Bali cattle farming can be conducted by inputting production inputs that result in production outputs such as revenue and business income (Indrawirawan et al., 2022); (Thaal et al., 2022). Inputs utilized in traditional Bali cattle farming include calves and heifers, green fodder, rice/corn straw, rice bran, tofu waste, water, salt, vitamins and traditional medicines, labor, depreciation and economic life of pens and equipment, electricity and lighting, fuel, taxes, slaughtering costs, marketing costs (meat from slaughterhouses and transportation and handling costs), and other expenses. Meanwhile, outputs produced include Bali cattle in the form of live cattle ready for sale and manure (additional revenue). The allocation of tradable and domestic cost components in Bali cattle farming in Southeast Sulawesi is presented in Table 1.

According to (Ferrari et al., 2023), for exported commodities, the free on board (FOB) price is used, while for imported commodities, the cost insurance freight (CIF) price is applied. Since the FOB price represents the price at the export port, transportation and handling costs from wholesalers to the port must be deducted. Meanwhile, transportation and handling costs from the port to the research location must be added to the CIF price, which reflects the price at the import port.

The shadow price of output is calculated based on the price of imported output goods when received at the port, converted into the shadow rupiah value, and added to the marketing costs. In this study, the shadow price of output includes feeder cattle or live cattle ready for sale.

The shadow price of inputs in this study includes salt, vitamins, fuel, and beef. The shadow price of salt is derived from the price of imported goods upon arrival at the port, converted into the shadow rupiah value, and added to the marketing costs. The shadow price of vitamins is calculated from the highest retail price (HRP) plus the price at wholesalers and additional marketing costs. The shadow fuel price is based on the non-subsidized fuel price plus marketing costs. Meanwhile, the shadow price of beef is determined by the price of imported input goods upon arrival at the port, converted into the shadow rupiah value, and added to the marketing costs.

According to (Cwik & Winter, 2024), the shadow exchange rate represents the domestic currency value of foreign currencies in a perfectly competitive foreign exchange market. The standard conversion factor (SCF) is one approach used to estimate the equilibrium shadow exchange rate. (Squire & Tak, 1982) proposed the following formula:

With explanation, SERt is the shadow exchange rate (IDR/US $), OERt is the official exchange rate (IDR/US $), and SCFt is the standard conversion factor.

The value of the standard conversion factor, which is the ratio of the value of imports and exports plus taxes, can be determined as follows:

Where SCFt is the standard conversion factor for year t (IDR), Xt is Indonesia’s export value for year t (IDR), Mt is Indonesia’s import value for year t (IDR), Txt is the government revenue from export taxes for year t (IDR), and Tmt is the government revenue from import taxes for year t (IDR).

The analytical method used in this study to assess the impact of government policies on Bali cattle farming is the policy analysis matrix (PAM) (Nurmalina et al., 2023). This method is highly suitable for analyzing policies in the agricultural sector, particularly in Bali cattle farming.

Each column in the third row of Table 2 contains the difference between the values calculated based on private prices (first row) and those calculated using social prices (second row). If market failure has minimal impact, the difference is attributed to the effects of government policy. The impact of this policy is the primary focus of this study. The effects of government policy include the following (Nurmalina et al., 2023):

Policies on inputs. The impact of policies on inputs can be analyzed based on three factors, namely: (1) Input transfer (J) or TI= (B) – (F), where if the value of IT > 0, it indicates a transfer from farmers (producers) to producers of tradable inputs, and vice versa; (2) Nominal protection coefficient on input (NPCI)= (B) / (F), where the policy is protective towards inputs if the value of NPCI < 1, meaning there is a subsidy policy for tradable inputs, and vice versa; and (3) Factor transfer (K) or TF= (C) – (G), where if FT > 0, it indicates a transfer from farmers (producers) to producers of non-tradable inputs, and vice versa.

Policies on output. The impact of policies on output can be analyzed based on two factors, namely: (1) Output transfer (I) or TO= (A) – (E), where if the value of OT > 0, it indicates a transfer from the community (consumers) to producers, meaning producers will receive a higher selling price than they should, which harms consumers, and vice versa; and (2) Nominal protection coefficient on output (NPCO)= (A) / (E), where the policy is protective towards output if the value of NPCO > 1, meaning producers receive a subsidy for output in the domestic market above its efficient price, and conversely, the policy is disincentive if NPCO < 1, meaning a reduction in producers’ income due to output policies such as taxes.

