Modeling the emergence of hysteresis in agri-food sectors

Most agri-food sectors are subject to important transport costs and food processing industries are likely to display increasing returns to scale. The economic geography literature highlights that in such frameworks, some external returns to scale are likely to occur and give rise to multiple equilibria, source of hysteresis in a system. However, classical trade models are unable to describe such characteristics and therefore fail to represent the irreversibility that can arise from hysteresis. This paper tackles this issue and proposes a model of a regional agri-food sector that allows the possibility of agglomeration economies and hysteretic behavior of the system. Build as a recursively dynamic partial equilibrium model, it describes the domestic agricultural production and a processing industry, as well as potential trade with a foreign region. It also offers the choice between a monopsonistic or an oligopsonistic representation of the structure of the local primary agricultural product market.