Managing food price instability is a long standing policy challenge, which, with mixed experiences of agricultural price policy reforms, has re-emerged as a contemporary policy issue. This is particularly true for Ethiopia, where managing food price stability continues to be a formidable policy challenge. The objective of this paper is to examine the underlying causes of cereal price instabilities and to assess the policy options to manage them. It undertakes three tasks: (a) analyzes the sources and degree of cereal price instability, (b) discusses the viability of various policy options, and (c) critically reviews the country’s past, ongoing, and emerging policies for food price stabilization. The results show that the determinants of price stability—infrastructure, information, and institutions—are at low levels of development; both production and price variability are high, and despite this continued high variability in prices, price risks mitigation has lost its importance in the country’s policy agenda. By analyzing market-based and non market-based policy options, as well as recent trends in the cereal markets, the paper argues and concludes that reliance on any single option may not produce the expected results. A combination of the two will be desirable, especially in the short run.