Policies on input-output. The impact of policies on input-output can be analyzed based on four factors, namely: (1) Effective protection coefficient (EPC)= (A - B) / (E - F), where the policy remains protective if the value of EPC > 1, meaning the higher the EPC value, the higher the level of government protection for local (domestic) livestock commodities; (2) Net transfer (L) or TB= (D) – (H), where if the value of TB > 0, it indicates an increase in producer surplus caused by government policies applied to input and output, and vice versa; (3) Profitability coefficient (PC)= (D) / (H), where if PC > 0, it means that overall, government policies provide incentives to producers, and vice versa; and (4) Subsidy ratio to producer (SRP)= (L) / (E), an indicator that shows the proportion of income at the social price required if subsidies or taxes are used as a substitute for the policy.

The implementation of commodity policies can be differentiated based on tradable inputs and non-tradable inputs. Government policies such as subsidies or taxes on tradable inputs affect producers, whereas policies on non-tradable inputs impact both producers and consumers. Providing subsidies for inputs can increase input usage and benefit producers, and vice versa. The impact of government policies is determined by the value of transfer input (TI) and transfer factor (TF). Meanwhile, the ratio of input transfer can be assessed through the nominal protection coefficient on input (NPCI). If the TI value is positive, it indicates a government policy that causes the input price to be higher than its social price and vice versa. Similarly, if the NPCI value exceeds one (NPCI > 1), livestock farmers must pay an actual input price higher than its social price, and vice versa; if it is negative or TF < 0, then the policy is more in favor of producers or farmer-livestock. Table 4 presents the impact of government policies on inputs for Bali cattle farming in the development centers of Southeast Sulawesi.

Policy impacts are typically related to the prices of domestic commodity outputs and those marketed internationally. Factors such as minimal transfer costs, market failures, and changes in demand and supply do not influence global prices. There are two main policy instruments: subsidy policies and trade policies. Subsidy policies affect government budget flows. A subsidy is considered positive if it reduces government expenditure, while it is deemed negative (or a tax) if it increases government spending. The purpose of subsidies is to protect beneficiaries, primarily producers, by creating a domestic price that differs from the international price. On the other hand, trade policies involve restrictions on the export and import of commodities through price controls such as taxes or quotas on traded commodities. The application of trade policies can target export commodities to regulate their flow, thereby reducing domestic commodity prices below international levels. To evaluate the extent of policy impacts on Bali cattle output, the values of the transfer output (TO) and nominal protection coefficient on output (NPCO) are utilized. Table 5 shows the impact of government policies on output for Bali cattle farming in the development centers of southeast Sulawesi.

The impact of policies on input-output reflects the combination of input and output policies. The effects can be analyzed through the values of the effective protection coefficient (EPC), net transfer (NT), profitability coefficient (PC), and subsidy ratio to producer (SRP). The EPC value indicates the extent to which government policies effectively protect domestic production. If the EPC value is less than one (EPC < 1), the policy is ineffective or hinders producers from engaging in production. Conversely, an EPC value greater than one (EPC > 1) signifies effective protection for domestic production. The impact of government policies on input-output for Bali cattle farming in the development centers of Southeast Sulawesi can be seen in Table 6.

After understanding the impact of government policies, the next analysis is a sensitivity analysis. This is conducted because one of the weaknesses of the PAM method is its static nature. Therefore, further analysis is needed to achieve a higher level of accuracy. Sensitivity analysis complements the PAM analysis in observing the changes in various factors affecting economic feasibility when there is an event different from the assumptions made, specifically regarding the competitiveness of Bali cattle in Southeast Sulawesi. Table 7 presents the sensitivity analysis results of Bali cattle farming in Southeast Sulawesi based on four changes in several input and output variables.

The purpose of this analysis is to observe how the results of an economic activity change if there are changes in the calculation of costs and benefits. Sensitivity analysis reviews the impacts that will occur due to fluctuating conditions, including input policies, output policies, and input-output policies within the PAM matrix. Figure 1 presents the ratio sensitivity analysis of Bali cattle farming in Southeast Sulawesi based on four changes in several input and output variables.

Sensitivity analysis is carried out by altering the values of inputs and outputs and observing the effects on profits and the competitiveness of Bali cattle. The analysis process involves addressing the weakness of the PAM method, which uses only a single price level, while in reality, the prices for inputs and outputs are highly variable. In this study, a sensitivity analysis of smallholder Bali cattle farming in the development center region of Southeast Sulawesi was conducted based on four scenarios of changes in several input and output variables, namely: (1) a 15% increase in the purchase price of Bali feeder cattle (input), (2) a 10% decrease in the selling price of ready-to-slaughter cattle (output), (3) a 15% increase in the price of fuel, and (4) a 5% appreciation of the rupiah against the dollar.

