squeemishness is not a particularly valid excuse
Toady decreased the value of mermaid bones because of the mermaid farming incident. Squeamishness definitely plays a factor.
That wasn't squeamishness of players, however. You're just as capable of making mermaid bone crafts as you are goblin bone crafts. The difference is merely in the extremely inflated value, (50 times normal!) which implies that it's the actual in-world characters simply no longer paying a premium to buy mermaid soap, although they still will buy it.
Rather, the original intent seems to have been to make mermaid stuff expensive because it was supposed to be nearly impossible to get mermaid materials to carve, so that dwarves would embark on beaches and just wait for mermaids to beach themselves and air-drown. When it turned out that it wasn't quite as hard as he'd thought, he made them cheaper.
Nothing was done to prevent mermaid genocide, or for that matter, things like babyfalls or other forms of atrocity players might commit.
When has it ever been the case that human waste has been not just used but absolutely crucial for a society's agriculture?
https://en.wikipedia.org/wiki/Night_soil
It was especially important in China.
Can you find anything about how important it was for the effectiveness of farming? All that I can see on that page is that it was necessary due to damage to waste disposal infrastructure, rather than being needed for agriculture.
It's nigh-mandatory for farming in an age before the Haber-Bosch Process. (Early 20th century.)
Just think of it this way: Every time you grow something, you're pulling nutrients out of the ground. Conservation of matter demands that if you're to keep growing things, you need to put more nutrients back in. Using human waste as fertilizer creates a closed loop, preserving the nutrients within the artificial ecosystem of a farm. Exporting crops and failing to reintroduce the waste produced as a side-effect means nutrients leak from the system, and forces their replacement.
In fact, currently, our modern world's lack of properly shipping the waste back to the farms to keep the loop closed has been fed by a reliance upon artificial fertilizers, while the nitrogen, especially, that are in the waste or in runoff after being applied carelessly gets dumped into rivers, which cause tremendous ecological damage in the waterways as surface algae blooms in abundance and chokes out much of the aquatic life. In extreme cases, it causes
dead zones, like in the Gulf of Mexico. In the Gulf of Mexico, dead zone patches notably have pink water and smell like a rotten egg because the only life that can survive there are sulfur-based single-cell organisms.
In any event, in the ancient and medieval world, waste was used for far more than just farming. Lant, which is basically ammonia, is derived from decomposed urine, and was a primary cleaning agent then, as it generally is used, today. The Romans washed their clothes in the stuff. It was also crucial for the dyeing industry, as lant was used as the agent that carried the organic dyes into the fibers of cloth.
In fact, it even was used as a "glaze" on top of pastries to make them look shinier.
(Both solid and liquid waste were also used in the production of salt peter, which is a prime component of black powder/gunpowder, as well. Urine is the body's way of eliminating nitrogen, and basically ALL explosives are nitrogen-based.)
The use of waste was so critical that in many towns in Medieval Europe, it was actually against the law to throw away one's waste. (Mainly, towns that were reliant upon the textile industry, which needed lant for the dyeing itself, and the fields where the plants used in the cloth and dye production were produced.)
For detailed explanations on how it could work in-game,
see here.
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