B. Shanmuga Priya and Dr. M. Jeyakumaran

Objective – In these recent years, there has been an increasing spate of fluctuations in the world crude oil prices. This study thus, analyse the dynamic relationship between crude oil price and food security related variables (crude palm oil price, exchange rate, food import, food price index, food production index, income per capita and government development expenditure) in Malaysia using a Vector Auto Regressive (VAR) model. Methodology/Technique – The data covered the period of 1980-2014. Impulse response functions (IRFs) was applied to examine what will be the results of crude oil price changes to the variables in the model. To explore the impact of variation in crude oil prices on the selected food security related variables, a forecast error variance decomposition (VDC) was employed. Findings – Findings from IRFs suggest there is positive effect of oil price changes on food import and food price index. The VDC analyses suggest that crude oil price changes have relatively largest impact on real crude palm oil price, food import and food price index. Novelty – This study would suggest to revisiting the formulation of food price policy by including appropriate weight of crude oil price volatility. In terms of crude oil palm price determination, the volatility of crude oil prices should be taken into account. Overdependence on food imports also need to be reduced. As a largest response of crude oil price volatility on related food security variables food vouchers can be implemented. Food vouchers have advantage compared to direct cash transfers since it can be targeted and can be restricted to certain types of products and group of people. Hence it can act as a better aid compared cash transfers. Type of Paper: Empirical