Bali feeder cattle serve as the primary input in production, making it essential to analyze their sensitivity in case of a significant increase in purchase prices for farmers. Meanwhile, ready-to-slaughter cattle are the main output and a key source of income for farmers, highlighting the importance of assessing their sensitivity to fluctuations in selling prices. The simulation of a 15% increase in the purchase price of Bali feeder cattle (input) and a 10% decrease in the selling price of ready-to-slaughter cattle (output) is based on the capacity of smallholder Bali cattle farmers in the development center region of Southeast Sulawesi Province to remain competitive and profitable. Additionally, the price of gasoline fuel is a crucial variable to consider, as farmers regularly use motorcycles in their livestock activities. The recent increase in subsidized fuel prices, including the rise in prices from IDR 7,650 per liter to IDR 10,000 per liter (approximately a 30% increase), underscores the need for a sensitivity analysis of this variable. Consequently, this study employs a 15% simulation for the increase in gasoline fuel prices (half of the previous 30% increase). Another analyzed variable is the exchange rate of the rupiah against the dollar, which tends to fluctuate and remain uncertain. This exchange rate affects several aspects of the study, particularly in calculating shadow prices related to production costs. Each scenario in this analysis is conducted under the assumption that changes occur in only one variable while all other variables remain constant (ceteris paribus).

The TI is the difference between the cost of tradable inputs at private prices and social prices. The TI value reflects the existence of government policies applied to tradable inputs (Saptana et al., 2021). If TI > 0 (positive), it indicates a transfer from livestock producers to tradable input producers and vice versa. In other words, it reflects the magnitude of the transfer (incentive) from producers to the government by implementing import tariff policies. The TI value provides insight into the impact of government policies on the cost of tradable inputs in the livestock sector. Data analysis has shown that the value of TI in South Konawe Regency is IDR -6,506,629, and in Muna Regency is IDR -5,660,065 (Table 4). This indicates that government policies result in traded input costs being lower at the private prices than at the social prices. The negative TI values imply that there is no transfer from producer farmers to tradable input producers, showing that producers in both regions do not have to bear higher input costs due to policies such as import tariffs. The higher TI value in Muna Regency suggests that producers in that area face higher input costs compared to the South Konawe Regency. These findings are similar to the situation in Bojonegoro Regency, East Java, where the input transfer indicator is less than zero (negative), indicating that farmers there pay less for tradable inputs compared to their social costs, thus avoiding full social costs (Lestari et al., 2017). For the Bali cattle development center in Southeast Sulawesi, policies related to inputs, such as fuel, medicines, and vitamins subsidies, are suspected to make tradable inputs cheaper at private prices than their social prices.

The TF reflects government policies affecting producers and consumers, differing from tradable input policies. If TF > 0 (positive), it indicates a transfer from producers to domestic input producers or, in other words, government policies protecting domestic factor producers through positive subsidies. Conversely, if TF < 0 (negative), policies favor producers or livestock farmers. Based on Table 4, the TF value in South Konawe Regency is IDR -532,040, and in Muna Regency, it is IDR -802,521, indicating that government policies in both regencies are more favorable to producers or farmers. A negative TF value means domestic input producers benefit compared to tradable input producers because government policies lower the cost of domestic factors for producers (Dewi & Yulianti, 2021). The more negative (lower) TF value in Muna Regency (IDR -802,521) indicates greater policy support for producers or farmers compared to South Konawe Regency, which has a TF value of IDR -532,040. The lower domestic input costs at private prices are suspected to be due to government policies providing direct assistance, such as breeding cattle, and support for livestock medicines and vitamins in both study areas. Additionally, the abundant availability of forage utilized by farmers also contributes to this condition.

The NPCI indicates the level of government protection for domestic input prices. Protective policies toward inputs are reflected when NPCI < 1, indicating subsidies on tradable inputs or export restrictions that encourage domestic input use in production processes. Conversely, if NPCI > 1, it means the government has raised the price of tradable inputs in the domestic market above their efficient (world) price, disadvantaged sectors relying on those inputs due to higher production input costs. Based on Table 4, the NPCI value in South Konawe Regency is 0.23, while in Muna Regency, it is 0.15, indicating that government policies in both regions do not raise the price of tradable inputs in the domestic market above the world price. An NPCI value below 1 signifies that sectors using these inputs benefit from lower input costs. Input price subsidies reduce production costs (Kumbhakar et al., 2023). The higher NPCI value in South Konawe (0.23) compared to Muna (0.15) suggests that farmers in South Konawe face lower input costs and experience greater positive impacts from this policy than those in Muna. This contrasts with (Yani, 2018) study in Sumbawa Regency, West Nusa Tenggara, where input policies for three typologies of Bali cattle farming had an NPCI value greater than 1, indicating that domestic input prices were higher than world prices, likely due to tax policies affecting the Bali cattle farming system in that region.

