With the rapid increase in consumption of some livestock products in Indonesia, expansion of domestic production of these commodities may enhance smallholders' incomes, increase rural employment and add to the country's trade balance. Policy analysis matrices (PAMs) were constructed to estimate divergences between private and social costs and returns in poultry and pig production in selected regions of Indonesia. In each case, producers' use of capital was subsidized but feed input private costs exceeded social values, and output prices received by producers fell short of values based on world prices. Production of all products as import substitutes was socially profitable, but in many instances private returns to farmers were negative. Product price and feed cost divergences were the major policy-induced distortions. Reform of these policies was estimated in a static partial equilibrium framework to lead to supply expansions of each livestock product, a contraction in livestock product consumption, and therefore additional net foreign exchange earnings from the poultry and pig sectors of around $320 million.Agricultural and Food Policy,
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