evidencing the bioeconomy - bbsrc

Evidencing the Bioeconomy

An assessment of evidence on the contribution of, and growth opportunities in, the bioeconomy in the United Kingdom

A report by Capital Economics, TBR and E4tech for the Biotechnology and Biological Sciences Research Council and the Department for Business, Innovation & Skills

Ausilio Bauen E4tech Glyn Chambers Capital Economics Martin Houghton TBR Behrooz Mirmolavi TBR Sam Nair TBR Lucy Nattrass E4tech John Phelan Capital Economics Mark Pragnell Capital Economics

8 September 2016

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Acknowledgements: We wish to acknowledge and thank those individuals and their associated companies, organisations and academical

institutions that gave their time to help provide information used in this report and without which it would not have been possible.

Disclaimer: This report has been commissioned by the clients; however the views expressed remain those of Capital Economics, TBR and E4tech

and are not necessarily shared by the clients. The report is based on analysis by Capital Economics, TBR and E4tech of information available in

the public domain, plus selected interviews with biotechnology experts from a range of backgrounds. Where interview data are employed, it is

clearly stated in the report. While every effort has been made to ensure that the data quoted and used for the research behind this document are

reliable, there is no guarantee that they are correct, and Capital Economics Limited and its subsidiaries, TBR and E4tech can accept no liability

whatsoever in respect of any errors or omissions. This document is a piece of economic research and is not intended to constitute investment

advice, nor to solicit dealing in securities or investments.

© Capital Economics Limited, 2016

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CONTENTS

Contents ........................................................................................................................ 2

1 Introduction and summary ........................................................................... 3

2 Economic contribution ................................................................................. 11

3 Sustainability of the United Kingdom bioeconomy ................................ 27

4 Investment ..................................................................................................... 39

5 International comparisons ........................................................................... 50

6 Growth and productivity ............................................................................. 74

Appendix – Evidence gaps ....................................................................................... 97

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1 INTRODUCTION AND SUMMARY

The bioeconomy – that part of British economic activity that is based on biological materials and

processes – is a vital part of the United Kingdom’s economic activity. Capital Economics, E4tech

and TBR have been commissioned to provide an evidence based review of the contribution of the

bioeconomy to the United Kingdom and the prospects for growth and increased productivity. This

report presents our findings around those objectives based on a comprehensive review of the

literature and interviews with selected academic and industry experts in the bioeconomy of the

United Kingdom.

1.1 What is the bioeconomy?

The bioeconomy includes all economic activity derived from bio-based products and processes.

These contribute to sustainable and resource-efficient solutions to the challenges we face in food,

chemicals, materials, energy production, health and environmental protection.

The bioeconomy comprises all economic activities that are either:

(i) ‘bio-transformative activities – Those which add value through the inclusion of a

physically or chemically transformative process that involves either as outputs or as

processors, biological resources (the tissues, cells, genes or enzymes of living or

formerly living things1);

(ii) ‘bio-based upstream activities’ – Those that add economic value as upstream suppliers

of bio-transformative activities;

(iii) ‘bio-based downstream activities’ – Those that add economic value as downstream

users of the outputs of bio-transformative activities; or

(iv) ‘bio-based induced activities’ – Those that add economic value through the spending of

employees of the transformative bioeconomy.

The bioeconomy is the production of biomass and the conversion of renewable biological resources

into value-added products, such as food, bio-based products and bioenergy. As such, it is built

around a set of activities that involve transformative processes using biological resources. These

activities range all the way from traditional agriculture (which involves transformative processes

in the growing of crops and rearing of livestock) through to the most advanced bio-based medical

therapies. Table 1 shows the main transformational sectors of the bioeconomy, plus their attendant

sub-sectors.

1 We do not include things that were once living but are now long dead – i.e. the sector does not include

fossil fuels and other minerals that may have been formed by living things that have been dead for

thousands or even millions of years.

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Table 1: Sectors and sub-sectors of the transformational bioeconomy

Agriculture and fishing

Crop production

Animal production and hunting

Fishing and aquaculture

Forestry and logging

Logging, silviculture and other forestry activities

Paper production

The recreational bioeconomy

Industrial biotechnology and bioenergy

Agri-chemicals

Bio-chemicals

Bio-electronics

Bio-pharmaceuticals and bio-processed pharmaceuticals

Bio-plastics

Engineering, construction, design and technical support

Health, personal care and household products

Leather products

Other

Research and development

Rubber products

Manufacture of food products and beverages

Manufacture of food

Manufacture of alcoholic beverages

Manufacture of other beverages

Water and remediation activities

Water collection, treatment and supply

Sewerage

Remediation and waste management

Source: Capital Economics

Around these ‘bio-transformative’ activities exist large numbers of upstream and downstream

activities that also form part of the bioeconomy. Upstream activities provide the transformative

activities with their required inputs. These include the provision of bio-based feedstocks as well as

other required inputs such as machinery, power and even financial services.

Downstream activities utilise the products of the bioeconomy to make other products or deliver

services. A significant portion of downstream bioeconomy activities are concerned with the

preparation, packaging, transportation and ultimately retailing of food or drink products.

However, there are other examples such as the use of pharmaceuticals in healthcare and wood in

furniture and construction. Some downstream activities may not exist but for the bioeconomy,

whilst others are only partly dependent on it.

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Figure 1: The complete bioeconomy

Upstream, e.g. Transformative, e.g. Downstream, e.g.

Production machinery Agriculture and fishing Food and drink retailing

Power / electricity Forestry and logging Publishing

Financial services Industrial biotechnology Wholesaling

Construction Food and beverage production Health services

Bio feedstocks Water and remediation Accommodation

Source: Capital Economics and the Office for National Statistics

1.2 Contribution of the bioeconomy

Through the various types of bio-based activities, the bioeconomy makes a significant contribution

to output and employment in the United Kingdom economy. The transformational bioeconomy

comprising agriculture and fishing, forestry and logging, water and remediation activities, food

products and beverages and industrial biotechnology and bioenergy accounts for 3.5 per cent of

gross value added in the United Kingdom (£56.0 billion in 2014), which is a little more than the

wholesale trade and more than double the figure for the crude petroleum and natural gas

extraction and mining industries.

The whole bioeconomy, comprising transformative, upstream and downstream elements, is a

significant sector for the overall British economy, generating approximately £220 billion in gross

DownstreamUpstreamTransformative

Bioeconomy

WagesRecycling

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value added and supporting 5.2 million jobs in 2014. This is 13.6 per cent of total national gross

value added and is about the same as the construction and financial services industries combined.2

Figure 2: Gross value added and employment from the bioeconomy in the United Kingdom, 2014

Source: Capital Economics and the Office for National Statistics

The transformative bioeconomy contributes to investment in the United Kingdom – approximately

£17 billion in gross fixed capital formation in 2013, of which over 30 per cent is investment in

research and development. Between 30 and 40 per cent of research and development spending

comes from the public purse. Investment in the transformative bioeconomy grew at a slower rate

than that for the economy overall in the decade leading up the 2008-9 financial crisis. More

recently, it has performed better than the whole economy.

The United Kingdom transformative bioeconomy is smaller, in terms of gross value added, than

those in most of the other four large European countries. If, however, we strip out the contribution

of agriculture, the bioeconomy in the United Kingdom is larger than those in Italy and Spain and

similar to that of France. (See Figure 3.)

2 Albeit, this comparison does not include the upstream, downstream and induced activities supported by

the construction and financial services industries.

Direct impacts

£56.0 billion value added;

981,000 jobs

Induced

£20.3 bn value added

482,000 jobs

Downstream

£108.3 billion value added

3.2 million jobs

Upstream

£35.5 billion value added

543,000 jobs

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Figure 3: Contribution of agriculture and the rest of the bioeconomy to gross value added of European bioeconomies gross value added in 2013, € billions

Sources: Capital Economics and Eurostat

The United Kingdom is one of the leading countries in a number of key areas of research and

innovation that underpin the bioeconomy. The United States ranks as the leading nation in the

area, but the United Kingdom lies anywhere between 2nd and 7th, depending on the metric

reviewed. In respect of field-weighted citation impact, a measure of the ‘quality’ of research, the

country is actually in first place globally.

Measures of revealed technological advantage3 show the United Kingdom is strong in

bioeconomy-related fields such as organic chemistry, biotechnology and pharmaceuticals and

medical technology and biological analysis and this is also manifest in the ‘quality’ of research in

clinical, biological and environmental sciences. (See Figure 4.) In terms of policy comparisons

across countries:

There is a dichotomy across countries between those that follow national bioeconomy

strategies and those with a regional or more specific industry focus. It is too early to say

whether one is more successful, but the former confers a greater degree of coordination.

Countries do not necessarily have the same bioeconomy objectives, with some prioritising

specific sectors, or goals such as energy security.

Several of the most notable policies in other countries are not at the research and

development end of the value chain, where there appears to be a good deal of similarity

3 Measures of ‘revealed technology advantage’ provide an indication of the relative specialisation of a given

country in selected technological domains. They use patent data (i.e. comparing a sector’s share in patents

for a particular country with that sector’s share in global patents).

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across countries, but in their measures to raise awareness of bio-based products versus

others through bio-preferred procurement or bio-standards.

The United Kingdom rates near first-in-class in terms of the general policy environment,

human capital (including educational attainment and number of researchers), intellectual

property protection, the regulatory environment, the existence of technology transfer

networks and legal certainty, but falls down on the levels of research and development

spending.

Figure 4: Index of United Kingdom revealed technological advantage by sector, 2000 to 2010 (values greater than zero show sectors in which the country is more innovative than the world as a whole and vice-versa)

Sources: Capital Economics and Department for Business, Innovation and Skills

1.3 Growth and challenges

The transformative bioeconomy has been falling as a share of the economy over the last twenty

years, due mainly to relative decline of agriculture and fishing and forestry and logging, falling

from 4.9 to 3.3 per cent of whole economy gross value added in real terms between 1997 and 2013.

In terms of productivity, water and remediation and upstream activities registered the highest

increases in the 2004 to 2014 period.

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We project that the real output of the United Kingdom bioeconomy could grow by thirteen per

cent over the years ahead – from £52 billion in 2013 to £58 billion in 2030 (in 2013 prices), or by 0.7

per cent per annum. (See Figure 5.)

In general, feedstocks are currently in good supply (though often dependent on imports), but the

United Kingdom may face increased competition from emerging markets for some agricultural

commodities in the future, whilst others remain plentiful. With this, prices could rise. Feedstocks

are demonstrating the increasing interconnectedness of the sectors across the bioeconomy

involving, for example, the production of food, materials, chemicals and energy in single

enterprises.

There is a significant but limited supply of waste feedstocks, and significant potential for the

production of energy crops. However, the realisation of these potentials is uncertain as it depends

on future policy developments. Supply of forest-derived products is likely to stagnate as the

growth of woodland areas slows.

Figure 5: Real output of United Kingdom bioeconomy sectors, £ billions in 2013 prices

Sources: Capital Economics and the Office for National Statistics

The growth prospects in biotechnology innovation are mixed. Biofuels and bioenergy sectors have

become established in the United Kingdom with the support of a policy framework, and the

continued growth of these sectors is dependent on a continuation of policy support to 2020 and

beyond. The bio-based chemicals and bio-plastics sub-sectors have largely emerged without the

support of a policy framework, and continued growth will depend upon their competitiveness –

either directly on price or on the basis of improved properties and functionality.

Moreover, individual sectors are often mutually dependent on each other for raw materials and

energy, and recent developments may have increased the level of integration between

biotechnology fields.

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Recurring barriers to the realisation of bioeconomy growth opportunities that were frequently

cited in our literature review (and, in most cases, also in the expert interviews) were in the areas of:

Investment in translation4 / scale-up5

Public and investor awareness of opportunities and potential

Policy clarity and coordination

Innovative ideas that may be subject to market distortions

Lack of sufficient cross-sectoral cooperation

Achieving cost competitiveness and sustainability in feedstocks

Overly burdensome regulations stifling both product launches and growth

4 Translating meaningful research findings into real life products or processes. 5 Moving for small scale or laboratory-based processes to full scale production.

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2 ECONOMIC CONTRIBUTION

In this section, we consider the contribution of the bioeconomy – the transformative activities

and the upstream and downstream sectors – to the United Kingdom economy. We cover the

value that they add, the jobs that they provide and their contribution to the balance of trade.

We begin by assessing the economic contribution of the activities of the transformative

bioeconomy in the United Kingdom. We use firm level data collected in TBR’s TCR database – a

longitudinal database of three million live firms in this country, plus a further five million that

have ceased trading, with data going back to the year 2000. This approach has the advantage of

being able to attribute individual firms to the bioeconomy through keyword searches on their

activities. This means that we can derive the share of industrial sectors in data from the Office for

National Statistics that are part of the transformative bioeconomy.6 It also allows us to identify the

number of firms in bioeconomy sectors and the average firm size. This method is, however, less

effective in identifying upstream and downstream effects as it does not provide an apportionment

of inputs and outputs.

As a result, we use input-output tables provided by the Office for National Statistics to assess the

rest of the bioeconomy. This approach requires sectors to be defined discreetly by standard

industrial classification codes. Using the TCR data, we have been able to apportion the share of

each code that is accounted for by transformative bioeconomy activities. We are then able to use

the input-output tables to calculate the totality of all dependent upstream and downstream

activities, including multiplier effects. These are the cumulative effects that stem from an initial

injection of income. The extra income generates more spending, which creates more income, and

so on. The multiplier effect refers to the increase in final income arising from any new injection of

spending.

2.1 Transformative bioeconomy

We begin by examining the contribution of transformative activities. These divide into five

obvious sectors based on industries (and indeed standard industrial classifications), which are:

agriculture and fishing; forestry and logging; water and remediation activities; manufacture of

food products and beverages; and industrial biotechnology and bioenergy.

2.1.1 Turnover

Turnover is the broadest financial measure of the scale of an industry or sector. We estimate that

the total turnover of the transformative bioeconomy was £119 billion in 2014. The South East is the

region with the largest transformative bioeconomy turnover at £16.8 billion. The East of England is

next, with a turnover of £14.3 billion. The region with the smallest turnover is the North East at

just £2.4 billion, which is not surprising as it is one of the smallest regions in terms of population.

6 Data are from the Business Register and Employment Survey, Regional Gross Value Added (Income

Approach) tables and the Annual Business Survey.

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Turnover, whilst obviously a key metric in assessing the performance of individual firms, can be a

misleading measure of the economic contribution of a sector or sectors because it reflects not only

underlying output, but also the number of links in the supply chain.

2.1.2 Gross value added

Gross value added measures the extent to which a given sector adds value over and above its

inputs of goods and services from businesses upstream in the supply chain. The gross value added

by the transformative bioeconomy totalled £56.0 billion in 2014. The benefits of the sector are

geographically well dispersed throughout the country. The region that has the largest gross value

added is Scotland, with £7.8 billion, followed by the South East with around £6.9 billion. The

North West and the East of England account for £6.4 billion and £6.1 billion respectively.

Figure 6: Gross value added and turnover from transformative activities of the bioeconomy in the United Kingdom, 2014 (£ billions)

Sources: Capital Economics, TBR and the Office for National Statistics

2.1.3 Employment

In terms of employment, the transformative bioeconomy accounted for around 981,000 jobs in

2014. Unlike some regionally concentrated industries, the transformative bioeconomy generates

significant value across the whole country. It contributes the greatest share of employment in

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Wales, accounting for 4.7 per cent of jobs followed by the South-West (4.5 per cent). It accounts for

the smallest share of employment in London. (See Figure 7.)

Figure 7: Percentage share of regional employment supported by transformative activities of the bioeconomy in the United Kingdom, 2014


2.1.4 Sectoral breakdown and summary of input-output results

Figure 8 presents a summary of the results using the input-output methodology to assess the

contribution of the transformative sectors of the bioeconomy.7

7 The analysis is consistent with the numbers presented by Capital Economics in 2015, with the exceptions

that the forestry and water sectors are larger due to the inclusion of paper manufacturing and some waste

remediation activities in the transformative activities categories. There are some other small changes that

make for changes around the edges, the most notable of which is probably that food manufacturing that is

purely processing and preserving has become a downstream activity, thus slightly reducing the size of the

food and drink manufacturing sector.

Scotland: 4.3

North East: 2.5

North West: 3.2

Yorkshire and the Humber: 3.9

East Midlands: 4.3

West Midlands:3.1

East of England: 4.1

London: 1.3

South East: 2.9South West: 4.5

Wales: 4.7

Northern Ireland: 3.3

> 4.53.5 – 4.52.5 – 3.51.5 – 2.5< 1.5

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Figure 8: Summary of the economic contribution of the transformative activities of the bioeconomy in the United Kingdom, 2014 (persons)


Animal production and hunting accounts for around a half of employment and over 60 per cent of

gross value added in agriculture and fishing. Paper production is the largest component of the

forestry and logging bioeconomy sector, with over 90 per cent of gross value added. Despite

providing one third of jobs in forestry and logging, the recreational bioeconomy sub-sector

supports just seven per cent of its gross value added. Meanwhile, engineering, construction and

bio-chemicals together support more than half of industrial biotechnology and bioenergy gross

value added. (See Table 2.)

The transformative activities of the bioeconomy make an important contribution to the overall

economy. They accounted for 3.3 per cent of employment in the United Kingdom in 2014,

providing jobs for just under one million people, which is more than the arts, entertainment and

recreation sector (0.7 million) and similar in scale to financial and insurance activities (1.0 million).

The sector contributed 3.5 per cent of gross value added in United Kingdom (£56.0 billion) in 2014,

which is a little more than the wholesale trade and more than double the figure for the crude

petroleum and natural gas extraction and mining industries.

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Table 2: TCR estimates of employment, gross value added and turnover by sub-sector of the transformative bioeconomy in the United Kingdom, 2014

Bioeconomy sector and sub-sector Employment (thousands)

Gross value added (£ billions)

Turnover (£ billions)

Agriculture and fishing 475.0 10.5 15.7

Crop production 169.2 4.4 6.2

Animal production and hunting 296.2 5.2 8.1

Fishing and aquaculture 9.6 0.7 1.4

Forestry and logging 87.9 4.5 10.9


16.4 0.4 0.9

Paper production 42.9 3.7 9.0

The recreational bioeconomy 28.5 0.3 0.9

Industrial biotechnology and bioenergy 78.2 7.2 17.2

Agri-chemicals 0.6 0.0 0.1

Bio-chemicals 9.1 1.9 5.2

Bio-electronics 3.9 0.4 0.6


2.0 0.4 0.8

Bio-plastics 11.3 0.2 0.6


16.1 2.5 5.4

Health, personal care and household products 4.0 0.4 0.3

Leather products 1.1 0.0 0.2

Other 2.6 0.4 0.3

Research and development 25.3 0.8 3.2

Rubber products 2.2 0.1 0.3

Manufacture of food products and beverages 276.1 21.7 58.4

Manufacture of food 237.0 13.7 40.5

Manufacture of alcoholic beverages 28.8 6.1 14.0

Manufacture of other beverages 10.3 2.0 4.0

Water and remediation activities 64.0 12.1 16.4

Water collection, treatment and supply 33.3 9.8 12.6

Sewerage 21.4 2.2 3.3

Remediation and waste management 9.3 0.2 0.5

Transformative activities 981.2 56.0 118.6

Source: TCR database. Note: Research and development is included in the industrial biotechnology and bioenergy sub-sector as it refers

to data in the standard industrial classification code 72110 – research and experimental development on biotechnology. Sampling

suggests that firms in this code are all industrial biotechnology or bioenergy firms. Data for sub-sectors may not sum to sector totals due

to rounding.

