External and internal policies and regulations constantly evolve to suit current needs and future expectations.  External policy challenges and regulatory interventions, either initiated externally or domes-tically, could positively or negatively affect the Malaysian economy.  Additionally, policies or regulations generally have spillover effects on other sectors of the economy.  In most instances, a policy to stimulate positive change to a sector can generate negative impacts in other sectors of the economy. 

The palm oil industry in Malaysia is very export oriented.  Over 80% of Malaysian palm oil and palm kernel oil produced are exported.  Other palm oil products exported include palm kernal cake, oleochemicals, biodiesel, as well as an assortments of palm oil and finished products.  Export revenue from these exports totalled RM80 and RM71.5 billion in 2011 and 2012 respectively.  Due to the export oriented nature of Palm oil industry, a palm oil industry simulation model is not complete if global trade is not explicitly incorporated in the simulation model.  Therefore, it is important to examine in detail the different impacts of various policies and interventions that may affect the palm oil industry, as well as other sectors of the economy and household groups.  In addition, the financing arrangements between the different levels of supply chain at the micro level can potentially leads to different impacts at the household level and at the same time affect men and women differently (Bennett 2006, World Bank 2007). 

The understanding of the various dimensions of policy or regulatory impacts will enhance the ability of the industry and the government to shape policies and regulations to effectively address issues that arise.  Some recent issues, for example, that warrant deep investigations into their impacts on Malaysian palm oil sector are (a) the TPP Agreement, (b) the implementation of GST on domestic palm oil price and exports, or (c) the prospect of United States to phase out trans fat in food products. 

A crucial tool for assessing policy or regulatory impacts on the palm oil industry and its spillover social impacts is a simulation tool that incorporates essential components of the economic system.  With a reliable simulation model, various policy scenarios that are relevant to the industry and to the overall Malaysian economy cab be simulated.  By knowing the potential impacts of the planned policy or regulatory change, policy makers can design a more optimal policy to replace one that is sub-optimal; or for external policy shocks, design other policies to mitigate any negative impacts.  The absence of an appropriate simulation model will lead to guesses that may be correct in terms of direction of change, but generally incorrect in terms of magnitude of the impacts.  The purpose of this research program is therefore to develop a simulation software good enough to estimate major shocks on the industry.  This research programme is divided into four sub-projects.  Description of each is given below.