Domestic factor social price

Thus, if 0PCR1 : Feedlots have competitive advantage PCR=1 : Feedlots are competitively neutral 0PCR1 : Feedlots have competitive disadvantage Comparative Advantage Entries in the second row of PAM are used to determine the comparative advantage of the industry. Comparative advantage indicator are obtain through comparing the domestic cost with the difference between revenue and tradable cost, all expressed at a social price, written as Domestic Resource Cost DRC: DRC = �� − Thus, if 0DRC1 : Feedlots have comparative advantage DRC=1 : Feedlots are comparatively neutral 0DRC1 : Feedlots have comparative disadvantage Impact of Policy Analysis PAM is convenience to be used as analysis tools because it shows indirect estimations for competitive and comparative advantage. Furthermore, other indicators such as policy to input, output, and both can also be evaluated from the information in the matrix. Its processes are as shown below:

a. To Output

- Output Transfer OT The value of OT is obtained from the second column in the last row of matrix Rev t . The producer’s incentives as an impact of a policy to output is equal to difference between revenue in private and social price. It written as: Output Transfers OT = Rev t = Rev p - Rev s Thus, if: OT 0: The producer would have sufficient incentives due to a subsidy or any resource transfers to output that favorable for the system. OT 0: The producer would have limited incentives due to a tax or any resource transfers to output that unfavorable for the system. - Nominal Protection Coefficient on Output NPCO The government protection to output is reflected in the value of NPCO. The ratio describes how much the market price of output to deviate from its efficiency price. It is written as: NPCO = �� � �� Thus, if: NPCO 1: The output system is protected by policy and the producer receive higher domestic price than the world price. NPCO 1: The output system is not protected by policy and the producer receive lower domestic price than the world price.

b. To Input

- Tradable Input Transfer IT The value of IT is obtained from the third column in the last row of the matrix CT t . The amount of cost that the producers spend as an impact of a policy to tradable input is equal to the difference between cost of tradable input in private and social price. It is written as: Input Transfer IT = CT t = C Tp -C Ts Thus, if: IT 0: The producers are facing disincentives due to a tax or any resource transfers to tradable input that unfavorable for the system. IT 0: The producers are receiving incentives due to a subsidy or any resource transfers to tradable input that favorable for the system. - Domestic Factor Transfer FT The value of FT is obtained from the fourth column in the last row of matrix C NTt . The cost that producer spend as an impact of policy to domestic factor is equal to the difference between cost of domestic factor in private and social price. It is written as: FT = C NTt = C NTp -C NTs Thus, if: FT 0: The producers are facing disincentives due to a tax or any resource transfers to domestic factors that unfavorable for the system. FT 0: The producers are receiving an incentives due to a subsidy or any resource transfers to domestic factors that favorable for the system. - Nominal Protection Coefficient on Tradable Input NPCI The government protection to tradable input is described in the value of NPCI. The ratio illustrates how much the private price of tradable input to be different from its social price. It is written as: NPCI = � Thus, if: NPCI 1: The system is protected by tax applied to the tradable input. Hence, the domestic tradable input price would be higher than the world price. NPCI 1: The system is protected by subsidy applied to the tradable input. Hence, the tradable input price at the domestic market would be lower than at the world market.

c. To Output and Input

- Net Transfer NT The transfer value is seen directly on the last row fifth column in the PAM. The net transfer reflects profitability and overall transfer effect. Thus, NT = П t NT define not only the difference of private and social profit but also the difference of output and input transfer shown in last row and the second, third, and fourth column in PAM. If the impact of overall subsidy is positive, then government subsidy to output sector wiped off the overall impact of tax to inputs and the government subsidy to input, vice versa. - Effective Protection Coefficient EPC EPC reflects the impact of policies to value added Edwards and Jacque, 2007. It compares the value added measure at the private price and social price. It is written as: EPC = �� � − � �� − Thus, if: EPC 1: Both tradable input and output are protected by policy and give incentives to producer. The value added created in actual price is higher than the social price. EPC 1: Both tradable input and output are not protected by policy and give disincentives to producer. The value added created by feedlots under government policy is lower than the value added created without government policy. - Profitability Coefficient PC PC is the expansion of EPC which taken into account the domestic factor cost. The ratio of private and social profitability is the indicator of overall transfers to private profit. It is written as: PC = П � П Thus, if: PC 1: feedlots gain greater private profit than its social profit PC 1: feedlots gain smaller private profit than its social profit - Subsidy Ratio to Producer SRP SRP reflect the effect of transfers to the revenue level which obtain by comparing the net transfer to output’s value in efficiency price. It is written as: SRP = П �� Thus, if: SRP 1: feedlot pays higher production cost than they should have without policy SRP 1: feedlot pays lower production cost than they should have without policy Sensitivity Analysis and Policy Scenario Government has set several policies to promote competitive and comparative advantage of Indonesian feedlot industry. The assessment of policy impact to input and output in the previous part only consider general policies that have been applied. However, to take a look whether specific policies are affecting the competitiveness indicator, policy scenario were set. The first policy scenario is to observe the change in competitiveness if there is abolishment of 5 percent import tariff on feeder cattle and beef import. Thus, if this border protection is removed, the prices of imported feeder cattle and beef theoretically below the domestic price and have an impact to competitiveness of Indonesian feedlot.