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2.2 Upstream sectors

Upstream impacts originate from transformative bioeconomy firms’ need to purchase a wide array

of inputs to facilitate their activities. For example, activities conducted by bioeconomy firms, from

farming to scientific research, demand a considerable amount of energy, thus supporting the

power generation and supply industries. Feedstocks are required by many transformative

bioeconomy segments, from agriculture to industrial biotechnology. The need for these feedstocks

supports the industries that supply them. Even in relatively long-established bioeconomy activities

such as forestry, modern machinery is often used, while in pharmaceutical research, specialised

equipment is required. A wide array of other inputs are required by bioeconomy enterprises.

These range from financial services, to transport, storage and communication services and

construction.

Figure 9: Employment supported from upstream activities of the bioeconomy in the United Kingdom by industry, 2014 (thousand persons)


The bioeconomy stimulated around £35.5 billion of gross value added through the spending of

firms within the sector on input goods and services in 2014. Over 26 per cent of this (£9.5 billion)

benefits the manufacturing and mining sectors. Other sectors which have a large upstream impact

from the bioeconomy are professional, scientific and technical activities (£4.9 billion) and financial,

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insurance and real estate activities (£4.4 billion).8 In addition, upstream spending of the

bioeconomy sector supported an additional 543,000 jobs in 2014. Over 121,000 of these jobs are in

the manufacturing and mining industries, while 101,000 are in professional, scientific and technical

activities and more than 86,000 are in distribution, transport, hotels and restaurants. (See Figure 9.)

London, the South East and Scotland receive the largest benefit from upstream spending by the

bioeconomy, in terms of both gross value added and employment. As a share of the regional

economy though, the benefit is greatest in Scotland, the East Midlands and Wales, reflecting the

greater importance of manufacturing and mining to these regional economies.9 (See Figure 10.)

Figure 10: Gross value added from upstream activities of the bioeconomy in the United Kingdom as a percentage share of regional gross value added, 2014


8 We use the Office for National Statistics’ Input-Output tables to estimate the upstream impacts. We

calculated that the relevant multiplier for these impacts was 1.63, meaning that, for each £1 of value added

by the transformative bioeconomy, 63p was generated in supporting upstream activities. This multiplier is

derived from our estimate of the upstream impacts. 9 Drivers of regional differences would need to be investigated in a subsequent study.

> 3.0

2.5 – 3.0

2.0 – 2.5

1.5 – 2.0

< 1.5

Scotland: 3.3

North East: 2.7

North West: 2.6


East Midlands: 3.1

West Midlands:2.5

London: 1.4


Wales: 3.0



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2.3 Downstream sectors

Downstream impacts arise when bioeconomy products are used for other activities and span a

wide range of industries. Bioeconomy outputs are essential for basic nutrition through to complex

medicines. For example, food and drink retail and service industries are significantly reliant on

products supplied to them by food and drink manufacturing and industrial biotechnology. Many

retail businesses in the economy are heavily dependent on the provision of bioeconomy products

to end-consumers – from pharmacies to clothes and furniture stores. A large number of other

economic activities are either wholly or partially dependent on the bioeconomy. These include

chemicals and plastics, wood and paper, energy, medicines and many more.

Accommodation and food service activities make up a significant proportion, £39.7 billion, of the

added value of downstream industries that are directly reliant on the bioeconomy. (See Figure 11.)

Figure 11: Gross value added from downstream activities of the bioeconomy in the United Kingdom, 2014 (£ millions)

Sources: Capital Economics and the Office for National Statistics. Note: ‘production’ is mining and manufacturing industries and

‘accommodation and food service activities’ include hotels and restaurants.

All told, those portions of the outputs of downstream industries that are dependent on

bioeconomy inputs contributed an additional £108.3 billion in gross value added and added 3.2

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million jobs in 2014.10 More than half of the latter (1.8 million) are in the accommodation and food

service industries.

London, the South East and the North West receive the largest benefit from downstream spending

by the bioeconomy, in terms of both gross value added and employment. As a share of the

regional economy though, the benefit is greatest in Wales, Northern Ireland and the North East.

(See Figure 12.)

Figure 12: Gross value added from downstream activities of the transformative bioeconomy in the United Kingdom as a percentage share of regional gross value added, 2014


10 We calculated that the relevant multiplier for these impacts was 2.93, meaning that, for each £1 of value

added by the transformative bioeconomy, £1.93 was generated in supporting downstream activities. This

multiplier is derived from our estimate of the downstream impacts.

> 8.0

7.5 – 8.0

7.0 – 7.56.5 – 7.0

< 6.5

Scotland: 7.4

North East: 8.2

North West: 7.5


East Midlands: 7.7

West Midlands:7.0


London: 5.3


Wales: 8.6


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2.4 Induced effects

Money that is spent on goods and services by employees of the transformative bioeconomy

supports other economic activities and has multiplier effects (second round impacts). These are

collectively known as ‘induced’ effects and are an additional benefit of the transformative

bioeconomy. The relevant multiplier for these impacts was 1.36, meaning that, for each £1 of value

added by the transformative bioeconomy, 36p was generated in supporting induced activities.

We calculate that, through induced effects, money spent by those employed by the transformative

bioeconomy stimulated an additional £20.3 billion in gross value added for the economy in 2014.

Around two-fifths of this additional gross value added (£8.3 billion) is in the wholesale and retail

trade sector. Other sectors that gain from large induced effects include production and

construction (£2.3 billion), transportation, accommodation and food service activities (£2.0 billion)

and financial, insurance and real estate industries (£1.9 billion).11

Figure 13: Employment supported from induced effects of the transformative bioeconomy in the United Kingdom by industry, 2014 (thousand persons)

Sources: Capital Economics and the Office for National Statistics. Note: ‘production’ is mining and manufacturing industries.

11 ‘Accommodation and food service activities’ include hotels and restaurants.

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The spending of those employed in the bioeconomy supports an additional 482,000 jobs. Over 46

per cent of these (around 224,000) are in wholesale and retail trade, reflecting the high induced

gross value added in this sector. (See Figure 13.)

Northern regions do comparatively better out of the induced effects. Induced spending accounts

for the smallest share of overall gross value added in London, reflecting the lower share of the

sectors that benefit the most from induced spending, wholesale and retail trade, in its economy.

(See Figure 14.)

Figure 14: Gross value added from induced activities of the transformative bioeconomy in the United Kingdom as a percentage share of regional gross value added, 2014


2.5 Whole bioeconomy

Aggregating all types of activities – transformative, upstream, downstream and induced –

identifies the total economic impact of the whole bioeconomy. At a national level, this totalled to a

gross value added of £220 billion and supported 5.2 million jobs in 2014. This was equivalent to

> 1.501.25 – 1.501.00 – 1.250.75 – 1.00< 0.75

Scotland: 1.48

North East: 1.68

North West: 1.34


East Midlands: 1.42

West Midlands:1.60

London: 0.84


Wales: 1.52



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13.6 per cent of total national gross value added and 17.4 per cent of total employment. With

respect to gross value added, it is approximately equal to the construction and financial services

industries combined.12

At the aggregate level, the bioeconomy contributes proportionately more to regional economies

away from London and the South East. The contribution is highest in Scotland, at 18.5 per cent of

total regional gross value added, but also close to, or more than, seventeen per cent in Northern

Ireland, Wales, Yorkshire and the Humber and the East Midlands.13 (See Figure 15.)

Figure 15: Gross value added from the whole bioeconomy in the United Kingdom as a percentage share of regional gross value added, 2014


12 Albeit, this comparison does not include the upstream, downstream and induced activities supported by

the construction and financial services industries. 13 Drivers of regional differences would need to be investigated in a subsequent study.

> 18.0

16.0 – 18.014.0 – 16.0

12.0 – 14.0

< 12

Scotland: 18.5

North East: 15.5

North West: 15.7


East Midlands: 16.9

West Midlands:14.8

London: 9.0


Wales: 17.5



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Capital Economics conducted an initial quantification of the size of the bioeconomy of the United

Kingdom in 2015, which estimated it to be £152.5 billion for the year 2012.14 There are a number of

reasons for the expanded size of this year’s estimates, mainly related to the starting definition of

the transformative bioeconomy, which has been much refined in the course of this assignment.

Under the definition in this report, paper production is considered to be a transformative activity,

as is sewerage treatment and the biological aspects of waste management. In addition, some

aspects of industrial biotechnology that were, in the 2015 analysis, considered to be downstream

are now included as transformative activities (such as the use of bio-based ingredients or processes

to make bio-pharmaceuticals and personal care products). Finally, the year of analysis has, of

course, been updated from 2012 to 2014. These changes result in an expansion of the

transformative bioeconomy, which then feeds through directly into an increased size of the

corresponding upstream, downstream and induced activities.

2.6 Firms and firm sizes

The TCR database allows us to estimate the number of firms in each sub-sector of the bioeconomy.

In addition, information on employment in the database permits us to derive the average firm size

(measured as the number of employees per firm). This reveals quite a contrasting picture between

the various sub-sectors. In agriculture and fishing, we have a pattern of a large number of very

small firms, employing fewer than five people typically. On the other hand, food and drink

manufacturing and industrial biotechnology are characterised by much smaller numbers of larger

firms, though it is notable that even here the average firm size is quite small (under 50 employees).

(See Table 3.)

Table 3: Numbers of firms and firm size by bioeconomy sub-sector, 2014

Bioeconomy sub-sector Number of firms Average firm size (employees

per firm)

Agriculture and fishing 127,760 3.6

Forestry and logging 6,445 13.3

Industrial biotechnology and bioenergy

6,505 11.7

Manufacture of food products and beverages

7,530 35.7

Water and remediation activities 3,240 19.2

Transformative activities 151,480 6.3

Source: TCR database

14 Capital Economics, The British bioeconomy (Biotechnology and Biological Sciences Research Council,

Swindon), 2015

24

2.7 Exports and imports

The United Kingdom’s transformative bioeconomy sectors trade in the global economy. They sell

some of their finished goods and services abroad and import some of their production inputs.

Exports by transformative bioeconomy sectors totalled £30.5 billion in 2014. The largest exporting

sector is manufacture of food products and beverages, representing over 58 per cent of total

bioeconomy exports. Industrial biotechnology and bioenergy accounts for around 23 per cent, and

agriculture and fishing and forestry and logging for just under ten per cent each.

Imports by the United Kingdom transformative bioeconomy sectors totalled £52.8 billion in 2014.

The largest importing sector of the bioeconomy is manufacture of food products and beverages,

which accounts for 51 per cent of imports. The next largest importing sector is agriculture and

fishing, with eighteen per cent of imports. (See Figure 16.) Sub-sectors with a positive balance of

trade include fishing and aquaculture, engineering, construction, design and technical support,

research and development and remediation and waste management.15 (See Table 4.)

Figure 16: Exports and imports by the bioeconomy in the United Kingdom by industry, 2014 (£ millions)

Sources: Capital Economics and the Office for National Statistics. Note: imports are negative to show that they are a leakage from the

economy.

15 The reasons for this would have to be investigated in a subsequent study.

25

Table 4: Capital Economics estimates of imports and exports by bioeconomy sectors and sub-sectors, 2014

Bioeconomy sector and sub-sector Imports (£ millions) Exports (£ millions) Balance of trade (£

millions)

Agriculture and fishing 9,554 2,724 -6,830

Crop production, animal production and hunting

9,037 1,811 -7,227

Fishing and aquaculture 516 913 397

Forestry and logging 7,965 2,979 -4,986


640 114 -525

Paper production 7,113 2,714 -4,398

The recreational bioeconomy 213 151 -62

Industrial biotechnology and bioenergy 8,329 6,987 -1,342

Agri-chemicals 1,666 1,616 -50

Bio-chemicals 2,018 1,912 -107

Bio-electronics 1,449 777 -672


738 691 -48

Bio-plastics and rubber products 478 324 -154


146 483 337

Health, personal care and household products 6 1 -5

Leather products 1,548 638 -910

Other 12 12 0

Research and development 267 533 266

Manufacture of food products and beverages 26,840 17,645 -9,196

Manufacture of food 16,307 9,154 -7,153

Manufacture of alcoholic beverages 9,392 7,827 -1,565

Manufacture of other beverages 1,141 664 -477

Water and remediation activities 112 125 13

Water collection, treatment and supply 17 4 -13

Sewerage 0 0 0

Remediation and waste management 96 121 25

Transformative activities 52,801 30,460 -22,341

Sources: Capital Economics and the Office for National Statistics. Note: Research and development is included in the industrial

biotechnology and bioenergy sub-sector as it refers to data in the standard industrial classification code 72110 – research and

experimental development on biotechnology. Sampling suggests that firms in this code are all industrial biotechnology or bioenergy

firms.

26

Highlights of section two

The transformational bioeconomy, comprising agriculture and fishing, forestry and logging,

water and remediation activities, food products and beverages, accounted for 3.5 per cent of

gross value added in the United Kingdom in 2014 (£56.0 billion), which was a little more than

the wholesale trade and more than double the figure for the crude petroleum and natural gas

extraction and mining industries.

The whole bioeconomy, comprising transformative, upstream and downstream elements and

induced effects, is a significant sector for the overall United Kingdom economy, generating

approximately £220 billion in gross value added and supporting 5.2 million jobs in 2014. This

was 13.6 per cent of total national gross value added and approximately equal to the

construction and financial services industries combined.

27

3 SUSTAINABILITY OF THE UNITED KINGDOM BIOECONOMY

The sustainability of the bioeconomy could be widely interpreted to cover a range of issues,

including sustainability due to the financial environment, the policy context, the price and

availability of bio-based inputs and the situation vis-à-vis non-bio-based inputs. We cover the

financial and policy contexts extensively later in this report when we report on the situation

regarding investment in the bioeconomy in section four and then on policies in sections five

and six. Non-bio-based inputs cover a vast array of products and services and are therefore best

assessed in macroeconomic reviews of the whole economy. In this section, therefore, we focus

on sustainability of bio-based inputs – feedstocks.

The bioeconomy includes all economic activities derived from either bio-based products or

processes. As such, bioeconomy activities include the use of bio-based feedstocks, and the use of

biotechnology for the transformation of non-bio-based feedstocks. The transformation of biological

and non-biological wastes and residues can achieve economic and environmental benefits,

increasing resource efficiency and contributing towards circular economy goals. For example,

companies such as Lanzatech convert waste carbon-containing gases (which are of fossil origin) to

ethanol via a fermentation process, so producing low carbon fuels or chemicals.

As demand for bio-based resources increases, there are a number of concerns regarding feedstock

sustainability, including the direct and indirect impacts of changes in land use, soil quality and

carbon stocks. However, there are also opportunities to increase resource efficiency by using

residues from agriculture, forestry, and industry or by maximising the efficiency of the use of the

resources available. Policy driven markets, such as bioenergy and forestry, are influenced by

carbon and sustainability criteria that are defined by the relevant legislation, and the producers of

some consumer goods seek to meet similar sustainability standards with their products. There are

a wide number of voluntary sustainability standards operating internationally which enable users

to demonstrate that their operations, and those of their supply chains, meet certain minimum

thresholds in terms of key environmental and social sustainability criteria.

The land area used for agriculture in the United Kingdom has been steadily declining for the last

half century or more. Concerns relating to direct and indirect land use change impacts are

expected to lead to an increase in the use of feedstocks that do not impact food or feed markets,

including those feedstocks that require less land for their cultivation and/or can utilise land not

suitable for food and feed production. These non-traditional feedstocks include agricultural

residues, biomass crops, forestry residues, macro algae, micro algae and municipal solid waste.

In the following sections each feedstock is considered in turn, and estimates for their current use

and potential availability are given. We have given background on the origin of the data and

methods used to calculate the values, and, where there are a range of values available in the

literature, we have attempted to assess the quality of the data and reasons for such a range. We

review primary agricultural products, agricultural residues, the forestry industry overall and

forestry residues.

28

Within the literature on resource potentials, there are wide ranges of quantitative estimates. This is

in part due to differences in the methodologies used and the way in which ‘potential availability’ is

defined. In many cases, the use of biomass feedstocks will be constrained by certain sustainability

limits (for example the maintenance of soil quality), and/or economic constraints.

3.1.1 Primary agricultural products

The markets for many agricultural products are regional or global in nature. Many agricultural

staples, such as corn, wheat and oats, have recently experienced a period of low prices caused by

excess supply and comparatively weak demand in emerging markets. Our expectations, based on

Capital Economics analysis of demand and supply drivers, are for this to be reversed over the

years ahead; boosted by buoyant demand in many emerging markets and cost-push drivers from

recovering oil prices.

Figure 17: Index of global prices, production and consumption for corn, wheat and oats

Sources: Capital Economics, Bloomberg and United States Department of Agriculture

This indicates that the United Kingdom will likely face tightening global markets for many crops

over the years ahead – supplies will likely be somewhat more expensive and a little more difficult

to source than has been the case recently, which could prove challenging if the country wishes to

expand imports for both food and energy crop applications. Nevertheless, the expectation is still

that prices will not reach unprecedented levels – a reflection of the low starting point for prices, the

moderate expected recovery in oil prices, forecast rates of global economic growth and market-

specific supply drivers.

0

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29

Figure 18: Index of global prices, production and consumption for palm oil and soybean oil


The same also applies to the price of sugar, used as a foodstuff, a feedstock for biofuels and for

some synthetic biology processes. Deregulation of European Union prices, due to occur next year,

will likely result in lower prices and plentiful supply over the years ahead.

Figure 19: Raw global sugar prices (United States cents per pound), production and consumption (million metric tonnes per year)


0

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30

3.1.2 Agricultural residues

Agricultural residues includes dry residues, such as straw, corn stover and poultry litter, and wet

residues such as animal slurry, manure and grass silage. Many of these agricultural residues are

currently used either on-farm, for example on the fields to improve soil quality, or in alternative

markets such as animal bedding, energy or horticulture.