The TO refers to the difference between revenue calculated based on private prices and revenue calculated based on shadow or social prices. The TO value indicates that government policies applied to outputs result in differences between private and social output prices. If TO > 0, it indicates a transfer from society (consumers) to producers and vice versa. Based on Table 5, the TO value in South Konawe Regency is IDR -6,530,857, while in Muna Regency, it is IDR -5,430,601, indicating that government policies have a negative impact on farmers in both regions. A negative TO value means farmers receive lower incomes than they would under social pricing. In other words, there is a transfer from farmers (producers) to society (consumers). The lower TO value in South Konawe reflects a greater transfer burden, with a loss of IDR 6,530,857, compared to Muna, which experiences a loss of IDR 5,430,601. These findings differ from those of (Bukifan et al., 2021)in Kupang Regency, East Nusa Tenggara, where TO was positive, indicating that the price of domestically bred Bali cattle was higher than the world price. This was due to government-imposed import quota restrictions and reduced import tariffs, which increased domestic cattle prices. In the development center region of Southeast Sulawesi, based on information from farmers, there has been a decline in domestic Bali cattle sales due to low demand for ready-to-slaughter Bali cattle during national holidays, especially during Eid al-Adha in recent years. Additionally, the absence of government intervention in cattle sales has contributed to the lower domestic prices of Bali cattle. A similar situation occurred in Sumbawa Regency, West Nusa Tenggara (Sudirman et al., 2018), but the findings differ from (Rouf et al., 2019) in Gorontalo City, Gorontalo.

The NPCO is the ratio of revenue calculated based on private prices to revenue calculated based on social prices, serving as an indicator of transfer output. Policies are considered protective if NPCO > 1, meaning the government increases domestic market output prices above their efficient (world) prices. Conversely, policies are considered disincentives if NPCO < 1. The purpose of subsidies is to protect beneficiaries, namely producers, by creating domestic prices that differ from international prices (Amaglobeli et al., 2024). NPCO is a critical indicator for assessing the impact of government policies on the livestock sector, particularly regarding transfer output. Based on Table 5, the NPCO value in South Konawe Regency is 0.66, while in Muna Regency, it is 0.71, indicating that government policies in both regions act as a disincentive to the livestock sector. This means that output prices in the domestic market are lower than world prices, exerting negative pressure on farmers’ incomes. The lower NPCO value in South Konawe (0.66) suggests a greater disincentive compared to Muna (0.71). In actual conditions, Bali cattle farmers receive 0.66 and 0.71 times their potential income based on social prices. In contrast, Bali cattle farmers in Kupang Regency receive 1.11 times their social price-based income (Bukifan et al., 2021). This indicates that government policies in Kupang Regency have resulted in higher private prices compared to social prices.

The NT represents the difference between private net profits and social net profits, serving as an indicator of the impact on producer surplus. A positive NT value (NT > 0) indicates an increase in producer surplus due to input-output policies, whereas a negative NT value (NT < 0) signifies a reduction in producer surplus caused by these policies. Based on Table 6, the NT value in South Konawe Regency is IDR 507,812, while in Muna Regency, it is IDR 1,031,985, indicating that government policies provide an additional surplus for farmers in both regions. A positive NT value signifies that producers or farmers earn a higher net profit compared to the ideal condition based on social prices. The difference in NT between the two regencies shows that farmers in Muna Regency experience a greater surplus increase (IDR 1,031,985) compared to those in South Konawe (IDR 507,812). Nonetheless, the input-output policies implemented in both regions still positively impact farmers’ surplus. These findings differ from those of (Lestari et al., 2017) and (Rouf et al., 2019), which reported negative NT values (IDR -1,969,880 and IDR -184,717 per head, respectively), indicating losses for farmers due to government policies. A negative NT value suggests that private profits are lower than social profits, meaning that the policies at the time reduced producer surplus.

