What steps will reproduce the problem?

1. Create a new town, wait a min for towny to have processed the land
2. Spawn 2 cows
3. Breed those cows
4. XP is dropped but the baby doesnt spawn

What is the expected output?

A baby should spawn

Towny version

0.99.5.0.

Server version

Paper 126

Please use Pastebin.com to link the following files

Config
https://pastebin.com/5TjA0tn0

Townyperms
https://pastebin.com/qAJxaNX8

No errors in logs
latest (9).log

I doubt that is true when breeding works fine in the wilderness?

Towny doesn't do anything to stop breeding animals. Something else is causing this for you.

I expect its only a coincidence, or you have a plugin that uses the TownyAPI which is at fault.