Total United Kingdom straw production is estimated at between 11.5 and 18.5 million tonnes per

year.16,17 The amount of straw that could be sustainably collected is estimated at 4.6 – 11.0 million

tonnes per year, assuming between 40 per cent and 60 per cent of straw must be left in the field to

maintain soil quality. Approximately three million tonnes per year are currently used for livestock

bedding and other minor uses such as horticulture, mushroom cultivation and industrial uses.

There therefore remains significant potential to increase utilisation of this resource. Future

production of straw is linked to agricultural productivity, and is anticipated to stay broadly the

same to 2030. Other dry residues such as prunings and grass cuttings are anticipated to be small in

the United Kingdom.18

Animal manure includes liquid manure and slurry as well as solid dung, produced from cows,

horses, pigs, chickens, sheep and other animals. United Kingdom production is estimated at 68

million tonnes per year (at approximately 90 per cent water content), which is expected to remain

approximately constant until 20204. Animal manure is typically spread to land where it has value

as a source of nutrients, and a small fraction is treated by anaerobic digestion prior to application

of digestate to land (300,000 tonnes per year) and some chicken litter is used for power generation

(670,000 tonnes per year). There is opportunity for more animal manure to be treated by anaerobic

digestion, with the added benefit that nutrients are more available in digestate than raw manure.

3.1.3 Biomass crops

Biomass crops can achieve high output per hectare with low inputs, and can often grow on poor-

quality soil where they will not compete with food crops. Whilst biomass crops are often seen as a

preferable bioenergy feedstock compared to food crops, it is important to consider the specific land

use change impacts on a case by case basis, which may include beneficial impacts such as

increased soil carbon.

In the United Kingdom, the most common biomass crops can be classified as either short rotation

coppice (such as poplar and willow), grassy perennial crops (such as miscanthus), or short rotation

forestry (such as Scot’s pine and poplar). Models suggest significant potential for biomass crops to

contribute to the United Kingdom’s future energy needs, but current production is still extremely

small. Defra estimate that 77,500 tonnes of miscanthus were produced in the United Kingdom in

2015 and 37,600 tonnes of short rotation coppice.19 Government statistics demonstrate that short

16 E4tech estimates based on Eurostat agricultural production figures 17 E4tech, Advanced Biofuel Feedstocks – An Assessment of Sustainability 18 Atlas of EU biomass potentials, Deliverable 3.3: Spatially detailed and quantified overview of EU biomass potential

taking into account the main criteria determining biomass availability from different sources, Biomass Futures

project 19 Department for Environment, Food and Rural Affairs and Government Statistical Service, Area of Crops

Grown For Bioenergy in England and the UK: 2008 – 2014

31

rotation coppice production has remained relatively stable over the last five years, whilst

miscanthus production has reduced as crop establishment support programmes have been closed,

and the rate of crop removal is higher than crop planting. As most biomass crops have

establishment times of several years and crop planting rates are currently low, production is not

anticipated to increase significantly in the short term.

Long term models of the potential role of biomass in the European energy system indicate that the

United Kingdom has the potential to produce 10.7 million tonnes per year of biomass crops (taking

into account land required for food production), although this does not take into account the

developments in policy and infrastructure required to achieve this level of production.20 ETI state

that domestically produced biomass feedstocks could realistically become the dominant source of

biomass for bioenergy by 2040, highlighting benefits such as increased energy security by

complementing biomass imports and economic value to the United Kingdom.21 However there

remains very large uncertainty regarding how quickly the industry will develop, if at all, and how

production will ramp-up in the United Kingdom.

3.1.4 Forestry products

The 20th century saw a significant turnaround in the proportion of land that was woodland in the

United Kingdom. Having been in decline for centuries that proportion reached a low point of

around five per cent around 100 years ago. It has since risen rapidly, reaching thirteen per cent in

2010. However, even that is very low compared to most other European Union countries, in which

the average proportion of woodland area is 37 per cent.22

Although there was rapid growth in forested areas in the United Kingdom during the last century,

the rate of increase is now likely to slow considerably as the rates of fresh planting have declined

and many mature trees are now being harvested. Nevertheless, we expect that there will be some

increases in wooded area over the next few decades. In 2013, the government set out a goal for the

woodland cover in England to rise from ten per cent to twelve per cent by 2060, with a longer term

objective of fifteen per cent. Twelve per cent was last seen in the 13th century.23

20 Atlas of EU biomass potentials, Deliverable 3.3: Spatially detailed and quantified overview of EU biomass

potential taking into account the main criteria determining biomass availability from different sources, Biomass

Futures project 21 Energy Technologies Institute, Bioenergy: Insights into the future UK Bioenergy Sector, gained using the ETI’s

Bioenergy Value Chain Model (BVCM) 22 Sian Atkinson and Mike Townsend, The state of the UK’s forests, woods and trees (Woodland Trust,

Grantham, Lincolnshire), 2011 23 Department for Environment, Food and Rural Affairs, Government forestry and woodlands policy statement

(London), 2013

32

3.1.5 Forestry residues

It is estimated that the current supply of primary forestry residues (including bark, branches and

leaves from both forest biomass and woody biomass on non-forest land) is between 1.6 and 3.4

million tonnes per year.24, 25 This is not anticipated to increase to 2020 or beyond.

3.1.6 Micro algae

Micro algae are characterised by rapid growth rates and high yields per hectare, and some species

may grow in poor-quality water and saltwater. Globally micro algae are used for the commercial

production of high value products at small scale including pharmaceutical, nutraceuticals, and

speciality chemicals, but significant cost reductions are required before micro algae can be used in

high-volume, low-cost applications such as energy and fuels. Current production of autotrophic

micro algae in the United Kingdom is estimated at only one to five dry tonnes per year.26 Given its

current early stage of development, micro algae production is not expected to increase

significantly in the short to medium term.27

3.1.7 Macro algae

Macro algae has been harvested in Europe for hundreds of years, and today the United Kingdom

possesses some of the most extensive seaweed resources in Europe. An estimated ten million

tonnes of wild seaweed is found in the United Kingdom, mostly in Scotland.28

These are utilised by a handful of companies: the Hebridean Seaweed Company Ltd., Orkney

Seaweed Company Ltd, Böd Ayre products Ltd, Seaveg, Irish Seaweed, Loch Duart Ltd., Neo Argo

Ltd. End-uses include nutraceuticals, animal feed supplements, and as a soil improver in

horticulture and agriculture application, and also in the production of alginate used in a wide

range of applications such as the manufacture of paper, textiles, medicines and personal care

products. Reliable data on the utilisation of macro algae is not available, the best estimates from

Innovate UK suggest current utilisation is between 13,000 and 20,000 tonnes per year.29

It is estimated that around 130,000 to 180,000 tonnes per year of macro algae could be sustainably

harvested, with this potentially much higher if the macro algae was cultivated30. Further

exploitation of this resource is dependent on the development of sustainable harvesting and

cultivation techniques and having the necessary infrastructure in place.

24 Atlas of EU biomass potentials, Deliverable 3.3: Spatially detailed and quantified overview of EU biomass


Futures project 25 E4tech, Advanced Biofuel Feedstocks –An Assessment of Sustainability 26 Innovate UK, A UK roadmap for algal technologies 27 E4tech, Advanced Biofuel Feedstocks –An Assessment of Sustainability 28 United Kingdom government, Biofuels from Algae, Houses of Parliament 29 Innovate UK, A UK roadmap for algal technologies 30 United Kingdom government, Biofuels from Algae, Houses of Parliament

33

3.1.8 Municipal solid waste

The International Energy Agency estimate that 47 million tonnes of municipal solid waste was

produced in the United Kingdom in 2012, of which approximately 50 per cent was recycled, and 42

per cent sent to landfill, with the remainder treated within energy from waste schemes.31 The

biogenic fraction of United Kingdom municipal solid waste has been estimated at 22 million

tonnes per year, some of which is recycled, sent for energy recovery or disposal.32

Municipal solid waste production is anticipated to remain the same to 2020, and perhaps even

decrease to 2030. Some sources suggest that household waste prevention measures could lead to a

reduction of up to 25 per cent in 2030, dependent on future policy and social developments.33

However, as the United Kingdom aims to decrease the amount of waste sent to landfill in line with

European Union objectives, 34 there may be opportunities to increase the proportion of waste that is

utilised for higher value activities such as re-use and recycling or, if this is not possible, then for

electricity and fuel production.

3.1.9 Imported biomass

Wood and related products are an example of a biomass product that is extensively imported into

the United Kingdom. The majority of wood currently imported into the United Kingdom is in the

form of sawn or prepared timber, for a number of end-uses. Annual imports of sawnwood and

woodbased panels have been reasonably constant since 2009 at 8.5 million cubic metres. Wood

imported into the United Kingdom for electricity generation is all currently in the form of wood

pellets, and these total around 1.5 million tonnes per annum — almost all of which come from

Canada and the United States.

The Forestry Commission references official international trade data to estimate the imported

volumes of wood (Table 5). Very small quantities of woodchips are imported from Ireland and the

Netherlands (68,000 tonnes and 23,000 tonnes respectively), around 8,400 tonnes of firewood was

shipped from Latvia and the Netherlands and around 9,000 tonnes of wood waste, scrap wood and

sawdust were imported, primarily from the European Union.35

31 International Energy Agency, The Municipal Solid Waste Resource in England 32 E4tech, Advanced Biofuel Feedstocks –An Assessment of Sustainability 33 Atlas of EU biomass potentials, Deliverable 3.3: Spatially detailed and quantified overview of EU biomass


Futures project 34 European Commission, Closing the loop – an EU action plan for the Circular Economy 35 Forestry Commission, UK Wood Production and Trade: 2013 provisional figures

34

Table 5: Wood imports to the United Kingdom

Wood (thousand cubic metres) Pulp and paper (thousand tonnes)

Year Sawnwood Woodbased

panels Wood pellets

Other wood

Paper Pulp Recovered

paper Total pulp and paper

2009 5,240 2,500 66 821 7,018 940 94 8,052

2010 5,699 2,701 816 1,071 7,254 1,094 115 8,462

2011 4,936 2,827 1,502 985 6,887 1,009 177 8,073

2012 5,179 2,650 2,201 965 6,119 1,021 160 7,300

2013 5,500 2,962 5,015 1,234 5,921 1,100 184 7,205

Source: Forestry Commission, 2014

Although the total woodland area of the United Kingdom is expected to rise in the years ahead in

line with government plans, it is unlikely to keep pace with the rising population and economic

growth. In consequence, imports of wood are expected to increase and this could be replicated for

several agricultural crops.

Biomass imports are currently vital to the United Kingdom bioenergy sector, as the United

Kingdom biomass supply chain is not well established, and feedstock production is insufficient to

meet demand. Use of biomass imports in the short-term could support the development of the

United Kingdom biomass supply chain, including logistics, handling and designing and operating

conversion technologies, so that domestically produced biomass could play a greater role in the

bioenergy sector in the future. 36

3.1.10 Summary

There is the opportunity to sustainably increase the economic utilisation of many biomass

feedstocks, but there remain many barriers to growth, as summarised in Table 6. Analysis of

feedstocks also demonstrates the opportunities for cross-sectoral enterprises, as highlight by the

case study in Box 1.

36 Energy Technologies Institute, Bioenergy: Enabling UK biomass

35

Table 6: Current and future potential feedstock supplies in wet ‘as received’ tonnes - before any competing uses for the feedstocks are considered (source: E4tech)

Feedstock Current

feedstock

supply

(wet Mt/yr)

2020

feedstock

supply (wet

Mt/yr)

Expansion

post 2020?

Data

quality

Potential sustainability issues Barriers to further exploitation Examples of

uses

Agricultural

residues -

straw 7.4 - 11 7.4 - 11 ↔ High

Some crop residues are required on the

field to maintain soil organic matter

content and soil health.

Cost of collection.

Technologies for the conversion of

straw to higher value products

require further development.

Soil nutrient,

animal bedding,

horticulture,

energy

Agricultural

residues –

animal

manure

68 68 ↔ Medium

Animal manure is currently used as

fertiliser on fields, subject to limitations

such as those imposed by the Nitrate

Directive.

High water content. Soil nutrient,

energy

Energy

crops –

miscanthus

0.12 0.36 ↑↑↑ Medium

Potential for land use change effects if

growing energy crops causes

cultivation of additional land. However

growing energy crops on degraded land

can increase the carbon stock.

Dependent on market conditions

favouring this crop, farmers

choosing to plant, and appropriate

infrastructure being in place.


biomass to higher value products


Energy, animal

bedding

Energy

crops – short

rotation

coppice

0.04 0.11 ↑↑↑ Medium

Energy, wood

products

Energy

crops – short

rotation

forestry

0 0 ↑↑↑ High

Energy, wood

products

Municipal

solid waste

(bio-

fraction) 22 22 ↓ Medium

Almost half of all municipal solid waste

is currently recycled in the United

Kingdom, and the policy framework

seeks to increase the reuse, recycling

and energy recovery.

Technical challenges using

heterogeneous waste feedstock to

produce higher value products.

New processes must consider their

cost competitiveness with existing

waste treatment processes.

Energy

36

Forestry

residues –

bark,

branches

and leaves

3.4 3.4 ↔ Medium

Some forestry residues must remain in

the forest to retain soil health and

carbon levels.

May not be economic to collect

widely-dispersed residues


straw to higher value products


Particle board,

energy

Micro-algae

0 0 - High

Cultivation of micro algae can have

very high energy inputs and land area

requirements, although often poor

quality land can be used preventing

competition with agriculture.

Technology currently has very niche

use only – more widespread uses are

only at research and development

stage

Nutraceuticals,

cosmetics,

energy

Macro-algae

0 0.01 ↑↑↑ High

Potential exists to sustainably increase

harvesting from the sea.

Scale-up would require huge

infrastructure investment.

Food, energy

Imported

biomass 2 33.4-100 ↑↑↑ Low

Important to ensure high standards of

biomass sustainability in country of

origin. Risk of diverting biomass from a

low-carbon use in country of origin.

Wide range of possible values,

depends on biomass markets in

other countries.

Dependent on

nature of

biomass

Source: E4tech

37

Box 1: British Sugar, Wissington case study

British Sugar, a leading supplier of sugar to the United Kingdom market, operates a sugar

factory in Wissington, Norfolk. They use United Kingdom grown sugar beet to produce a range

of products, taking an integrated approach to manufacturing to transform all their raw materials

into sustainable products. Activities at this plant contribute to, and are components of, several

sub-sectors of the bioeconomy.

The plant processes over three million tonnes of sugar beet per year to supply 420,000 tonnes of

sugar to food and drink manufacturers across the United Kingdom and Europe. In addition,

each year, over 140,000 tonnes of animal feed are produced from sugar beet pulp (a by-product

of the sugar producing process), 120,000 tonnes of lime for soil conditioning, 150,000 tonnes of

soil for landscaping, and 5,000 tonnes per year of stones are recycled for building.37

Since 2007, a fraction of the sugar syrup produced in the factory has been fermented to produce

ethanol, with the carbon dioxide from this process captured and liquefied on-site. This was the

United Kingdom’s first bioethanol plant, and can produce up to 55,000 tonnes of ethanol per

year. The wastes from the sugar and ethanol production processes are put into an anaerobic

digester to produce biogas. This biogas, along with some natural gas, is used in a 93 megawatts

electric on-site combined heat and power plant.38 The electricity produced by the plant can either

be used on-site or exported, the steam is used in the sugar production process, and the carbon

dioxide is used to fertilise tomatoes grown nearby in eighteen hectares of greenhouses.

Producing a wide range of products in an integrated process allows British Sugar to minimise

the environmental impact of each product by re-using wastes from one process as inputs to the

next, therefore minimising emissions to the environment and the need to use additional

resources. It also

offers them the

opportunity to add

value to these

‘waste’ products and

therefore gain an

additional revenue

stream. Running a

highly resource-

efficient and

integrated factory

therefore provides

both environmental

and economic

benefits to British Sugar.

37 British Sugar, About Wissington factory (British Sugar, Peterborough) 38 Approximately 50 megawatts of this are exported.

38

Highlights of section three

In general, feedstocks are currently in good supply (this was reflected both in analysis and in

interviews), but the United Kingdom is heavily dependent on imports for some feedstocks.

Moreover, the country may face increased competition for supplies of some traditional

agricultural commodities such as corn, wheat and oats from emerging markets in the future,

whilst others remain plentiful. With this, prices of these commodities could rise.

There is a significant but limited supply of waste feedstocks, and significant potential for the

production of energy crops. However, the realisation of these potentials is uncertain as it

depends on future policy developments. Supply of forest-derived products is likely to stagnate

as the growth of woodland areas slows.

Feedstocks that have traditionally had limited use or been confined to specific industries are

increasingly being viewed as part of the bioeconomy as a whole, with the potential to be used

across a range of sectors such as food, materials, chemicals and energy. This may lead to more

efficient use of biomass resources, but could also increase competition for those with limited

supply.

Feedstocks are demonstrating the increasing interconnectedness of the sectors across the

bioeconomy involving, for example, the production of food, materials, chemicals and energy in

single enterprises.

39

4 INVESTMENT

In this section, we examine the level of investment in the bioeconomy of the United Kingdom.

First, we look at historical trends. Second, we examine the split between capital and research

and development investment. Third, we look at the public and private investment split. Finally,

we consider sectors that are experiencing difficulties in attracting investment.

4.1 Trends in overall investment

We define overall investment as gross fixed capital formation. Gross fixed capital formation is

probably the most regularly cited measure of investment from national accounts. It refers to the

net increase (i.e. investment minus disposals) in physical (i.e. non-financial) assets within the

measurement period. It does not account for the consumption (depreciation) of fixed capital, and

also does not include land purchases.39

Figure 20: Real gross fixed capital formation in bioeconomy sectors, £ billions (2013 prices)


Using Office for National Statistics data, we can see that investment spending in the

transformative bioeconomy sectors experienced modest declines in real terms around the turn of

the century, bottoming out in 2004. It then experienced rapid growth of 37 per cent in the years

39 FT lexicon, Definition of gross fixed capital formation, Financial Times, 2016

5.6 5.0 4.3 4.1 4.9 4.9 4.9 5.2 5.0 5.1 6.2 6.4 6.5 5.7 5.9

6.9 7.0

1.2 1.3

0.9 1.0 0.7 0.8 0.7 0.7 0.7 0.5

0.6 0.5 0.4 0.4 0.6

0.6 0.6

4.0 4.0 4.0 3.6 3.6 3.5 3.9 3.6 3.9 4.3

4.2

6.8 5.6

4.9 5.6

5.6 5.8

3.2 3.2 3.3

2.9 2.9 2.4 2.4 2.1 2.3 2.2 2.3

2.4

1.9

2.2 2.2

2.2 2.5 1.4 1.5

1.5 1.5 1.4

1.3 1.2 1.2 1.2 1.2

1.3

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0

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100

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Industrial biotechnology and bioenergyManufacture of food products and beveragesWater and remediation activitiesForestry and loggingAgriculture and fishingWhole economy gross fixed capital formation (right-hand-side)

40

from 2004 to 2008, when the main drivers were a near doubling of investment in water and

remediation activities and a 22 per cent increase in agriculture and fishing investment. This was

halted by the recession of 2008-9.40 There has then been renewed increase since 2010, above the

trend in the whole economy average, though the level of gross fixed capital formation in these

sectors has yet to regain its pre-crash peak in real terms. (See Figure 20.)