The EPC combines the nominal protection coefficients of both output and input (Lindawati et al., 2021). It reflects how government policies protect or hinder domestic production and measures the level of policy transfers from tradable input and output markets. An EPC value greater than one (EPC > 1) indicates that government policies effectively protect domestic producers by raising output and/or input prices above their efficient levels. Conversely, an EPC value of less than one (EPC < 1) signifies ineffective policies. Based on Table 6, the EPC value in South Konawe Regency is 1.00, while in Muna Regency, it is 1.02. This indicates that government policies in both regions do not harm domestic production, with a slightly higher level of protection in Muna. An EPC value of 1.00 in South Konawe suggests that the implemented policies neither provide additional protection nor impose barriers on farmers, whereas an EPC value of 1.02 in Muna indicates slight additional protection for producers. The small difference in EPC values between the two regions suggests that government policies remain relatively neutral without offering excessive incentives or significant disincentives. Although the EPC in Muna is slightly higher, the overall level of government protection for domestic production in both regions is nearly the same.

The PC is the ratio of private net profits to social net profits, indicating the overall impact of all policies on producer incentives. A PC value greater than one (PC > 1) suggests that government policies provide incentives to producers, while a value less than one (PC < 1) implies that policies reduce producer profits compared to a no-policy scenario. Based on Table 6, the PC value in South Konawe Regency is 1.27, while in Muna Regency, it is 1.22. This indicates that government policies in both regions generally provide incentives to producers. The higher PC value in South Konawe (1.27) suggests that government policies significantly increase farmers’ profits compared to a scenario without these policies. A similar effect is observed in Muna Regency, although with a slightly lower PC value (1.22), still indicating government policy incentives but to a lesser extent than in South Konawe. According to (Lestari et al., 2017), the policies implemented so far have supported the beef cattle industry; however, there are still gaps in output-related policies that need improvement.

The SRP measures the proportion of total revenue at social prices required if subsidies were the sole policy replacing all commodity and macroeconomic policies. A negative SRP value indicates that government policies cause producers to incur production costs exceeding their opportunity costs, whereas a positive SRP means that production costs are lower than opportunity costs. Based on the analysis, the SRP value in South Konawe Regency is 0.03, while in Muna Regency, it is 0.06. This indicates that government policies in both regions allow farmers to incur lower production costs compared to their opportunity costs. A positive SRP value suggests that the implemented policies provide sufficient subsidies to cover production costs partially. These policies do not burden farmers, but their impact is greater in Muna (6%) than in South Konawe (3%), meaning that farmers in Muna face lower production costs than those in South Konawe. In the Bali cattle development centers in Southeast Sulawesi, the relevant input policies are suspected to include subsidies for fuel, medicine, and vitamins. Additionally, the government implements a direct assistance policy in breeding feeder cattle, which helps reduce the production costs of Bali cattle farming. The SRP values found in this study differ significantly from those reported by (Sudirman et al., 2018), where cattle farmers in Plampang Sub-Regency showed varying SRP indicators: -99% for free-range farming, 6% for tethered farming, and -10% for confined farming. Meanwhile, (Lestari et al., 2017)reported an SRP value of -20%. In contrast, (Bukifan et al., 2021) found a more favorable condition with an SRP of 30%, as did (Rouf et al., 2019), who recorded a value of 23%.

From these conditions, it can be observed that when there is a 10% decrease in output prices (selling price of slaughter-ready cattle) and a 15% increase in input prices (purchase price of feeder cattle and fuel prices), and along with a 5% increase in the exchange rate. Bali cattle farmers in the development centers of Southeast Sulawesi continue to maximize the potential of available feed resources, such as forage and rice/corn straw, which remain accessible year-round.

Based on the results of the policy analysis matrix (PAM) and sensitivity analysis, it is evident that the implemented policies, whether related to input, output, or a combination of both, have an impact on Bali cattle farming in Southeast Sulawesi. The impact on output shows a negative effect on Bali cattle farming, while the impact on input and input-output has a positive effect on the business.

Subsidies for production inputs, such as feeder cows, medicines, vitamins, and Bali cattle vaccines, need to be strengthened to keep production costs affordable for farmers. Additionally, subsidy policies and Bali cattle output prices should be evaluated and improved for greater effectiveness and better targeting. The government should also implement a purchasing policy based on cattle weight to encourage livestock quality improvement and protect domestic prices. Farmers are advised to focus on increasing daily weight gain and live weight to achieve better selling prices. Effective policies are needed for livestock development (Igirisa et al., 2020); (Mehrabi et al., 2020). (Rustinsyah, 2019)and (Liu et al., 2023) stated that the government policy factor in beef cattle farming is an important point. Nevertheless, the government needs to strengthen specific policies in the beef cattle sector. In doing so, the self-sufficiency program can be achieved, helping to meet the national beef consumption needs.