I think you are correct, that captures the problem.
How do we make recycling and efficiency more important than personal gain?
Me: "Give me the grain and I'll put it to productive use."
Them: "What do I get out of it?"
Them: "Then why should I give it to you?"
Me: "Because the resources you used to create it won't be wasted."
Them: "Oh, Okay." <- never happens
The challenge comes when the choice is 'put to use, but only if its free' or 'rots away and nobody gets anything.' People choose to have it rot. Its the prisoner's dilemma writ large, and one of the inherent traits in humans, and one that religions seem to try to overcome.
You are expecting the producer to distinguish between consumers that would have bought grain instead and consumers that would never buy the grain no matter how low the price went. In reality producers just don't have any reliable way to determine that, so they naturally consider freely given away produce to be a potential lost sale, or at least having a tendency to depress prices even if through indirect effects. And in fact they are almost always quite right to do so.
Well in this case the market is exhausted at the point of delivery. Which is to say the farmer has all his grain in wagons and he can drop it off in the grain elevators (full) drive somewhere else (always an option but raises his costs) or dump it. So perhaps we disguise the economic transaction by making our hopper look like an excess grain dump station :-).
Now I'm being humorous there but there might be some social engineering needed. And I wonder if one could promise a share of any future profit (if there is any) which comes from the use of the grain.
How about for the last two lines:
Me: "Because I may be able to create a market environment where you may be able to profit off this grain in the future. Plus you have nothing to loose."
Them: "Sounds great."
That is where government is supposed to step in and provide at least a small incentive, or buy the supply for a more modest sum before distributing it. Protecting the life and health of citizens is pretty much the most fundamental role government is supposed to serve. If it is failing in that duty, it should be toppled.
Generally I agree with this sentiment but the place where it falls down is that the grain is rotting. Its one thing to cover some of the economic loss to the farmer, its another to do the 'double lose' of both paying tax payer money for grain that won't be consumed, and then not doing anything with the grain. So perhaps the government builds our distillery so that there is a 'sink' for any amount of excess grain into a useful pre-cursor product.
I have 10 things every month. I sell them for a living.
One month i only sold 5, but you asked for the other five. If i give you, there will be more things in circulation and now i will be offered less money for my things. Maybe only next month, but i still lose.
The demand was already there. say 30% of the people that actually buys your product every month produces grain alcohol.
now, you give your exceeding production for free. That person that got it for free makes grain alcohol, sells it cheaper than your paying customer. next month your paying customer will either also want it free, or at a much lower price to remain competitive, lowering your next month profit.
The whole problem is people trying to make more money with the grain by creating false scarcity. if they sold way cheaper when they had more production, the original paying customer would have bought twice the grain and made twice the grain alcohol to begin with. and none of that would have been a problem.