Figure 21 shows capital investment in agriculture and fishing. Overall gross fixed capital

formation in the sector experienced a strong spurt in growth from 2000 to 2009. The financial crash

led to a fall in investment spending, but it had surpassed its previous peak by 2013.

Figure 21: Real gross fixed capital formation in agriculture and fishing, £ billions (2013 prices)


Figure 22 shows that forestry has been experiencing a long term decline in investment, mainly due

to a decline in investment in the paper industry up to 2009. Since then, the trend has been reversed

and there has also been an increase in investment in forests themselves.

40 Investment across the whole economy began to fall in 2008, when bioeconomy investment was still

growing. The probable reason is that the initial shocks to the economy were emanating from non-

bioeconomy sectors, such as banking, housing and financial services. The downturn was then transmitted to

bioeconomy firms and, as a result, bioeconomy investment contracted sharply in 2009.

41

Figure 22: Real gross fixed capital formation in forestry and logging, £ billions (2013 prices)

Sources: Capital Economics and the Office for National Statistics. Note: values for accommodation and libraries, archives, museums and

other cultural activities are all less than £0.1 billion.

Figure 23 shows investment activity in water and remediation activities. Investment here is

dominated by water collection, treatment and supply. There was a notable peak in 2008/9. The

reasons for this are not completely clear, but company reports indicate record investment in

Scottish and Welsh water at the time.41,42

Figure 24 shows investment in the production of food and beverages. In general, there appears to

be a downward trend, though the most recent observation from 2013 was the highest since 2001.

The investment share of drinks seems to have slightly increased over time.

Investment in industrial biotechnology and bioenergy declined around the turn of the century,

mainly due to a reduction in biopharmaceutical and biochemical investment. Since 2003,

investment has more or less flatlined, albeit with a temporary peak in 2007-8 just before the

financial crisis hit. (See Figure 25.)

41 Scottish Water, ‘Record investment and performance across Scotland for our customers’, Annual report and

accounts 2008/09 42 Welsh Water, Record investment as Welsh Water helps customers cope with recession, June 2009

42

Figure 23: Real gross fixed capital formation in water and remediation activities, £ billions (2013 prices)

Sources: Capital Economics and the Office for National Statistics. Note: values for waste collection, treatment and disposal activities and

materials recovery are £0.1 billion from 1997 to 2007 and less than £0.1 billion from 2008 to 2013. Values for remediation activities and

other waste management services fluctuate between £0.1 and £0.2 billion.

Figure 24: Real gross fixed capital formation in manufacture of food products and beverages, £ billions (2013 prices)


2.9 2.9 2.9 2.7 2.8 2.6 2.8 2.5 2.83.2 3.2

5.3

4.33.5

4.2 4.3 4.3

0.9 0.9 0.90.8 0.7 0.8

0.90.8

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Remediation activities and other waste management services

Waste collection, treatment and disposal activities; materials recovery

Sewerage

Water collection, treatment and supply

2.2 2.1 2.32.1

1.7 1.7 1.71.4 1.5 1.4 1.5 1.4

1.2

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Manufacture of food products Manufacture of beverages

43

Figure 25: Real gross fixed capital formation in the industrial biotechnology and bioenergy sector, £ billions (2013 prices)

Sources: Capital Economics and the Office for National Statistics. Note: Gross fixed capital formation in the manufacture of leather is

less than £0.1 billion for each year from 1997 to 2013.

4.2 Capital / research and development split

As Figure 26 shows, the share of capital expenditure which goes on research and development has

averaged just over 30 per cent for many years.

0.6 0.6 0.6 0.60.5

0.4 0.4 0.3 0.3 0.4 0.4 0.30.2 0.3 0.3 0.3 0.3

0.1 0.10.1 0.1

0.1

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0.0 0.0 0.0 0.0 0.0

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0.2 0.2

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0.3 0.3 0.3 0.3 0.3

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0.4 0.4

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0.4 0.5

0.40.4 0.4 0.4 0.4

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Manufacture of leather Biochemicals, biopharmaceuticals and bioplastics

Electrical equipment Construction and architecture

Science and research Other services

44

Figure 26: Bioeconomy research and development spending as a share of bioeconomy gross fixed capital formation, per cent


4.3 Public / private investment

The majority of the public sector’s contribution to investment in the bioeconomy is found in

research and innovation spending (though some also goes on capital expenditure such as

buildings or equipment). In 2011, total research and development spending on the bioeconomy in

the United Kingdom totalled £1.9 billion, of which 38 per cent or £733.5 million was in public

funding. 43 Another estimate has the figure of public funding for bioeconomy research as £610

million in 2013.44 This discrepancy can be partially accounted for by the latter figure’s exclusion of

international collaborations and capital investment. However, even if the latter figures are used,

the public proportion is still 32 per cent, so the true figure is likely between 30 and 40 per cent.

Health (£265 million) and food (£162 million) were the themes with the largest associated

underpinning public sector bioeconomy research, together accounting for 70 per cent of all

investment. Of public research investment in the bioeconomy, 84 per cent (£512 million) was

allocated by the United Kingdom’s seven Research Councils and Innovate UK. Leading the way

were the Medical Research Council (£203 million) and the BBSRC (£194 million). (See Figure 27.)

The £610 million of 2013 research and development funding identified in the review was split

between seven bioeconomy themes (See Figure 28).

43 European Commission Bioeconomy Observatory 44 Biotechnology and Biological Sciences Research Council on behalf of the Chairs of the Agri-tech, Industrial

Biotechnology and Synthetic Biology Leadership Councils, UK public research investment underpinning the

Bioeconomy 2012/2013 (Biotechnology and Biological Sciences Research Council), 2013

45

Figure 27: Total investment by public funders in research underpinning the bioeconomy, 2013 (per cent)

Source: Biotechnology and Biological Sciences Research Council. Note: The Department of Agriculture and Rural Development in

Northern Ireland is now encompassed in the Department of Agriculture, Environment and Rural Affairs.

Figure 28: Sector shares of publicly funded bioeconomy research and development spending, 2013 (per cent)

Source: Biotechnology and Biological Sciences Research Council

4.4 Sectors experiencing investment shortages

This sub-section considers whether the levels and composition of current investment spending are

appropriate to support current bioeconomy innovation opportunities. We review recent reports

46

that have commented on the subject and discuss the responses from our expert interviewees with

respect to this question.

In 2011, NESTA, an innovation charity, conducted an investigation into financing industrial

biotechnology in the United Kingdom. It identified three obstacles to unlocking investment in the

sector in this country:

There is a lack of investment by large industrial biotechnology firms in industrial

biotechnology in the United Kingdom. In part, this is due to a lack of large firms in some

areas of the sector (chemicals and materials manufacturing). In other sectors, British firms

are characterised by an inability or unwillingness to collaborate and nurture start-up firms.

The venture capitalist – industrial biotech firm relationship is both much less established

and (as a result) much less beneficial for biotech companies in the United Kingdom than it

is in the United States. There are a number of reasons for this. The up-front costs tend to be

larger than for other industries and the time to return on investment is longer. Venture

capitalists tend to be much less familiar with the business model than may be the case

with, say, pharmaceuticals. Venture capitalists in the United States have tended to be more

adept at exiting poorly performing projects and this has made them less conservative

about investing in the new projects. (The failure to be as adept in the United Kingdom has

meant that less funds tend to be made available by venture capitalists in the first place,

which acts to restrict the scope for project success and means that venture capitalists then

continue to be sceptical of the sector – a ‘chicken and egg’ problem.)

More specifically for the waste-related sectors, generators of waste expect a company to

have secured funding before awarding it a treatment contract but its financers expect to

see signed contracts before investing.45

As a result, the NESTA report stated that:

Industrial biotechnology exemplifies the problems that companies who develop novel technology face

– those with long and expensive development timelines, and who are dependent on large companies

to put their products into action (as customers, acquirers, or by growing themselves). These

companies need funding to develop and test the technology they have come up with. They need

demonstrations to convince investors and large companies that the technology will work. They need

to scale-up processes from the laboratory to the plant, usually in several stages.

The high degree of uncertainty and technical risk for these companies means they struggle for

investment in a shrinking early-stage venture capital market. 46

Similar views were found in our expert interviews, where the main investment deficiency was

believed to be at the development or translation phase – taking an early stage idea into a full-scale,

fully-tested proposition.

45 NESTA, Financing industrial biotechnology in the UK: Report prepared for NESTA by Technology Greenhouse Ltd

(NESTA, London), October 2011 46 NESTA, Financing industrial biotechnology in the UK: Report prepared for NESTA by Technology Greenhouse Ltd

(NESTA, London), October 2011

47

Prior to production, there is evidence from our quantitative assessment, qualitative overviews of

the state of innovation in the United Kingdom and interviews with experts, that initial level

research and development (i.e. the ‘research’ part) is for the most part adequately funded.

However, there are concerns relating to the development part. In the case of many bioeconomy

products, large investments (both in terms of finance and physical scale) are required to reach the

first stage of ‘prototype’ production. This can be the stage that is neglected in the product lifecycle

process. It is not one where venture capital companies are willing to lend large sums of money, as

the risks are perceived as too high.

Of course, five years have passed since the NESTA report, and the NNFCC has recently reported

that some measures have been taken to address these issues. Nevertheless, the balance sheet is

mixed.

Since the NESTA report, the IB Catalyst scheme and a number of VC funds were set up by public

bodies including the Green Investment Bank, CO2 Sense and Rainbow Seed Fund … However,

there are still no world-leading IB or innovative bioeconomy companies in the UK except for

multinationals conducting bioeconomy R&D in the UK to lower environmental footprints with bio-

based alternatives, such as Unilever, Invista, and BP. In addition, GIB are privatising so there will

be no guarantee of future investment priorities.47

An example of this is provided by the biotech company Calysta, which sought venture capital and

catapult funding to assist with developing a new way of manufacturing fish food from biomass.

Altough a conditional award of £2.8 million was eventually forthcoming from the Exceptional

Regional Growth Fund48, this was only a small proportion of the £30 million required for product

research and development, market introduction, commercial manufacturing and continued

advances in its proprietary state-of-the-art gas fermentation platform. Fortunately, the scheme

eventually went ahead due to $30 million funding from the large American firm Cargill.49 This

may ultimately be a success story, but for a time the scheme was in jeopardy.

In our interviews with industry experts, we sought views on whether current levels of investment

are adequate and whether the public / private balance is about right to meet the opportunities and

growth potential. The views were mixed, with some sectors identifying investment shortages and

others not. In the bioenergy sphere, price volatility can act to undermine investment. In particular,

as the industry has oil and oil-based products as a competitor, it is subject to the same investment

volatility in investment that results from oil price swings. However, in this sector and particularly

with respect to energy crops, a lack of clear policy and regulation were also felt to reduce

investment.

In our expert interviews, there was a perception in the food industry that they received low levels

of investment. Much of their innovation concerns incremental improvements in existing products,

which may not be considered sufficiently novel. An example of incremental innovation is in the

area of ‘snack’ foods, where companies have been seeking to launch product lines that are more

nutritious than in the past. In our interviews, Walkers’ Sunbites crisps were mentioned as such a

47 NNFCC and the University of Aberystwyth, Bio-based UK: A review of barriers and interventions needed to

stimulate growth of the bio-based economy and improve UK competitiveness (NNFCC, York), March 2016 48 Intrafish news, Calysta opens UK aquaculture feed ingredient facility, January 2016 49 Fish farming expert, Cargill backs microbial protein production, February 2016

48

product – they are a wholegrain crisp, containing high amounts of fibre and lower levels of fat, and

are also free of added flavourings. Yet, in spite of industry perceptions, as our statistics show in

Figure 28, a sizeable portion (27 per cent) of public bioeconomy research and development funding

is in the food sector. A possible explanation for the disconnect between statistics and perceptions is

that public funding is on precompetitive research aimed at addressing scientific questions and

increasing scientific understanding, whilst incremental improvements of existing products are

driven by commercial gains (albeit companies certainly believe their innovations to be welfare-

enhancing as well as profitable).

Box 2: Investment case study

Precision agriculture is changing the way farmers and agribusinesses view and utilise their land.

By combining global positioning systems and geographic information systems, farmers can

efficiently manipulate and analyse large amounts of geospatial data. This helps them with farm

planning, field mapping, soil sampling, tractor guidance, variable rate applications and yield

mapping, to name a few.

The National Centre for Precision Farming is an initiative set up by Harper Adams University,

which aims to provide information and a range of support to farmers to help them meet the

political, economic and environment needs by using smarter systems. They have created a

robotic orchard tractor with built-in sensors which gathers data and analyses and presents

information to the farmer prior to irrigation and harvesting during the growth season.

Precision agriculture can significantly reduce the amount of nutrient and other crop inputs used

while boosting yields, which helps farmers obtain higher returns on their investments by saving

on fertilizer and other costs. The precise technology also allows the ideal amount of inputs to be

used in the right place, thus benefiting the entire crop cycle. As a result, precision agriculture

could become a cornerstone of sustainable agriculture.

Source: Harper Adams University

However, a challenge exists in securing support from companies already engaged in other types

of products to support agriculture (such as chemicals). Simon Blackmore of Harper Adams

University told The Engineer (2012): “It’s a paradigm shift and therefore everybody is a little bit

nervous. The trouble is that it’s a very disruptive technology for them.”

49

Highlights of section four

The transformational bioeconomy has a mixed record with respect to investment. In general,

rates of investment growth were below those for the economy as a whole in the years leading

up to the financial crisis of 2008-9. Since then, it has performed better. Agriculture and water

account for the lion’s share of capital expenditure.

Around 30 per cent of bioeconomy investment is accounted for by research and development

spending, of which somewhere between 30 and 40 per cent is publicly funded.

The evidence from reports and recent interviews suggest that there is still a shortage with

respect to investment in translational research and scale-up.

Many sectors of the bioeconomy report a sub-optimal level of investment, but the extent of the

problem varies, according to expert interviews.

50

5 INTERNATIONAL COMPARISONS

In this section, we assess the United Kingdom’s relative position in the global biotechnology

and bioenergy market place and discuss its significance in the worldwide setting. We also

examine the bioeconomy policy approaches adopted in other countries and compare them with

the United Kingdom, drawing out some of the most interesting initiatives enacted

internationally.

5.1 Gross value added comparisons

Recent studies have estimated the overall size of the European bioeconomy. Analysis by the Nova

Institute for Ecology and Innovation has found that the turnover of the European Union

bioeconomy was €2.1 trillion (£1.8 trillion) in 2013,50 while an alternative study by the Intesa San

Paolo Research Department also estimates annual turnover at €2.1 trillion, but for 2009.51 The

Intesa San Paolo study provides a further breakdown of Europe’s bioeconomy by country. They

estimate that the sector’s total production for the ‘big five’ European countries was €1.2 trillion in

2011. They assess that the United Kingdom’s bio-based output is the lowest of this group at €155

billion, after Germany (€330 billion), France (€295 billion), Italy (€241 billion) and Spain (€187

billion).

The largest sector in the transformative activities of the UK bioeconomy is the manufacture of food

and drink products. This sector tends to dominate in France and Germany as well, with 30 to 40

per cent of total bioeconomy gross value added in these three economies. In Spain and Italy,

agriculture is larger, with a greater than 40 per cent share. (See Figure 29.)

The contribution of agriculture means that Spain has a similar sized bioeconomy to that of the

United Kingdom, Italy’s is larger and France’s is materially so. If, however, we strip out the

contribution of agriculture, the bioeconomy in the United Kingdom is larger than those in Italy

and Spain and similar to that of France. (See Figure 30.)

50 Dirk Carrez, Michael Carus and Stephan Piotrowski, European Bioeconomy in Figures (Nova Institute for

Ecology and Innovation, Hurth), March 2016 51 Serena Fumagalli, Stefania Trenti, Fabrizio Sibilla, A first attempt to measure the bio-based economy (Intesa San

Paolo, Turin), October 2014

51

Figure 29: Sector shares of European bioeconomies gross value added at basic prices, per cent, 2013


Figure 30: Contribution of agriculture and the rest of the bioeconomy to gross value added of European bioeconomies gross value added in 2013, € billions


52

5.2 Employment

Recent studies have estimated that more than eighteen million people were employed in the

European bioeconomy in 2011 and 2013.52,53 In 2014, the transformative bioeconomy sectors we

have identified employed 0.9 million people in the United Kingdom. According to Eurostat data,

this was the lowest figure for the ‘big five’ major European economies, with other countries

ranging from 1.2 million (Spain) to 1.6 million (Germany). The United Kingdom has a large labour

force compared with many countries in Europe. As a result, these numbers correspond to an even

lower share of total employment in these sectors. (See Figure 31.)

Figure 31: Share of total employment in the European Union’s ‘big five’ economies accounted for by the transformative bioeconomy, per cent


Employment in the bioeconomies of France, Italy and Spain is heavily dominated by agriculture,

with it accounting for 49, 51 and 56 per cent of each country’s bioeconomy employment

respectively. The profile of bioeconomy employment in the United Kingdom is much closer to that

of Germany and it is spread more evenly between all sectors, though still with agriculture and

food and beverage manufacturing dominant. This might make Germany the most relevant

52 Dirk Carrez, Michael Carus and Stephan Piotrowski, European Bioeconomy in Figures (Nova Institute for

Ecology and Innovation, Hurth), March 2016 53 Serena Fumagalli, Stefania Trenti, Fabrizio Sibilla, A first attempt to measure the bio-based economy (Intesa San


53

comparator when considering the opportunities, growth prospects and appropriate policies for the

development of the bioeconomy in this country. (See Figure 32.)

Figure 32: Percentage share of bioeconomy employment by sub-sector, 2014


5.3 Exports and imports

One 2014 report on the European bioeconomy estimated that bio-based products accounted for

nearly fifteen per cent of the European Union’s total exports in 2011.54 Spain was the country with

the biggest share of its exports coming from bio-based sectors, at 20.3 per cent, followed by France

(18.9 per cent), Italy (11.8 per cent), Germany (10.7 per cent) and the United Kingdom (9.3 per

cent). The United Kingdom fares slightly better on the propensity to export, the share of

production actually exported. Here Germany leads the way with the United Kingdom ahead of

Italy, the bottom nation among the ‘big five’. (See Figure 33.)

