Food price inflation not only threatensmacroeconomic stability but also decreases the welfarelevels of most households, especially the poorer ones, forwhom food consumption constitutes a relatively large shareof total expenditures. This report analyzes the causes andeffects of food price inflation in South Asia during theperiod 2007?08 and beyond; simulates the impact of foodprice increases on household welfare and the potential ofadjustments in consumer and producer behavior for mitigatingthe negative impact on welfare; and assesses the potentialimpact of regional trade liberalization on food prices. Theappendixes describe the policy reactions of individualgovernments to the increases in food prices against thebackground of their respective domestic food policies. Thefocus is on wheat and rice, which are the main food staplesin South Asia and together account for an important part offood expenditures of the poor. By analyzing thehousehold?level impacts of the food crisis and taking stockof the policy responses of national governments, includingtheir regional dimensions, the report allows lessons to bedrawn regarding the policies that South Asian governmentsmay want to follow to enable them to react appropriately incase another food crisis unfolds, while at the same timehelping to prevent such a crisis from occurring.
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