in 2024 [11]. More Ontario corn does not reach them, and dumped surplus can undercut their own farmers. Feeding the world means raising productivity and incomes where hunger is.
4. Ecological set-asides cost little food; fuel costs a lot. The acres tied up by ethanol dwarf what buffers, wetlands and windbreaks on watershed-critical land would take out of production — and many of those acres lose money when cropped anyway [12].
5. Ecological function protects future food. Ontario’s blow sands showed what happens when it is stripped out: soil, water and yields decline until more land is needed.

The world does not need more corn in Ontario fuel tanks. It needs working landscapes that can still feed people in 2080.

The package

No single policy breaks the cycle. The NFU should push for a package, not a menu: each piece disarms a specific feedback, and none works alone.

The moratorium comes first because it is the cheapest and fastest. It stops a policy that is actively making every other problem worse, and because it freezes current demand rather than removing it, no farmer loses an existing market while the rest of the package is built.

What an acre produces

This is where the NFU can extend Michael Grunwald rather than reject him [7]. He is right that land is not free, that agricultural expansion must stop and even reverse globally, that productivity matters, and that burning crops squanders the land-saving potential of productivity. But productivity alone cannot spare land. The technology treadmill turns higher yields into more output. The land treadmill turns higher revenues into higher mortgages. The machinery treadmill turns capital investment into demand for more acres. Degradation turns each of them faster. And ethanol turns them all at once.

The missing question is not how much food an acre can produce. It is what society wants that acre to produce, how those outputs are valued, and what institutions let the farmer provide them. Today commodity markets pay for the crop. Banks lend against the land’s crop-producing value. Ethanol policy pays, indirectly, for still more commodity demand. Wetlands and trees and healthy watersheds and biodiversity and resilient soils are expected to survive around the edges.

That arrangement produces exactly the landscape its incentives reward. Grunwald has shown what land is worth to the climate. The farm ledger still records only what it is worth in corn. Ontario’s farmers closed that gap once before, planting windbreaks on blow sand when public institutions put the trees in their hands. If society wants a different landscape, it has to start paying farmers for a different set of outputs.

References

1. ALUS Canada.
2. Engel, S., Pagiola, S. & Wunder, S. (2008). Designing payments for environmental services in theory and practice. Ecological Economics 65(4): 663–674.
3. Levins, R. A. & Cochrane, W. W. (1996). The Treadmill Revisited. Land Economics 72(4): 550–553.
4. Minnesota Board of Water and Soil Resources. Minnesota Buffer Law.
5. CAP Reform (2024). What can we learn from the dismantling of GAEC 8?
6. Ontario Regulation 663/20 under the Environmental Protection Act — renewable content rising to 13% (2028) and 15% (2030 onward). Cleaner Transportation Fuels: Renewable Content Requirements for Gasoline and Diesel Fuels.
7. Grunwald, M. (2025). We Are Eating the Earth: The Race to Fix Our Food System and Save Our Climate. Simon & Schuster.
8. USDA Economic Research Service (2025). Feed Outlook: September 2025. Corn use for ethanol, 2025/26 forecast.
9. Grain Farmers of Ontario (2022). Ontario corn ethanol. Industry source.
10. FAO. Food balance sheets 2010–2023.
11. FAO (2025). Global hunger declines, but rises in Africa and western Asia. The State of Food Security and Nutrition in the World 2025.
12. Brandes, E. et al. (2016). Subfield profitability analysis reveals an economic case for cropland diversification. Environmental Research Letters 11: 014009.
13. Library of Parliament (2018). Canada’s Supply Management System.