Of the ‘big five’, only Spain and France have a positive balance on their international bioeconomy

trade (driven by surpluses in agriculture and food in both cases and, in the case of France, by

biochemicals too). France had the biggest surplus among the group, like Spain, driven by its

positive balance in food and agriculture and forestry. Germany recorded a heavy surplus in all the

categories except for agriculture, forestry and fishery where the deficit was so great as to more

than cancel this out. Both Italy and the United Kingdom, which had the group’s largest deficit,

recoded negative balances in all categories. (See Figure 34.)

54 Serena Fumagalli, Stefania Trenti, Fabrizio Sibilla, A first attempt to measure the bio-based economy (Intesa San


54

Figure 33: Exports as a share of domestic production in 2011, per cent

Sources: Capital Economics and Intesa San Paolo

Figure 34: Bioeconomy trade balance in 2011, € billions

Sources: Capital Economics and Intesa San Paolo

55

5.3.1 Level of investment in bioeconomy (public and private)

The European Commission publishes data on bioeconomy research and development spending

through its National Bioeconomy Profile factsheets. (See Table 7.) According to this, Germany is the

exception to the rule in seeing most bioeconomy research and development expenditure

conducted by the public sector. France and the United Kingdom are rather similar with 32 and 39

per cent of investment respectively coming from public sector sources. However, there are

obvious gaps in this data – for example, it appears to have poor coverage with respect to public

investments in Spain and Italy and other differences could be being caused by more

comprehensive data collection in some countries such as Germany. As a result, these numbers

should probably be used for tentative conclusions only.

Table 7: Bioeconomy research and development spending, 2011 € millions

Total public research

and development investment

Total private research and development investment

Total Public proportion

(per cent)

France 1,631 3,404 5,035 32.4

Germany 10,086 8,911 18,997 53.1

Italy 6 1,673 1,679 0.4

Spain No data 1,290 1,290 No data

United Kingdom 946 1,505 2,451 38.6

Sources: Capital Economics and European Commission Bioeconomy Observatory

5.4 United Kingdom comparative advantage

The United Kingdom is particularly strong in the pure research and innovation aspect of the

bioeconomy. It ranks second after Switzerland on the 2015 Global Innovation Index, which is a

measure of the national climate for innovation based on 79 indicators, including political and

business environment, levels of education and research and development, general infrastructure,

market sophistication, business sophistication, knowledge diffusion, and creative outputs.55 It

comes fourth out of 100 in Nature magazine’s index tables which tracks affiliations in research

publications in a select group of scientific journals, providing an indicator of high-quality research

contributions from institutions, countries, regions and disciplines.56 (See Table 8.)

The United Kingdom’s research base is highly competitive in international terms. ‘Field-weighted

citation impact’ is an indicator of the mean citation impact of academic research articles, and

compares the actual number of citations received by an article with the expected number of

55 Cornell University, Institut Européen d'Administration des Affaires and World Intellectual Property

Organization, The Global Innovation Index 2015: Effective Innovation Policies for Development (The World

Intellectual Property Organization, Geneva), September 2015 56 Nature Publishing Group, ‘Nature Index 2015 Global’, Nature, Vol. 522, 2015. pp S34-S44

56

citations for articles of the same document type (article, review or conference proceeding paper),

publication year and subject field. On this measure, according to Scopus (the largest abstract and

citation database of peer-reviewed literature) data, the ‘quality’ of research in the United Kingdom

is the highest of any country in the world and has opened up a significant lead over other

countries in recent years.57 (See Figure 35.)

Table 8: Nature index of volume of research articles

2014 ranking Country Weighted fractional count

(proportionate contribution) Article count (raw number

of author citations)

1 United States 17,937 26,638

2 China 6,037 8,641

3 Germany 4,019 8,582

4 United Kingdom 3,250 7,592

5 Japan 3,200 4,976

6 France 2,222 5,243

7 Canada 1,489 3,226

8 Switzerland 1,294 2,715

9 South Korea 1,168 1,969

10 Spain 1,091 2,897

Sources: Capital Economics and Nature

Figure 35: Field-weighted citation impact for the United Kingdom and comparator countries, 2008-2012

Sources: Capital Economics and Elsevier, using Scapus data

57 Elsevier, International comparative performance of the UK research base – 2013 (Department for Business,

Innovation and Skills, London), 2013

57

The United Kingdom has an extensive research and development infrastructure. It has some of the

world’s top life sciences universities; Cambridge is ranked third globally and Oxford fourth. It has

a total of 45 universities in the Times Higher Education rankings of the world’s top 500. The

United Kingdom has seventeen institutions ranked in the top 100 worldwide for life sciences. The

country had 27,478 life sciences graduates in 2012, compared to the average for Organisation for

Economic Cooperation and Development member nations of 9,028. In addition, the United

Kingdom is the fourth largest contributor to research and development – even when only

considering the expenditure on industrial biotechnology and bioenergy. (See Figure 36.)

Figure 36: Biotechnology research and development expenditures in the business sector, 2013 or latest available year, £ billion

Sources: Organisation for Economic Cooperation and Development for all countries except United Kingdom. United Kingdom figure

comes from Capital Economics’ survey.

This strong research and development base produces a high level of innovation. In

biopharmaceuticals in particular, research and development spending makes up over 25 per cent

of all such spending by the private sector. The United Kingdom conducts many clinical trials both

in absolute numbers and relative to the size of its population. Furthermore, a large share of trials

registered since 2013 have been in early phase research. Of the 694 trials registered in 2013, 187

were Phase I and 202 Phase II trials.58 A large amount of patenting takes place in the United

Kingdom as a result of its intensive and extensive research and development environment. The

country’s share of the world’s high-quality patents filed under triadic patenting was 3.13 per cent

in 2012, well above that of other larger countries.59 In biotechnology specifically (which, of course,

does not include the whole bioeconomy), residents of the United Kingdom filed 404 patents under

the Patent Cooperation Treaty in 2011.60 Figure 37 shows the proportions of such applications by

58 Pugatch Consilium, Building the bioeconomy 2015 Annex (Pugatch Consilium, London), 2015. p.32 59 Pugatch Consilium, Building the bioeconomy 2015 Annex (Pugatch Consilium, London), 2015. p.32.

Triadic patents are a series of corresponding patents filed at the European Patent Office, the United States

Patent and Trademark Office and the Japan Patent Office, for the same invention, by the same applicant

or inventor. Triadic patents form a special type of patent family. 60 ibid

0.0

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en

Net

her

lan

ds

Isra

el

Ital

y

Irel

and

Can

ada

Au

stri

a

No

rway

Cze

ch R

epu

blic

Ru

ssia

n F

eder

atio

n

Au

stra

lia

Fin

lan

d

Mex

ico

Po

lan

d

Sou

th A

fric

a

Slo

ven

ia

Po

rtu

gal

Esto

nia

Slo

vak

Rep

ub

lic

United Kingdom figure relates only to industrial biotechnology and bioenergy

Truncated axis; United States = £16 billion

58

country for the years 2010 to 2012. The United Kingdom is in seventh place, with almost four per

cent.

Figure 37: Leading countries’ shares of total biotechnology patent applications filed under the Patent Cooperation Treaty, latest available year (per cent)

Sources: Capital Economics and Organisation for Economic Cooperation and Development

Figure 38: United Kingdom symmetric revealed comparative advantage relative to Group of Seven countries, 2010


0

2

4

6

8

10

12

14Truncated axis; United States = 41

59

All of these facts contribute to the United Kingdom’s ‘revealed comparative advantage’ and

‘revealed technology advantage’. The former determines each sector’s share of a country’s exports

relative to the same sector’s share of global exports. Hence, a positive value means that, compared

to the rest of the world, a sector represents a disproportionately large share of a country’s overall

exports. Conversely, a negative value implies that a sector represents an unusually small

proportion of a country’s exports. On this measure, relative to Group of Seven countries, the

United Kingdom performs well in pharmaceuticals. However, the country is only comparable to,

or behind, its peers when it comes to other sectors with a material bioeconomy component, such as

wood products and plastics or rubber products. (See Figure 38.)

This does not give the complete picture though, as many bioeconomy sub-sectors are not included

in Figure 38. Measures of ‘revealed technology advantage’ provide an indication of the relative

specialisation of a given country in selected technological domains and do cover more bioeconomy

sub-sectors. The calculations replicate those for revealed comparative advantage, but use patent

data, rather than export data (i.e. comparing a sector’s share in patents for a particular country

with that sector’s share in global patents). These suggest that biotechnology accounts for a

somewhat greater proportion of total technological innovation in the United Kingdom than it does

in other leading economies.

Several bioeconomy-related sub-sectors perform strongly in analysis of United Kingdom revealed

technology advantage – organic chemistry, biotechnology and pharmaceuticals and medical

technology and biotechnology analysis. (See Figure 39.)

Figure 40 presents an index of revealed technological advantage in biotechnologies, calculated as

the share of the country in biotechnology patents relative to the share of the country in total

patents (filed under the Patent Cooperation Treaty), for the G7 economies. The United Kingdom is

third behind only the United States and Canada, indicating that biotechnology activities are

relatively more important to the British economy than to most other G7 countries.

‘Field-weighted citation impact’, assessing the mean citation impact of academic research articles

to determine the quality of research, can also be used to identify in which sectors the United

Kingdom is performing particularly well. These show a notable shift over the last decade, with the

country improving its standing in many scientific disciplines. Clinical, biological and

environmental sciences are now the sectors where the United Kingdom’s quality of research has

the strongest relative technological advantage – where it most exceeds the global average. (See

Figure 41.)61

Overall, these metrics suggest that the United Kingdom is one of the leading countries in a number

of key areas of research and innovation that underpin the bioeconomy. The United States ranks as

the leading nation in the area, but the United Kingdom lies anywhere between second and

seventh, depending on the metric reviewed. The United Kingdom is in a good position to maintain

its top tier place within the global industrial biotechnology and bioenergy market – it has both the

manufacturing and research and development capabilities, supported by a skilled workforce and a

strong link with world-class academic institutions. There is significant potential for growth if the

61 Elsevier, International comparative performance of the UK research base – 2013 (Department for Business,

Innovation and Skills, London), 2013

60

industry receives the required levels of research and development spending and continues to be

supported through policy.

Figure 39: Index of United Kingdom revealed technological advantage by sector, 2000 to 2010 (values greater than zero show sectors in which the country is more innovative than the world as a whole and vice-versa)


Figure 40: Index of revealed technological advantage in biotechnologies, G7 countries, latest available year (share of the country in biotechnology patents relative to the share of the country in total patents)

Sources: Capital Economics and Organisation for Economic Cooperation and Development

-1.0 -0.8 -0.6 -0.4 -0.2 0.0 0.2 0.4 0.6 0.8 1.0

Optics

Electronics

Surface, micro-structural and nano technology

Information technology

Communications

Specialist machines

Engines and transport

Thermal processes, apparaturs and mechanical

Food and environmental technology

Handling and machine tools

Chemical engineering, macromolecular and polymers

Basic materials chemistry and metallurgy

Measurement and control

Consumer goods

Medical technology and biological analysis

Civil engineering

Biotechnology and pharmaceuticals

Organic chemistry

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

United States Canada United Kingdom

France Italy Germany Japan

61

Figure 41: Field-weighted citation impact for specific research fields for the United Kingdom and the world average

Sources: Capital Economics and Elsevier, using Scapus data

5.5 United Kingdom policy overview

The United Kingdom has no specific strategy for the bioeconomy at the national level, but there

have been a number of separate initiatives across different bioeconomic sectors. The previous

Labour government published a number of studies on how to improve British innovation and

increased public funding in basic science and technology research. It also built clusters, launched

Research & Development tax credits, increased higher education funding and encouraged

technology transfer. The Coalition government maintained this commitment to encouraging

innovation after its election in 2010, but altered policy to make more use of market incentives.

In 2010, the Department for Business, Innovation and Skills published its Blueprint for Technology.

This set out how the then government would help to create an environment in which technology

companies flourish and continue to expand. The main policy initiatives were a reduction of the

main rate of corporation tax from 28 per cent to 24 per cent over a five-year period, maintenance of

public funding levels for the sciences, and reduction in regulation and a review of the United

Kingdom’s Intellectual Property framework (including patents). This blueprint was a key part of

the government’s attempt to erect a system of incentives for the private sector to take the lead in

innovation. Much of it has subsequently been enacted and corporation tax has now been further

lowered to twenty per cent.

The United Kingdom offers research and development tax incentives to both small and large

companies. Small and medium-sized enterprises can qualify for a deduction on qualifying

activities of 225 per cent – this means that these firms can reduce their taxable income by 225 per

cent of their qualifying research and development spending. Those that post an annual loss can

62

also qualify for cash back on related spending of up to 32.6 per cent.62 Large companies can apply

for a deduction on research and development activities of 130 per cent or receive a ten per cent tax

credit through the Research and Development Expenditure Credit programme.63

5.5.1 Industrial biotechnology

Industrial biotechnology has been an area government has acted to support. The Industrial

Biotechnology Catalyst programme operated in 2014 and 2015. Over £75 million was allocated, in

four rounds, to companies and academic research organisations to accelerate commercialisation of

industrial biotechnology-derived products and processes.64 Small enterprises could have up to 70

per cent of their industrial research and 45 per cent of their experimental development costs

covered by the scheme.65

In addition, from 2010, and in recognition of the problems previously identified regarding

bridging the developmental gap between research and production, the government established a

set of “catapult” organisations to provide part-public support for the scale-up of bioeconomy

technologies. For example, there is a high value manufacturing catapult, another for cell and gene

therapy and another for industrial biotechnology and biorefining. Nevertheless, there remains the

impression amongst those working the field that significantly more resources are devoted to

laboratory research than into the resources needed to bring the innovations to commercialisation.

This contrasts with the Fraunhofer system in Germany, which is a long-established set of 67

scientific development institutes that have been designed to bring the academia / industry gap.

5.5.2 Biopharmaceuticals

As a major component of the bioeconomy and the British economy more generally,

biopharmaceuticals have received extensive policy support. In early 2014, the United Kingdom

was the leading destination in Europe for early stage life science investment, attracting £738

million between January and June. This high level of funding has been put down to government’s

attempts to support the biopharmaceutical sector, specifically the creation of a ‘patent box’ tax

break.66 This incentivises British companies to commercialise their intellectual property by only

charging a tax rate of ten per cent on any income resulting from that intellectual property.67

This incentive is particularly enticing to the biopharmaceutical sector owing to the significant

investments required for research and development and product development. As well as

stimulating early stage investing, this incentive has also encouraged biopharma companies to

establish manufacturing facilities in the United Kingdom. Just after the incentive was announced,

62 PWC, Research and development (R&D) tax credits 63 Deloitte, 2014 Global survey of R&D tax incentives, (Deloitte Touche Tohmatsu Limited), March 2014 64 Biotechnology and Biological Sciences Research Council, £17M announced to support industrial biotechnology,

May 2016 65 Deloitte, Grants & incentives program updates: The latest legislative developments from around the world,

(Deloitte Touche Tohmatsu Limited), January 2016 66 Reuters, Britain leads Europe in biotech fundraising, July 2014 67 Financial Times, UK agrees deal on ‘patent box’ tax break, February 2014

63

Glaxo Smith Kline announced the construction of a £350 million manufacturing facility in the

United Kingdom, with a possible investment of a further £700 million later. The company

specifically credited the innovation policy environment in their announcement.68

5.5.3 Agri-tech

Agriculture is covered by the Natural Environment White Paper of 2011. Out of this grew the

‘green food’ project, which aims to increase the sustainability of agriculture and the food chain in

general. In 2014, the Science and Innovation Strategy for Forestry in Great Britain was published,

the aim of which was to reinforce ecosystems, the resilience of the forests and help to develop a

low carbon, sustainable timber industry. The Marine Sciences Strategy sets out similar aims for

research in that field. The biomass strategy of 2007 was followed by the bioenergy strategy in 2012,

which highlighted the need for the use of waste materials and perennial energy crops. The Agri-

Tech industrial strategy was announced in 2013, and sought to facilitate the transfer of technology

and the commercialisation of research to improve the agriculture sector. As a result, the British

government has initiated a long-term project to discover and apply innovative technologies to the

agricultural sector.69 It seeks to support agricultural innovation with a series of grants and the

establishment of centres of innovation.70 The Agri-Tech Catalyst Fund was provided with £70

million to help businesses and researchers commercialise their research and develop innovative

solutions to global challenges in the agriculture sector. A further £90 million was set aside to fund

Centres for Agricultural Innovation.71

Genetically modified foods are viewed more favourably in British policymaking circles than in

most other European Union countries72, but it remains the case that the country is still much less

well disposed to either the trial, widespread planting or consumption of genetically modified

products than many countries outside Europe. As a result, the country is unlikely to become a

leader in this area in the near future. The current list of genetically modified seeds approved for

planting by the European Union is unsuited to the United Kingdom’s growing conditions.

Genetically modified foods was the one area of European Union regulations cited by expert

interviewees as hindering industry growth.

5.5.4 Biofuels

The British government has also used policy to boost biofuel production. Under the Renewable

Transport Fuels Obligation, fuel suppliers are required to source a percentage of their fuels from

renewable sources.73 This represents the implementation of the European Union’s Renewable

68 IHS, Business environment for big pharma improving?, IHS Blog, March 2012 69 Department for Business, Innovation & Skills, Department for Environment, Food & Rural Affairs and

Department for International Development, UK agricultural technologies strategy, 2013 70 AgriTech Blog, About the Agri-Tech Strategy 71 Department for Business Innovation and Skills, Department for Environment Food and Rural Affairs,

Department for International Development, Strategy for Agricultural Technologies Summary, December 2013 72 BBC News, MPs call for reform of EU's 'flawed' rules on GM crops, February 2015 73 Department for Transport, Renewable Transport Fuels Obligation, November 2012

64

Energy Directive and Fuel Quality Directive. It also plays an important role in stimulating biofuel

production in the United Kingdom.

Table 9: United Kingdom policy strengths and weaknesses, biotechnology sector by sector and key enabling factors

Biopharmaceutical Agricultural biotechnology Industrial biotechnology

Human capital and infrastructure for research and development

• Top life sciences universities in the world; Cambridge and Oxford ranked third and fourth

• High levels of clinical trials - per capita and total

• Biopharmaceutical research and development accounted for almost 25 per cent of total private sector research and development spending

• Agricultural technologies strategy launched in 2013

• Strong academic base

• Industrial Biotechnology Catalyst programme launched in 2015 (temporarily postponed pending outcome of government Spending Review)

Intellectual property protection

• Strong intellectual property environment

• Regulatory data protection available

• Patent term extension available

• Plant variety protection in place

• Member of the International Union for the Protection of New Varieties of Plants

• Strong trade secret protection

The regulatory environment and technology transfer frameworks

• Strong and highly regarded biopharmaceutical environment

• High levels of technology transfer and commercialization

• European Union regulations on agricultural biotechnology not conducive to wide-spread commercialization and use of agricultural biotechnology products

• United Kingdom research and development in place through agricultural technologies strategy

• Biofuels supported through fuel mandates

Market and commercial incentives

• Indirect pricing and reimbursement policies for biopharmaceuticals through the pharmaceutical price regulation scheme

• Less strict price controls than other European Union countries

• Generous general research and development tax credits available

• Size of deductions depend on size of company - larger deductions available for small and medium-sized enterprises

• Generous general research and development tax credits available

• Size of deductions depend on size of company - larger deductions available for small and medium-sized enterprises

Source: Pugatch Consilium

65

5.6 International government policy positions

Many governments around the world (and several transnational bodies such as the European

Union and the Organisation for Economic Cooperation and Development) have developed specific

strategies which support the bio-based industries. In general, strategies state the intention of the

government to support the bioeconomy (or sometimes a sub-section such as the biotechnology

sector) but do not enact specific laws, taxes, subsidies or regulations that would specifically

support the sector.

