ECO 370 Week 5 Sustainability and Management Decisions Example

Should a Snack Maker Pay Its Ohio Farmers to Farm Differently? Sustainability, the Business Case and the Economics of a Regenerative Sourcing Program in the Maumee Basin

[Student Name]

University of Phoenix

ECO/370: Environmental Economics

Week 5 Assignment

[Instructor Name]

[Date]

Buckeye Crunch Foods, its suppliers and all figures are composites written for a model paper; concepts and research findings come from the sources listed and are stated generally.

Buckeye Crunch Foods, a composite snack maker in northwest Ohio with $600 million of annual sales, buys about 9 million bushels of corn a year, most from farms in the Maumee River basin. Two large grocery customers now ask suppliers to report and reduce environmental impacts in their supply chains, and Buckeye's own leadership is uneasy that its home region is known for the Toledo water emergency. Its chief operating officer proposed a program paying contracted farmers to adopt nutrient management plans, cover crops and buffer strips. The question is not whether Lake Erie deserves protection, but whether a snack company should pay for it, and what the economics of the earlier weeks say about that choice. This paper evaluates the proposal.

What Sustainability Means Economically

Solow (1993) described sustainability as an obligation to leave future generations the capacity to be as well off as we are, which requires maintaining the total stock of capital, including natural capital. Under weak sustainability, natural capital can be run down if other capital replaces it. Under strong sustainability, some natural capital, such as a functioning lake ecosystem, has no adequate substitute and must be protected directly. Buckeye's leaders lean toward the strong view for Lake Erie, while recognizing that the company's role is limited.

Why Consider a Program at All?

Buckeye has four private reasons. Customers increasingly require supply chain reporting and reductions, and losing a major grocery account would cost far more than the program. Healthy soils with less erosion protect long-term corn supply and quality. Regulation may tighten, and early action could shape rules and avoid sudden costs. Reputation in its home region affects hiring and community relations. Well-designed environmental standards and initiatives can trigger innovation that offsets their costs (Porter & van der Linde, 1995), though critics note that this does not hold in every case.

The Program's Costs

The program would enroll 60,000 acres from 120 contracted farms, paying $25 an acre a year for nutrient management plans and cover crops, about $1.5 million, plus $400,000 a year for technical assistance from agronomists and $200,000 for monitoring and reporting, about $2.1 million a year in total, or about 23 cents per bushel purchased.

The Company's Private Benefits

Buckeye estimates its private benefits at about $1.2 million a year: protecting a grocery account worth roughly $40 million in annual sales, where even a small reduction in the risk of losing it is valuable; modestly better corn quality and supply reliability from healthier soils; a small premium on a line of products labeled with verified farming practices; and lower risk of costly sudden compliance if regulations tighten. Private benefits cover a little more than half of the cost.

The Social Benefits

The rest of the value goes to others: cleaner water for Toledo and lakeside communities, fishing and tourism and non-use value. Using the per-acre figures implied by Week 3's analysis, enrolling 60,000 well-targeted acres could produce social benefits of $2 million to $3 million a year. From society's point of view the program is worthwhile; from Buckeye's alone, it is not quite.

The Free-Rider Problem

Many companies buy grain from the same Maumee basin farms: other food makers, ethanol plants and grain exporters. If Buckeye pays for practices on farms that also sell to others, those buyers benefit from cleaner supply chains and better reporting without paying. Each buyer has an incentive to wait for others to act, the same public good logic that leaves the lake underprotected. A program shared among buyers, through an industry coalition or a regional fund, would spread costs and reduce free riding.

Evidence on Whether Sustainability Pays

Eccles et al. (2014) compared companies that adopted extensive sustainability policies early with similar companies that did not and found that the high-sustainability companies outperformed over the long run in stock market and accounting terms, with stronger stakeholder engagement and long-term orientation. The evidence suggests that sustainability can be part of good management, though it does not show that every program pays, and selection effects are hard to rule out.

Linking to Policy

The program complements the policy mix from Week 4. Buckeye's payments could be stacked with state payments, raising the incentive for farmers to adopt practices, as long as the program avoids paying twice for the same practice. Verified practices could also generate credits if water quality trading expands, adding value.

A Recommended Design

Buckeye should launch the program on 30,000 acres, half the proposed size, targeted at fields with the highest phosphorus risk identified by soil tests, and invite two other regional food companies and a grain cooperative to join through a shared fund, aiming to double enrollment within three years at a lower cost per company. Targets should include acres under nutrient management plans, cover crop acres, soil phosphorus levels on enrolled fields and, through partnership with university researchers, measured phosphorus loss at edge-of-field monitoring sites.

Farmers' Perspective

The program succeeds only if farmers enroll and keep practices. Cover crops require planting after harvest, extra management in spring and sometimes a short-term yield risk; nutrient management plans require soil testing and more careful application. Payments of $25 an acre cover most out-of-pocket costs for many farms but not the learning time. Buckeye's agronomists, who visit enrolled farms, reduce that burden. Multiyear contracts give farmers confidence that investments in new equipment, such as a cover crop seeder, will be used.

Reporting Honestly

Buckeye should report results with their uncertainty and avoid claiming credit for improvements in Lake Erie that depend on many other factors, which protects its credibility with customers and regulators.

Conclusion

A sustainability program in Buckeye's supply chain creates social benefits larger than its private ones, so the company alone would underinvest, a direct application of the externality logic of Week 1. Customer requirements, supply risk, regulation and reputation give it real private reasons to act. A targeted program shared with other buyers, measured against clear targets, captures those private benefits, reduces free riding and contributes to the cleaner lake that society values.

References

Eccles, R. G., Ioannou, I., & Serafeim, G. (2014). The impact of corporate sustainability on organizational processes and performance. Management Science, 60(11), 2835-2857. https://doi.org/10.1287/mnsc.2014.1984

Porter, M. E., & van der Linde, C. (1995). Toward a new conception of the environment-competitiveness relationship. Journal of Economic Perspectives, 9(4), 97-118. https://doi.org/10.1257/jep.9.4.97

Solow, R. M. (1993). An almost practical step toward sustainability. Resources Policy, 19(3), 162-172. https://doi.org/10.1016/0301-4207(93)90001-4