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.