Some strategies apply to the bioeconomy as a whole. Examples of these include the 2012 United

States’ National Bioeconomy Blueprint and Finland’s 2014 Finnish Bioeconomy Strategy. Meanwhile

other strategies relate to specific aspects of the bio-economy only, such as Japan’s 2012 Biomass

Industrialisation Strategy and Brazil’s 2007 Biotechnology Strategy. According to a report by the

German Bioeconomy Council, 45 countries have issued policy strategies related to the bioeconomy

and eight of these have been comprehensive dedicated national strategies. (See Figure 42.)

Figure 42: Countries around the world which have bioeconomy strategies and/or policies in place (based on government strategies in the period 2005-2015)

Sources: Capital Economics and German Bioeconomy Council

66

5.6.1 National vs regional / industry approaches

Strategies and policies for the bioeconomy have been developed differently across countries. One

of the key distinctions between countries is whether or not there is a comprehensive national

strategy. Germany, the United States and Japan are three of the largest countries to have a national

strategy in place for the bioeconomy. Some of those countries that have not adopted the national

strategy approach have not done so because they have significant degrees of regional devolution

and strategies have been adopted by the regions. Canada is the most obvious example of this

approach.

Meanwhile, in countries like France and Italy, bioeconomy initiatives and policy are formed

around certain industries and specific areas of interest. This is not to suggest that the bioeconomy

is a mere afterthought in such countries or that bold endeavours to advance the bioeconomy are

not taken. The United Kingdom is one of those countries that has, at least hitherto, not followed

the centralised approach and appears to be closer to the industry-based or bottom-up approach

employed in France and Italy. This is particularly so when one considers the importance of the

pharmaceutical sector in the United Kingdom, which, for example, has its own government

strategy.74 Nevertheless, there is considerable interest in the bioeconomy, as evidenced by a

number of government inquiries into its potential and optimal policy regarding it.

In those countries in which they exist, high level government strategies set out the policy

framework for the bioeconomy or bioeconomy related sectors, and are underpinned by a wide

range of government bodies, private institutions and industry networks that deliver actions in line

with the policy framework. Germany is a good example of this. The government is advised by the

Bioeconomy Council, an independent body made up of experts from research and industry. There

are also a number of technology commercialisation centres, which help to bridge the gap between

research and commercialisation, and several industry networks, which facilitate knowledge

exchange.

Although it is true that countries with national bioeconomy strategies also have (on average) the

more innovative bioeconomies, it seems the latter predates the former. Thus, it is difficult to assert

that a bioeconomy strategy definitively assists in the development of the bioeconomy, but it may

facilitate policy and departmental coordination.

5.6.2 Policy objectives

The overarching aims of most bioeconomy or bioeconomy related strategies are to develop the

bioeconomy in order to address:

economic objectives such as economic growth, job creation or rural revitalisation

societal challenges such as climate change, food security and sustainable resource

management

74 Department for Business, Innovation and Skills, Strategy for UK Life Sciences (Department for Business,

Innovation and Skills, London), December 2011

67

The specific aims and objectives in each country are dependent on factors such as natural resource

endowment, industrial specialisation and stage of development. Countries can be grouped into

three broad categories, although there is clearly overlap between them, and this doesn’t imply that

the focus of countries listed is exclusive to one area. (See Table 10.)

Table 10: Key bioeconomy policy focus by country

Economic focus Exemplar countries

Countries rich in biomass focussed

on adding value in primary

industries

Brazil, Malaysia, Argentina, Finland,

Mauritius, Norway, Thailand,

Indonesia, New Zealand

High prominence of energy and

security issues with aim of

becoming more self-sufficient

Paraguay, Uganda, Kenya, Tanzania,

Mozambique

Focus on development of high tech

industries and supporting emerging

technology

Netherlands, China, India, Australia,

France, Germany, United Kingdom,

South Korea

Source: Capital Economics’ analysis of German Bioeconomy Council

5.6.3 Notable policies

Whilst many countries do not have a comprehensive national bioeconomy strategy like Germany,

most developed counties do have a number of separate initiatives covering various strands of the

bioeconomy. Table 11 provides a summary of bioeconomy policies in the G7 and the European

Union. 75 The depth and range of bioeconomy policy initiatives around the world mean that it is

difficult to summarise them all. Instead, we have identified a number of interesting initiatives that

have been deployed in a selection of countries to provide an idea of the type of approaches that are

being taken.

Canada, like the United Kingdom, does not have a specific strategy for the bioeconomy at the

national level. The federal government is focusing on the coordination of goals, but refraining from

defining its own strategy. An example of one of its policies is the agricultural strategy, Growing

Forward, covering 2013 to 2018, which dedicates C$3 billion in co-funding for innovation,

competitiveness and marketing.76 Bioenergy is an area of particular focus.77 Canada is a country

with a high degree of decentralisation in government so there is scope for provincial governments

to pursue bioeconomy policies and strategies. British Columbia, for example, set up an advisory

75 Patrick Dieckhoff, Beate El-Cichakli and Christian Paterman, Bioeconomy Policy: Synopsis and Analysis of

Strategies in the G7 (German Bioeconomy Council, Berlin), January 2015 76 Agriculture and Agri-Food Canada, Growing Forward 2 (Agriculture and Agri-Food Canada, Ottawa), April

2013 77 Natural Resources Canada, Evaluation of the Sustainable Bioenergy Strategic Priority (Natural Resources

Canada, Ottawa), November 2012

68

Bioeconomy Committee in July 2011.78 One of its actions has been to invest C$700,000 in helping

forest companies create jobs by turning their waste wood into high value bio-products.79

Table 11: Summary of bioeconomy policies in the Group of Seven

Member Name of strategy Main actors Key funding areas

Canada Growing Forward Ministry of Agriculture

Research and development on renewable resources, biobased materials and bioenergy

European Union

Innovating for Sustainable Growth

Directorate General of Science, Research, Innovation

Research and innovation plus public private partnerships

France Bundle of bioeconomy relevant policies

1 - Ministry for Ecology 2 - Ministry for Research

Bioenergy, green chemicals, clusters and the circular economy

Germany

1 - Research Strategy for the Bioeconomy 2 - Policy Strategy for the Bioeconomy

1 - Ministry for Research 2 - Ministry for Agriculture

Research and development on food security, sustainable agriculture, healthy nutrition, industrial processes and bioenergy

Great Britain Bundle of bioeconomy relevant policies

1 - Parliament 2 - Department of Energy and Climate Change 3 - Department for Environment, Food and Rural Affairs 4 - Department for Transport 5 - Department for Business, Innovation and Skills

Bioenergy, agri-science and technology

Italy No specific bioeconomy policy

- Participation in European Union programmes

Japan Biomass Utilisation and Industrial Strategies

1 - Cabinet 2 - National Biomass Policy Council

Research and innovation , the circular economy and regional development

United States 1 - Bioeconomy Blueprint 2 - Farm Bill

1 - White House 2 - United States Department of Agriculture

Life sciences (biomedicine) and agriculture (multiple areas)

Sources: Capital Economics and German Bioeconomy Council

The French government has taken direct measures to pursue its bioeconomy policies. It has

established an Investments for the Future programme to promote leading-edge technologies.80

Under the Health and Biotechnologies Programme, €1.5 billion will be spent over ten years on

infrastructure, research and training in the area of biotechnology, agricultural science,

bioinformatics and nanobiotechnology. Under the Energy and Life-Cycle Management

78 British Columbia Committee on Bioeconomy, British Columbia Bioeconomy (British Columbia Committee on

Bioeconomy, Victoria), 2012 79 Ministry of Jobs, Tourism and Innovation, ‘$700K research investment to boost B.C.’s bio-economy’, British

Columbia Government News, 2012 80 Ambassade de France à Londres, Investments for the Future Programme (Ambassade de France à Londres, London),

September 2015

69

programme, €1.35 billion is being spent on demonstration and test facilities for green chemistry

and bioenergy. A further €1 billion is being made available to fund centres of excellence for non-

fossil energy.81 Since 2005, research and industry collaborations have been organised on a regional

basis. These include the bioeconomy collaborations, such as the Union des pôles de la chimie verte du

vegetal and France Green Plastics. A plan has been developed for promoting green chemistry and

biofuels as part of the industrial regeneration policy measures (“The new face of industry”).

Beyond financial support, government policy is assisting existing industry projects in this area by

improving conditions, for example, barriers to investment will be identified and eliminated. Such

industrial regeneration plans have also been developed for other bioeconomy related sectors, such

as food innovations, recycling and green materials as well as the wood construction industry. The

government has also adopted a new plan for sustainable public procurement in order to promote

the use of ecological products. In addition, France uses new approaches regarding standards and

labels for market development. There is a label for bio-based buildings, the batiment biosourcé, and

a standard for sustainable investment funds for generating more private venture capital.

Italy does not have a specific strategy for the bioeconomy at the national level, but it has not been

devoid of specific bioeconomy policies. In 2011, Italy became the first European Union country to

ban the distribution of conventional single use plastic bags, an action which supported the market

for biodegradable bags. The Novamont biodegradable plastic bag introduced as a result of

regulation now results in fewer imports of non-sustainable plastic bags from the Far East and

higher levels of national production and employment. Then, in October 2014, the Italian

Government announced an advanced biofuel blending mandate which will require fuel suppliers

to blend 0.6 per cent of advanced biofuels from 2018, increasing to one per cent by 2022. That was

also the first such policy by a European Union state.

Germany, by contrast to the above, does have specific strategies for the bioeconomy at the national

level. The national research strategy, the Forschungsstrategie BioÖkonomie 2030, was published by

the Federal Ministry for Education and Research as early as 2010.82 The National Policy Strategy on

Bioeconomy, which was published in 2013, was a collaboration between the Federal Ministry for

Food and Agriculture, the Ministry for Education and Research, the Federal Ministry of Economics

and Energy, the Federal Ministry for Economic Cooperation and Development, the Federal

Ministry for the Environment, Nature Conservation and Nuclear Safety, the Federal Ministry of

the Interior and the Foreign Office.83 Furthermore, since 2009 the German Bioeconomy Council has

been advising the Federal Government. Alongside these strategies are action plans relating to the

use of renewable resources for material and energy production, renewable energies and forestry.

The national research strategy was awarded €2.4 billion and is primarily intended to reinforce the

innovation ability of research organisations and businesses. The strategy funds various

81 L’Agence nationale de la recherché, ‘Appel à projets "Instituts d'excellence dans le domaine des énergies décarbonées"

(IEED) – 2011’, L’Agence nationale de la recherche et les Investissements d’Avenir, 2011 82 Bundesministerium für Bildung und Forschung, Nationale Forschungsstrategie BioÖkonomie 2030

(Bundesministerium für Bildung und Forschung, Berlin), 2010 83 Federal Ministry of Food and Agriculture, National Policy Strategy on Bioeconomy (Federal Ministry of Food

and Agriculture, Berlin), 201

70

programmes including the renewable resources funding programme, BonaRes,84 GlobE,85

Innovative Plant Breeding in Cropping Systems, Deutschen Pflanzen Phänotypisierungsnetzwerks,86

Animal Health and Welfare and basic research for biotechnology and bioenergy. There are

measures to encourage the formation of links between the scientific community, small businesses

and larger industrial enterprises from different sectors with the aim of establishing new

bioeconomic value chains. The lignocellulose refinery of the bioeconomy cluster in Leuna is

receiving €40 million worth of funding.87 There is support for the construction of pilot plants from

various federal and regional ministries, examples including a second-generation bioethanol

production plant in Straubing, a plant for recycling biogenic waste in Karlsruhe and a refinery for

producing kerosene from algae in Jülich.

Japan, like Germany, has a specific strategy for the bioeconomy at the national level. Although the

term bioeconomy is not used often, there is an emphasis on the production of biomass and its use

in industry. The Biomass Nippon Strategy was released in 2002, and aimed to stimulate the

development of a sustainable economy by efficient use of biomass resources. This was followed in

2009 by the Basic Act for the Promotion of Biomass Utilisation, which sets out principles of biomass

utilisation and government responsibilities. Subsequent measures have included the establishment

of the National Biomass Policy Council, the adoption of the National Plan for the Promotion of

Biomass Utilisation in 2010 and the Biomass Industrialisation Strategy of 2012. Further initiatives have

followed – the Comprehensive Science and Technology Strategy of 2013, and a national strategy and

action plan for biodiversity.

The United States also has a specific strategy for the bioeconomy at the national level. The

Bioeconomy Blueprint, developed by the White House itself, touches on all aspects of the

bioeconomy88 and the Department of Agriculture’s Farm Bill, which covers key areas. The

Bioeconomy Blueprint seeks to facilitate improved technology transfer. The Farm Bill deploys a

range of incentives to stimulate selected areas of the bioeconomy. One example is the Biorefinery

Assistance Programme which offers loan guarantees for the development, construction and

retrofitting of commercial-scale biorefineries. The American government has also initiated a Bio-

Preferred Program that maintains a list of current designated items along with the minimum bio-

based content required. The Bio-Preferred Catalog on the United States Department of Agriculture

website provides federal and contractor personnel with a searchable database of bio-based

products. The catalogue enables customers to compare information on Bio-Preferred products and

the companies that provide them.

Many of the policy support mechanisms focus on grant funding, which is being given to

technologies at all levels of readiness, from research and development to first commercial

deployment. This suggests that government-funded grants are vital in kick-starting many of these

nascent technologies which must currently compete with well-established industries. There is a lot

84 BonaRes Centre for Soil Research, About BonaRes, (BonaRes Centre for Soil Research, Halle) 85 Bundesministerium für Bildung und Forschung, GlobE – Research for the global food supply, (Bundesministerium

für Bildung und Forschung, Berlin) 86 Deutsches Pflanzen Phänotypisierungs-Netzwerk, German Plant Phenotyping Network, (Pflanzen

Phänotypisierungs-Netzwerk, Jülich) 87 The German Bioeconomy Council, The German Bioeconomy Council - Recommendations and activities on the

way to the biobased economy (The German Bioeconomy Council, Berlin), October 2013 88 The White House, National Bioeconomy Blueprint (The White House, Washington DC), April 2012

71

of European Union grant funding available to the United Kingdom in this area (e.g. via Horizon

2020 funding). In addition to the policies presented here, many countries worldwide have

blending mandates and subsidies available to support the biofuels and bioenergy sectors.89,90

Many of the policies in other countries are focussed around funding for projects in emerging

sectors of the bioeconomy. Several key aspects of successful policies can be identified: certainty

around funding project time frame (for example the EU Horizon 2020 and ERA-NET funding

programmes), flexibility in types of funding awarded (for example the PAISS programme offers

debt finance, stakeholder equity, economic subsidy), and ease of access (clearly communicated

eligibility criteria and relatively simple application process). Finally, a combination of supply-push

and demand-pull policies may be more successful.

5.6.4 Comparative assessments

A report by the Pugatch Consilium conducts bioeconomy policy comparisons across both

emerging and developed markets. It identified a number of key attributes that may be considered

key policy facilitators of a successful bioeconomy. Table 12 below shows these and compares and

evaluates the policy environments in the four highly developed countries that form part of the

study (Singapore, Switzerland, the United Kingdom and the United States).

Table 12: The Biotech Policy Performance Measure, selected countries

Sources: Capital Economics and Pugatch Consilium

89 Biofuels digest, Biofuels mandates around the world: 2016, January 2016 90 International Energy Agency and International Renewable Energy Agency, Global renewable energy joint

policies and measures database

Singapore Switzerland UK US

Factor 1: Human capital

No of researchers per capita (million population) 6437 5500 4042 3978

% of population in tertiary education N/A 0.35 0.41 0.42

Performance compared to sample Attractive Attractive / Mixed Attractive / Mixed Attractive / Mixed

Factor 2: Infrastructure for R&D

R&D spending % of GDP 2.23 2.87 1.77 2.79

Clinical trials per capita 245.9623648 445.2940239 149.0663077 251.1714383

Performance compared to sample Attractive Attractive Mixed Attractive

Factor 3: Intellectual property protection

RDP Attractive Attractive Attractive Attractive

PTE Attractive Attractive Attractive Attractive

Performance compared to sample Attractive Attractive Attractive Attractive

Factor 4: The regulatory environment

Existence of regulatory framework and efficiency Attractive Mixed / Attractive Attractive Attractive

Factor 5: Technology transfer frameworks

Frameworks in place Attractive Attractive Attractive Attractive

Factor 6: Market and commercial incentives

P&R policies Mixed Mixed Mixed Attractive

Factor 7: Legal certainty (including the rule of law)

RoL index ranking 10 N/A 13 19

Performance compared to sample Attractive N/A Attractive Attractive

72

On these measures, the United Kingdom compared favourably with those other countries in the

study that are considered to be world leading in research and innovation underpinning the

bioeconomy (the country also ranked ahead of the emerging markets on most metrics). Across five

of the seven metrics, the country was close to the leading country. These included human capital

(including educational attainment and number of researchers), intellectual property protection, the

regulatory environment, the existence of technology transfer networks and legal certainty.

The two metrics in which the United Kingdom performed less well were pricing and

reimbursement policies and research and development. Only the United States scored highly on

the former, but Singapore, Switzerland and the United States outperform the United Kingdom by

some margin when it comes to research and development as a proportion of gross domestic

product and numbers of clinical trials per capita. In general, this shows that the United Kingdom is

doing relatively well, but that there is still room for improvement.

73

Highlights of section five

The United Kingdom transformative bioeconomy is smaller, in terms of gross value added,

than those in most of the other four large European countries. If, however, we strip out the

contribution of agriculture, the bioeconomy in the United Kingdom is larger than those in Italy

and Spain and similar to that of France.

