Modern Icelandic food in restaurants is said to be of excellent standard, international food culture is now widespread on the island, the food includes top notch ingredients and of course the plummeting of the Icelandic krona has pulled prices down for tourists considerably.
All that been said, don't let the horror stories about Icelandic traditional food get to you. It is true that Iceland has food that can be only classified as disgusting and we do not recommend it for tourists. This would include pickled stingrays, sour lamb testicle, lambs head on a plate, rotten shark and so on. Iceland's old tradition for such "cuisines" is not a sign of bad taste of Icelanders or some exotic food culture, it is merely a reminder of Iceland being vastly isolated in recent centuries and one of the poorest countries in the world at the time where food was scarce, starvation widespread and nothing thrown away. All this food has two things in common, awful smell and of course long storage period so the food could be stored for long periods without damaging it, excluding the taste of course. Sometimes this kind of food is on the menu for guests, but mostly on holidays, for example pickled stingray is traditionally on the menu at December 23rd only, and sour food on the holidays of Thorri. However, not all traditional food is bad, we especially recommend hardfisk(hard fish) with butter. It is expensive but excellent food and most definitely the favorite food of most Icelanders. Whale meat is an option for tourists, some like the taste, some don't, others don't like it for personal or moral reasons, some do. But it is an option.
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