Metrics suggest that the United Kingdom is one of the leading countries in bioeconomy

innovation. The United States ranks as the leading nation in the area, but the United Kingdom

lies anywhere between 2nd and 7th, depending on the metric reviewed. In respect of field-

weighted citation impact, a measure of the ‘quality’ of research, the country is actually in first

place. Measures of revealed technological advantage show the country is strong in

bioeconomy-related fields such as organic chemistry, biotechnology and pharmaceuticals and

medical technology and biological analysis and this also shows up in the ‘quality’ of research

in clinical, biological and environmental sciences.

The United Kingdom has a wide range of policy initiatives already deployed in respect of the

bioeconomy. These range from tax incentives to specific public sector financing and support

networks for innovation.

In terms of policies across countries:

There is a dichotomy across countries between those that follow national bioeconomy

strategies and those with a regional or more specific industry focus. It is too early to say

whether one is more successful, but the former at least confers a greater degree of

coordination.

Countries do not necessarily have the same bioeconomy objectives, with some

prioritising specific sectors, or goals such as energy security.

Several of the most notable policies in other countries are not at the research and

development end of the value chain, where there appears to be a good deal of

similarity across countries, but in their measures to raise awareness of bio-based

products versus others through bio-preferred procurement or bio-standards.

The United Kingdom rates near first-in-class in terms of the general policy

environment, human capital (including educational attainment and number of

researchers), intellectual property protection, the regulatory environment, the existence

of technology transfer networks and legal certainty, but falls down on the levels of

research and development spending.

74

6 GROWTH AND PRODUCTIVITY

In this section, we examine the historical growth of the bioeconomy and the productivity story

to date. We then look at the growth prospects in the future and the barriers that could hold it

back.

6.1 Historical growth and productivity

Between 1997 and 2013, the real terms gross value added of the United Kingdom’s transformative

bioeconomy edged down by around seven per cent, from £56 billion to £52 billion in 2013. This has

not been a smooth process, there are three distinct troughs in that period. The first is between 1997

and 2003. The second comes between 2003 and 2008. The third falls between 2008 and 2013, the

latter being the best year since 2003.

In real terms gross value added, water and remediation activities increased by 23 per cent.

Industrial biotechnology and bioenergy was the only other sector to have grown between 1997 and

2013 (by five per cent). All of the other sectors saw declines in their real terms gross value added.

Forestry and logging saw the biggest decline, of 29 per cent, over the period followed by

agriculture and fishing, with a fall of nineteen per cent, and then manufacture of food and

beverages, with eight per cent. (See Figure 43.)

Figure 43: Real output of United Kingdom transformative bioeconomy sectors and real whole economy output, £ billions in 2013 prices


0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0

10

20

30

40

50

60

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Agriculture and fishing Forestry and logging Water and remediation services

Manufacture of food and beverages Industrial biotechnology and bioenergy Total output (right-hand-side)

75

In consequence, the shares of agriculture and fishing, forestry and logging and manufacture of

food and beverages in total transformative bioeconomy output declined over the period, whilst

those of water and remediation activities and industrial biotechnology and bioenergy rose. (See

Figure 44.) The decline in respect of forestry and logging most likely reflects the drop in the

growth rate of new woodland areas that has occurred over the last ten to twenty years. Meanwhile,

agriculture has been on a long term decline and the National Farmers’ Union has reported that the

country’s self-sufficiency in homegrown food has dropped from 78 per cent in 1984 to 62 per cent

as of 2014.91

Figure 44: Sectoral shares of United Kingdom transformative bioeconomy real output, per cent


Over the same period the British economy’s overall output has grown by around 40 per cent in real

terms (black line in Figure 43). As a result, the bioeconomy’s share of the United Kingdom’s output

has fallen from 4.9 per cent in 1997 to 3.3 per cent in 2013.

Economic wellbeing is, at root, driven by improved productivity. We have proceeded to assess

productivity in bioeconomy sectors. (See Box 1.)

Growth in turnover productivity varied significantly across bioeconomy sectors. Downstream

activities had the highest compound annual growth rate over the period, at 3.9 per cent. They were

followed by upstream activities with a rate of 3.7 per cent and forestry and logging at 3.4 per cent.

Only firms in two sectors exhibited shrinking average annual turnover per employee: agriculture

and fishing and industrial biotechnology and bioenergy. (See Table 13.)

91 The National Farmers’ Union, Backing British farming in a volatile world: the report (NFUonline,

Warwickshire), September 2015

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Agriculture and fishing Forestry and loggingWater and remediation services Manufacture of food and beveragesIndustrial biotechnology and bioenergy

76

Box 3: Assessing productivity

Using the TCR database, we have analysed measures of productivity for the bioeconomy and its sub-sectors.

These were the ratios of turnover and gross value added to the number of employees.

The analysis began by identifying all bioeconomy firms in the TCR database that were present in both 2004 and

2014. This generated a universe of firms working in bioeconomy sectors over the full ten year period, which we

refer to as continuing firms. Utilising these samples of firms, turnover and output productivity over the decade

analysed were derived.

Importantly, firms in the TCR database in upstream and downstream categories are only those whom we have

definitively identified as being bio-related. Inevitably, there are many other upstream and downstream firms

that do not register as being bio-related based on a keyword search of their activities. For this reason, the total

size of the upstream and downstream sectors is considerably smaller than that identified via input-output

tables in section two (and therefore not comparable).

Table 13: Bioeconomy sectors’ turnover per employee, continuing firms, 2004 to 2014

Bioeconomy sector 2004

(£ thousands) 2009

(£ thousands) 2014

(£ thousands)

Compound annual growth rate 2004-2014

(per cent)

Agriculture and fishing 35.6 41.7 32.9 -0.8

Forestry and logging 94.0 114.4 131.5 3.4

Industrial biotechnology and bioenergy 274.3 231.9 229.6 -1.8

Manufacture of food products and beverages 191.2 221.9 219.1 1.4

Water and remediation activities 211.4 251.4 263.6 2.2

Upstream 187.9 222.3 269.7 3.7

Downstream 81.4 106.4 118.8 3.9

Whole bioeconomy 94.9 114.8 122.6 2.6

Source: TCR database, TBR 2016

The story is different with respect to productivity expressed in terms of gross value added per

employee. Upstream activities are the best performer, again alongside forestry and logging and

downstream activities, and no sector exhibited average falling annual productivity. (See Table 14.)

Over the decade and within each of the bioeconomy sectors, there have, as expected, been both

company closures and the birth of new start-ups. What’s more, there have been a number of

companies that have both started and ceased trading during the period between 2004 and 2014.

We refer to these firms, which were active for a time during the period, as ‘mayflies’.

Figure 45 shows gross value added for all types of firms that were active over the ten year period.

For continuing firms, it remained broadly unchanged between 2004 and 2014. At the same time,

the gross value added of start-ups has offset, almost exactly, the gross value added by companies

that closed at some point in time during the period. Figure 46 shows a similar trend in

employment, except here we see a slight increase in employment by continuing firms.

77

Table 14: Bioeconomy sectors’ gross value added per employee, continuing firms, 2004 to 2014

Bioeconomy sector 2004

(£ thousands) 2009

(£ thousands) 2014

(£ thousands)

Compound annual growth rate 2004-2014

(per cent)

Agriculture and fishing 18.1 22.2 21.4 1.7

Forestry and logging 36.9 46 53.8 3.8

Industrial biotechnology and bioenergy 83.2 103.2 98.6 1.7

Manufacture of food products and beverages 74.2 77.9 78.8 0.6

Water and remediation activities 147.5 177.7 192.4 2.7

Upstream 72.5 83.8 108.2 4.1

Downstream 16.2 20.2 23.1 3.6

Whole bioeconomy 30.2 35.4 38.3 2.4

Source: TCR database, TBR 2016

Figure 45: Gross value added by type of firm within the transformative bioeconomy, £ millions


Figure 46: Employment by type of firm within the transformative bioeconomy, persons


-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Continuing Firms Closures Startups Mayflies

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


78

Box 4: Pharmaceutical biotechnology case study

Two start-up companies in TCR’s database that have nonetheless made great strides in the

advancement of pharmaceutical biotechnology are Glycomix Ltd and Glythera.

Glycomix provides research and development expertise in glycopolymers for nutrition,

pharmaceutical and biotechnology companies. They provide a range of products and services

that help clients add functionality to carbohydrate polymers and related processes. They work

with clients to develop dietary supplements and medicines, and modify foodstuffs for particular

textures or consistencies. This is a sector poorly served by existing technology, and they play a

vital research and development and product development role for their clients. Of note is that

Glycomix are an example of a new company working across bioeconomy sectors. Their work

spans both industrial biotechnology and food and drink manufacturing.

Glythera is a biotechnology company focused on developing antibody-based therapies for the

treatment of cancer as well as broader based therapeutics. They have developed technologies

called ‘biotherapeutics’, including PermaLinkTM and PermaCarbTM. These technologies are an

integral part of modern medicine due to their effective properties and ability to target specific

molecules within the human body.

Measures of changes in productivity are most pertinent for continuing firms, as these firms do not,

by definition, start or end the period at zero. Nevertheless, it is also interesting to look at how

productivity has changed by sector for all firms (i.e. including continuing firms, closures, start-ups

and ‘mayflies’). This shows that labour productivity as measured by gross value added per

employee has grown most within upstream activities. This is followed by water and remediation

activities and then industrial biotechnology and bioenergy. (See Figure 47.)

Finally, we assess productivity by firm type regardless of sector. Continuing firms had, for the

most part, the highest productivity, though start-up firms came to have considerable higher

productivity that those that closed down and rivalled continuing firms in the second half of the

period. (See Figure 48.)

79

Figure 47: Compound annual growth rate of labour productivity (measured by gross value added per employee) between 2004 and 2014 for all firms within the transformative bioeconomy, per cent


Figure 48: Labour productivity, measured as gross value added per employee, by type of firm in the transformative bioeconomy 2004 to 2014, £ thousands


-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Upstream Water andremediation activities

Industrialbiotechnology and

bioenergy

Agriculture and fishing Forestry and logging Downstream Manufacture of foodproducts and

beverages

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


80

6.2 Outlook for growth

Applying a detailed projection methodology we outline in Box 5, we estimate that the real terms

output of the United Kingdom bioeconomy could grow by thirteen per cent over the years ahead –

from £52 billion in 2013 to £58 billion in 2030 (in 2013 prices), or by 0.7 per cent per annum. (See

Figure 49.) This is based on estimates for the growth of demand for the products of each of our

bioeconomy sectors.

The expectation of growth is substantially derived from expected expansion of industrial

biotechnology and bioenergy. Drawing on work undertaken by Capital Economics in 2015 in the

Biotech Britain report, we expect the industrial biotechnology sector as defined in this report to

grow by over four per cent per annum on average. In the following sections, we review the growth

prospects for the sub-sectors of industrial biotechnology. We aim to give an assessment of their

potential for growth, based on a range of literature.

These sections also explore where policy has influenced market development and we conclude this

section with a review of the barriers to growth for the bioeconomy as a whole.

Figure 49: Real output of British bioeconomy sectors, £ billions in 2013 prices


81

Box 5: Projection methodology

Our methodology is based on looking at forecasts of economic activity, consumer behaviour and likely policy

trends over the next fifteen years from reputable sources. In some cases, we use forecasts for the United

Kingdom specifically. In others, projections for the developed world in general are employed.

In a 2012 report entitled World Agriculture towards 2030/2050, the United Nations’ Food and Agriculture

Organisation estimated that, in the developed world, agricultural production growth was 0.5 per cent per annum

between 1997 and 2007 and that it will be 0.7 per cent per annum between 2005/2007 and 2030. On

average, this sector contracted by 3.2 per cent every year between 1997 and 2007 in the United Kingdom.

Assuming therefore that this also increases by 0.2 per cent, we see the agriculture and fishing sector in the

United Kingdom shrinking by 3.0 per cent per annum on average out and 2030.

In 2013, the government set out a goal for woodland cover in England to rise from ten per cent to twelve per

cent by 2060.92 We assume that the same increase in England will take place all over the United Kingdom. This

means that woodland cover in the United Kingdom will be around thirteen per cent by 2030 and fourteen per

cent by 2060 i.e. it will increase by around 0.3 per cent every year until 2030. We think it reasonable to assume

that forestry and logging will increase in line with woodland cover.

To estimate output for water and remediation services, we use the Waterwise’s 2012 factsheet titled Water –

the facts. This states that water consumption per person in the United Kingdom has grown by one per cent

every year since 1930. This will probably fall between now and 2030 due to conservation and less-water

wastage efforts. We think it reasonable to assume that, over the next fourteen years, it will change from growing

by one per cent to falling by one per cent. We add these rates to the United Nations’ Population Division’s

medium forecast for population growth every year out to 2030 to find a forecast for growth of water and

sewerage output out to 2030.

The United Nations’ Food and Agriculture Organisation estimates that, in the developed world, food

consumption will increase from 3,360 kilo-calories per day per person in 2007 to 3,430 kilo-calories per day

per person by 2030 i.e. it will increase by around 0.1 per cent every year within that period. Between 2009 and

2013, growth in the food and beverages sector’s output in the United Kingdom has been around 0.42 per cent

per annum. We assume that this will converge to the 0.1 per cent highlighted in the Food and Agriculture

Organisation report as more people in the developed work become more aware of the dangers around sugary

products and potential to become diabetic. We add this changing growth rate to the United Nations’ Population

Divisions’ medium forecast for population growth for every year out to 2030 to derive a forecast for the

manufacture of food and beverages.

Our forecast for industrial biotechnology and bioenergy is based on that which we produced for our 2015

report, Biotech Britain, for the sectors covered in that report. (These cover half of the sector and include: agri-

chemicals, bio-chemicals, bio-electronics, bio-pharmaceuticals and bio-processed pharmaceuticals, bio-plastics

and finally, health, personal care and household products.) For the others, which cover the other half of the

sector and which lie in diverse standard industrial classifications, we assume they will grow at the same rate as

the British economy overall.

Our forecast is based on current expectations regarding oil prices (moderate recovery expected in prices),

transportation costs (maintaining low levels), global demand (a fairly strong growth environment), sustainability

(moderate policy activism is undertaken) and climate change (there is modest warming over the time period).

There is modest upside potential in this – higher economic growth and a return to high prices may stimulate

higher demand and also incentivise a faster shift from petroleum-based to bio-based products. In this case,

growth may reach an annualised rate of one per cent per annum. In a pessimistic scenario, with a negative

economic environment, some political instability impeding trade, worse climate change (affecting domestic

agriculture as well as import feedstocks) and low oil prices, growth could conceivably be -0.75 per cent per

annum rather than +0.71 per cent in our base case.

92 Department for Environment, Food and Rural Affairs, Government forestry and woodlands policy statement

(London), January 2013

82

6.2.1 Biofuels

In 2008, the United Kingdom Government introduced the Renewable Transport Fuels Obligation,

which intends to reduce greenhouse gas emissions from road transport by encouraging the supply

of biofuels. The Renewable Transport Fuels Obligation places an obligation on suppliers of fuel for

road transport to supply a proportion of biofuels, or ‘buy-out’ of their obligation, paying 30 pence

per litre of biofuel that would otherwise have to have been supplied.

In the first year of the obligation (2008/09), 1.28 billion litres of biofuel were supplied in the United

Kingdom, mainly biodiesel (82 per cent).93 The majority of fuels were imported, with the most

widely reported feedstock soy originating from the United States, oilseed rape from Europe and

sugarcane from Brazil. The United Kingdom contributed eight per cent of reported feedstocks.

In 2011, the obligation was amended to implement the transport elements of the European Union

renewable energy directive, including the introduction of mandatory carbon and sustainability

standards, so that in order to contribute towards a fuel supplier’s obligation, biofuels must provide

minimum greenhouse gas emissions savings compared to fossil fuels, and they must not be made

from feedstocks originating from land with high biodiversity value or high carbon stock. The

amendments also allowed for biofuels from waste feedstocks to be counted double towards the

obligation. The impact of double counting has reduced the volume of biofuel needed to meet the

obligation, and therefore reduce the overall market size, and has led to a shift in the feedstock mix.

In 2008/09 and 2009/10, soy and oilseed rape made up over 50 per cent of total feedstocks, but since

2011/12 waste feedstocks have made up 50 per cent of total feedstock (primarily used cooking oil),

with very little biofuel supplied from soy, oilseed rape and palm.94 The result of these policy

changes and global market factors to the United Kingdom biofuel industry, was that the volume of

biofuel from domestic feedstocks supplied to the United Kingdom grew from 2008/09 to 2010/11,

then reduced in 2011/12 as a large amount of used cooking oil derived biofuel entered the United

Kingdom. The supply of United Kingdom origin biofuels to the United Kingdom market reached

pre-European Union renewable energy directive levels in 2013/14, with growth from the

production of used cooking oil biodiesel and wheat ethanol. In the 2014/15 obligation year, 1.67

billion litres of biofuels were supplied in the United Kingdom, of which 30 per cent were sourced

from feedstocks of United Kingdom origin, including wheat, used cooking oil, sugar beet and

tallow. The remaining supply was dominated by imports from France, Spain, Ukraine and United

States.

In 2008/09, the level of the obligation was introduced at 2.5 per cent and increased annually to 4.75

per cent in 2013/14, but since then there has been no increase in the level of the obligation, and no

trajectory towards the European Union renewable energy directive target of ten per cent

renewable fuel in transport in 2020. This is linked to concerns over the impact of indirect land use

change as, in October 2012, the European Commission published a proposal to introduce measures

to limit indirect land usage change and it took until 2015 for the European Council and Parliament

to reach agreement on an amended version of this proposal, and it will take until 2017 for these

amendments to be implemented in the United Kingdom.

93 Renewable Fuels Agency, Quarterly Report 4: 15 April 2008 – 14 April 2009 94 Department for Transport, Renewable Transport Fuels Obligation Statistics: period 7, 2014/15, report 6

83

The supply of United Kingdom origin biofuels to the United Kingdom market reached 500 million

litres in 2014/15. This however compares to total biofuel production capacity of over 1,500 million

litres per year in the United Kingdom, including six biodiesel plants (Argent Energy, Harvest

Energy, Olleco, Ennovono, Convert2Green and Greenergy), three bioethanol plants (British Sugar,

Vivergo and Crop Energies AG), and one biomethane plant (Gasrec). In addition to these big

players in the biofuels field, there are over 60 smaller companies registered with the Renewable

Transport Fuels Obligation operating system, producing from a few thousand to a million litres of

biofuels per year.95 United Kingdom biodiesel and bioethanol production has been significantly

lower than production capacity in recent years. Figures from the Digest of UK Energy Statistics,

using HMRC data, suggest that around 160 million litres of biodiesel and around 516 million litres

of bioethanol was produced in the United Kingdom in 2014. This contrasts with production

capacities of about 600 million litres in the case of biodiesel and 900 million litres in the case of

bioethanol (See Figure 50).

United Kingdom production has been constrained by limited increase in the market size in the

United Kingdom, due to domestic policy uncertainty resulting from the current freezing of the

obligation level and uncertainty over the future of the Renewable Transport Fuels Obligation, as

well as commercial pressures, including feedstock costs, low oil prices, and reduced demand for

exports. The prospects for United Kingdom production in the near term and investment in existing

or new production capacity is also hampered by uncertainty regarding the future policy

framework for biofuels in the European Union, as it has been suggested that specific targets for

renewable energy in transport will not be included in the European Union renewable energy

directive after 2020.96

Figure 50: United Kingdom bioethanol and biodiesel production capacity and actual production

Sources: Ecofys and Eurostat

In 2010/2011, the number of companies across the British biofuel transport supply chain was

estimated at 200, providing 3,500 jobs. The United Kingdom’s sector turnover was estimated at

95 Ecofys, Overview of UK Biofuel Producers, 2014 96 Euractiv, Green transport target will be scrapped post-2020, EU confirms, 2016

0

100

200

300

400

500

600

700

800

900

1,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

mill

ion

litr

es

Capacity - bioethanol Capacity - biodiesel

Production - bioethanol Production - biodiesel

84

£485 million, within a global market value of £15.4 billion.97 The Renewable Energy Association

estimate that by 2020 the United Kingdom’s biofuels industry could employ over 6,000 people, but

given the unsteady growth in United Kingdom biofuel capacity (Figure 50) and the stalling of the

Vireol project, this now appears to be unlikely.98

6.2.2 Bioenergy

Bioenergy is the use of biomass to provide heat or power. Bioenergy generation in the United

Kingdom has been incentivised through the renewables obligation, renewable heat incentive, and

the feed-in tariffs. The renewables obligation is the main mechanism by which the United

Kingdom government incentivises large scale electricity generation, while small scale generation

via anaerobic digestion is incentivised through feed-in tariffs. The renewables obligation operates

through the allocation of renewable obligation certificates per MWh of electricity generated, with

different technologies banded with regards to the number of renewable obligation certificates they

receive per MWh of electricity generated. Since its introduction in 2002, the number of renewable

obligation certificates issued for biomass power increased from 0.6 million to two million in 2011

and provides support for the conversion of coal fired power stations to biomass, and dedicated

biomass power plants with combined heat and power.

In 2013, bioenergy accounted for 5.2 per cent of total electricity generation in the United Kingdom99

and between 2013 and 2014 electricity generation from bioenergy increased by 25 per cent, from

18,159 GWh to 22,702 GWh100, as a result of the conversion of a second unit at Drax from coal to

dedicated biomass and several new smaller installations. However, cost control mechanisms under

both the renewables obligation and feed-in tariffs are impacting the deployment of bioenergy; for

example, in 2013, support for new dedicated biomass power plants was capped at a total of 400

MW capacity resulting in the abandonment of several planned plants. Meanwhile, the threat of

degression in tariff levels under the feed-in tariffs scheme and the prospect of scheme closure have

reportedly contributed to an increase in anaerobic digestion plant construction in 2015, as

developers try to secure subsidies before these changes occur. In 2015, there were over 130 new

projects in operation, but a smaller number of new projects entering planning.

From 2017, the renewables obligation will close to new installations with the introduction of

contracts for difference. The contracts for difference scheme will offer generators long-term

contracts for their power, with the level of support determined through an auction. In a funding

round prior to the first contracts for difference auction, three large biomass projects (two coal

plants converting to biomass and one biomass combined heat and power plant) received contracts,

while in the first round of contracts for difference auctions, five energy from waste plants received

funding but no dedicated biomass combined heat and power plants.101 Delays to the second round

of auctions have created uncertainty for investors, and the contracts for difference scheme has been

97 Renewable Energy Association and Innovas, Renewable Energy: Made in Britain, Jobs, turnover and policy

framework by technology (2012 assessment) 98 Renewable Energy Association UK Biofuels Sector – Key Facts & Figures, 2013 99 Department of Energy and Climate Change, Bioenergy statistics – UK overview, 2015 100 Digest of UK Energy Statistics, Chapter 6: Renewable sources of energy, 2015 101 Department of Energy and Climate Change, Contracts for Difference (CfD): Allocation round one outcome,

2015

85

criticised by stakeholders such as the Association for Decentralised Energy for not giving enough

support to medium-sized biomass combined heat and power projects.102 Nevertheless, evidence

from the first round of auctions suggests that energy from waste and advanced conversion

technologies such as gasification are benefitting from the contracts for difference scheme.

The renewable heat incentive supports biomass heat at small and large scale, and also the injection

of biomethane into the gas grid. In 2013, around 84 per cent of renewable heat came from

bioenergy sources, equating to around 2.4 per cent of overall heat energy103. In the 2015 Spending

Review, the government announced that the renewable heat incentive would continue with

funding increased to £1.15 billion to 2020/21. However, scheme reforms are expected.

Looking forward, the United Kingdom Bioenergy Strategy recognises that bioenergy has an

important role in helping the United Kingdom to meet its greenhouse gas emissions targets in

2050. Modelling indicates that excluding biomass from the energy mix would significantly increase

the cost of decarbonising the energy system. The strategy does however reiterate the risks

government’s concern with ensuring that bioenergy offers genuine greenhouse gas emission

reductions, in a cost effective way. It is therefore expected that there will be continued changes to

bioenergy policy to ensure that biomass is produced sustainably.104

Modelling by the Energy Technologies Institute demonstrates that bioenergy could meet ten per

cent of the United Kingdom’s final energy demand, with around two-thirds of this delivered by

United Kingdom-sourced feedstock, and highlights that bioenergy combined with carbon capture

and storage is the only credible route to meet the United Kingdom’s 2050 greenhouse gas emission

reduction targets105, 106.The sector has a long way to go to meet its potential in the United Kingdom,

and the market is strongly impacted by developments in policy and the wider markets. The

current policy landscape is different to that anticipated in the Energy Technologies Institute

project, in particular the recent withdrawal of funding for carbon capture storage projects, which

creates uncertainty around the development timescale and likely success of bioenergy with carbon

capture and storage as a negative emissions technology.

The Renewable Energy Association estimate that in 2010/11 21,700 people were employed in

bioenergy in the United Kingdom 107. A study by NNFCC108 estimated that if bioenergy

deployment reached levels anticipated in the Department of Energy and Climate Change’s ‘UK

renewable Energy Roadmap’ (2011) then there may be 35,000-50,000 jobs in bioenergy in the

United Kingdom by 2020. These figures include jobs in development, construction and installation,

operation and maintenance, and United Kingdom feedstock production and supply.

102 Business Green, Contract for Difference Auction - the reaction, 2015 103 Department of Energy and Climate Change, Bioenergy statistics – UK overview, 2015 104 Department for Transport, Department of Energy and Climate Change, Department for Environment,

Food and Rural Affairs, UK Bioenergy Strategy, 2012 105 Energy Technologies Institute, Bioenergy – Enabling UK biomass 106 Energy Technologies Institute, Bioenergy – Insights into the future UK Bioenergy Sector 107 Renewable Energy Association and Innovas, Renewable Energy: Made in Britain, Jobs, turnover and policy

framework by technology (2012 assessment) 108 NNFCC, UK jobs in the bioenergy sectors by 2020

86

6.2.3 Bioplastics

Globally, production of bio-based polymers is expected to grow faster than overall polymer

production, from 3.5 million tonnes in 2011 to nearly twelve million tonnes by 2020, corresponding

to a growth of 14.7 per cent per annum. However, most investment in new bio-based polymer

capacities will take place in Asia and South America, resulting in a drop in Europe’s share of the

global bio-based polymer market from twenty per cent to fourteen per cent.109

The bioplastics industry in the United Kingdom is currently small but growing. The Bio-based and

Biodegradable Industries Association estimate that the United Kingdom’s current annual domestic

demand for bio-plastic products is 4,000 tones - of this 1,000 tonnes is presumed to be

manufactured in the United Kingdom, with the remaining 3,000 tonnes imported. In 2014, the

gross output of the bio-plastics sector was valued at £103.4 million, of which £43.4 million was the

direct output contribution to the British economy. This is estimated to support approximately 1,000

jobs and add £50.5 million of gross value added to the economy.110

Given supportive legislative and commercial conditions, Bio-based and Biodegradable Industries

Association estimate that United Kingdom bio-plastics production could reach 120,000 tonnes,

which would mean a gross output for the bio-plastics sector of around £4.2 billion. In that

eventuality, around 35,000 jobs would be supported and approximately £1.92 billion of gross value

added is predicted to be added to the United Kingdom economy.111

6.2.4 Bio-based chemicals

Bio-based chemicals are currently manufactured in very low volumes in the United Kingdom, and

are often produced alongside large volumes of fossil-derived chemicals by large companies. Low

production volumes to-date can be attributed to the historic low price of fossil feedstocks and

existing fossil-based production processes that are highly optimised, coupled with the lack of any

specific incentives for bio-based chemicals.

For this industry, data on United Kingdom production of bio-based chemicals was not available,

with most reports or data available only at a European or a global level. Nevertheless there is some

activity documented at the national level, such as the CoE Bio3 research cluster in Manchester,112

the Green Chemistry Centre of Excellence at the University of York, the Biorenewables

Development Centre, and the bio-refining work at the Centre for Process Innovation. Companies

operating in the United Kingdom with interests in bio-based chemicals include Croda, who

produce a line of bio-based phase change materials, and Evonik, who produce a range of bio-based

materials.

109 Nova Institute, Market study and Database on Bio-based Polymers in the World 110 Bio-based and Biodegradable Industries Association, The future potential economic impacts of a bio-plastics

industry in the UK 111 Bio-based and Biodegradable Industries Association, The future potential economic impacts of a bio-plastics

industry in the UK, 2015 112 BioEconomy Regional Strategy Toolkit, Good Practices in selected bioeconomy sector clusters; a comparative

analysis

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At a European Union level, chemicals and plastics in the bioeconomy are estimated to have turned

over around €42 billion in 2013 and to have created 180,000 jobs.113 Given that the United Kingdom

accounts for approximately eleven per cent of the turnover of the European Union chemical

industry, and around nine per cent of employment, United Kingdom chemicals and plastics in the

bioeconomy can be estimated to have a turnover of approximately €4.6 billion and create

approximately 16,200 jobs.

It is widely anticipated that the bio-based chemicals sector will show strong growth in the

European Union, which is likely to be reflected in the United Kingdom. The Bio-based Industries

Consortium, an industry body representing a broad range of companies working in the bio-based

industries in Europe, have ambitious targets to grow the bio-based chemicals industry across the

continent, aiming to replace at least 30 per cent of oil-based chemicals and materials with bio-

based and biodegradable ones. In addition, they aim to create a competitive bio-based

infrastructure in Europe and greatly expand the availability of bio-based products.114 The Bio-

based Industries Consortium are part of a €3.7 billion public-private partnership with the

European Union, aiming to increase investment in the development of a sustainable bio-based

industry and thus grow the sector.

6.2.5 Synthetic biology

Synthetic biology involves the design and construction of novel artificial biological pathways,

organisms and devices or the redesign of natural biological systems. It is a major research initiative

in the United Kingdom and is one of the fastest-growing scientific and technological fields. There

is, for example, DNA Synthesis. With affordable methods of DNA synthesis available, the range of

possible new antibiotic products to meet antibiotic-resistant pathogens has potentially grown

exponentially.

Synthetic biology makes use of a number of innovative platform technologies. An example is

microfluidics. Microfluidics draws on engineering, physics, chemistry, biochemistry,

nanotechnology and biotechnology. It has practical applications to the design of systems in which

low volumes of fluids are processed. Microfluidic structures include micro-pneumatic systems, i.e.

microsystems for the handling of off-chip fluids (liquid pumps, gas valves, etc.), and microfluidic

structures for the on-chip handling of nano-and picolitre volumes. So far, the most successful

commercial application of microfluidics is the inkjet printhead.

113 Nova Institute, European Bioeconomy in Figures 114 Bio-based Industries Consortium, A new Public-Private Partnership (PPP) on Bio-based Industries

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Box 6: Synthetic biology case study

Synthetic biology involves the design and construction of novel artificial biological pathways,

organisms and devices or the redesign of natural biological systems. It is a major research

initiative in the United Kingdom and is one of the fastest-growing scientific and technological

fields.

Researchers at the Pirbright Institute have used synthetic biology to create genetics-based

methods to eradicate mosquitos that transmit dengue fever to humans. They created a targeted

approach that modifies male mosquitoes so that they will not produce viable offspring. Field

trials in the Cayman Islands and Brazil saw an over-90 per cent reduction in mosquito numbers

which models suggest should be enough to prevent epidemic dengue anywhere in the world.

This technique can also be used to tackle other mosquito-transmitted diseases, such as malaria

and the zika virus.

Source: Nature Communications

6.2.6 Agri-tech

Agri-tech businesses have a significant presence in the United Kingdom. This was emphasised

recently by the £68 million government investment in three new Centres for Agricultural

Innovation – covering livestock, crop protection, and engineering – to help translate agricultural

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innovation into commercial opportunities for United Kingdom businesses.115 Agrimetrics, the first

Centre for Agricultural Innovation and a big data centre of excellence for the whole food system,

was launched in October 2015 and represented a further £11.8 million investment from

government.116 Another initiative is the Agri-Tech Catalyst, which was set up by the Department

for Business, Innovation and Skills, Innovate UK, the Department for International Development

and the BBSRC with an investment of £70 million, to help businesses and researchers

commercialise their research and develop innovative solutions to global challenges in the

agriculture sector.117

Box 7: Plant breeding case study

Plant breeding is a key factor in addressing concerns over food security and sustainability as the

global population continues to grow.

None of the major food crops grown in the United Kingdom today are native to this country.

Staples such as wheat, barley, pulses and potatoes all have their origins in other parts of the

world. They have all been adapted, through plant breeding, to thrive in British growing

conditions.

Enhancing plant traits through traditional methods such as cross-breeding was time-consuming.

However, biotechnology has considerably shortened the time for new crop varieties to be

brought to the market to less than ten years. Over the past 30 years, more than 90 per cent of the

yield gains in the United Kingdom’s major crops have been due to plant breeding innovation.

One of the major biotechnology tools used for plant breeding is marker-assisted selection, where

a marker is used for indirect selection of a genetic determinant of a specific trait of interest – thus

offering a sophisticated method to accelerate classical plant breeding. Marker-assisted selection

does not involve the same kinds of uncertainties as genetic modification.

Plant breeding makes a significant contribution to the growth and competitiveness of the United

Kingdom’s food economy. Studies have shown that every £1 invested in plant breeding

generates at least £40 in gross value added within the wider economy.118

● ● ● ● ● ●

In summary, the biofuels and bioenergy sectors have become established in the United Kingdom

with the support of a policy framework, and the continued growth of these sectors is dependent on

a continuation of policy support to 2020 and beyond. The bio-based chemicals and bio-plastics

115 Department for Business, Innovation & Skills, Department for Environment, Food & Rural Affairs,

Department for International Development, ‘Centres for agricultural innovation: launching in 2016’, Agri-

tech strategy blog, February 2016 116 Innovate UK, New agrimetrics centre will boost food and farming industries, October 2015 117 Department for Business, Innovation and Skills, Innovate UK, Department for International Development

and the BBSRC, Agri-tech catalyst, July 2014 118 Donald Webb, Economic Impact of Plant Breeding in the UK, (British Society of Plant Breeders and DTZ,

Manchester) July 2010

90

sectors have largely emerged without the support of a policy framework, and continued growth

will depend upon their competitiveness – either directly on price or on the basis of improved

properties and functionality.

Moreover, individual sectors are often mutually dependent on each other for raw materials and

energy. According to the Organisation for Economic Cooperation and Development, recent

developments have increased the level of integration between biotechnology fields. Examples

include the enzymatic production of fine chemicals by industrial firms for use in the

pharmaceutical sector, improved varieties of crops for biofuel and bioplastic production, the

production of large-molecule biopharmaceuticals in genetically modified plants, the use of

recombinant vaccines and biodiagnostics in agriculture, and functional foods and nutraceuticals

that are expected to improve health.119

Figure 51: Current and expected integration across biotechnology applications

Source: Organisation for Economic Cooperation and Development

119 Organisation for Economic Cooperation and Development, The Bioeconomy to 2030: Designing a Policy

Agenda: Designing a Policy Agenda, (OECD publications, Paris), 2009

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6.3 Barriers and recommendations

A large number of studies have been conducted identifying barriers to growth for the bioeconomy

in the United Kingdom. We first review those barriers that have been cited by multiple sources,

then we turn to those mentioned by one source (in many cases the latter are specific hurdles for

one industry).

6.3.1 Commonly cited barriers

As intimated in section five, securing funding and support for translational research is one that is

frequently cited. For example, James Mittra has identified the ’broken middle’ of the health

bioeconomy where “cultural, institutional, economic [and other challenges] inhibit successful

translation of discovery science into viable clinical products”.120 As discussed in section four,

NESTA (2011) identified a shortage for scale-up efforts. The lack of support for translational and /

or scale-up support has also been identified in numerous other reports, such as Royal Society of

Chemistry121 and the House of Lords Science and Technology Select Committee (citing “investors’

attitudes to investing in first-of-a-kind projects”).122 Although we recognise that government has

recently embarked on initiatives to address this issue, these have been too recent to feed into the

available literature. The fact, however, that these concerns were also raised in the interviews

suggests that they are still current. Government itself has recognised the need for an “innovation

ecosystem whereby ideas flow smoothly from research through to commercialisation”. 123

A lack of awareness of the future potential of bioeconomy to produce chemicals, materials and

fuels amongst both the public and investors is also a common theme in the literature. This has

been cited by the Royal Society of Chemistry124 and the NNFCC. The latter provided examples of

market entry barriers for new technologies, “such as a lack of demand and awareness of new

products and services and high initial costs which lower competitiveness against established

markets, such as the fossil fuel industry”. 125 They also stated that demonstrations of the potential

and / or actual success of technologies is needed to boost public demand and investor interest. This

was also a theme that was present in the interviews with several industry / academic experts.

120 James Miffra, The new health bioeconomy: R&D policy and innovation for the twenty-first century, (Palgrave

Macmillan, London), 2016 121 Royal Society of Chemistry, Waste opportunities: stimulating a bioeconomy, (Royal Society of Chemistry

response to the House of Lords Select Committee on Science and Technology call for evidence), November

2013 122 House of Lords Science and Technology Select Committee, Waste or resource? Stimulating a

bioeconomy, HL Paper 141, (The Stationary Office Limited, London), 2014 123 HM Government, Building a high value bioeconomy: opportunities from waste, (HM Government, London),

2015 124 Royal Society of Chemistry, Waste opportunities: stimulating a bioeconomy, (Royal Society of Chemistry


2013 125 Caitlin Burns, Adrian Higson (NNFCC) and Edward Hodgson (University of Aberystwyth), ‘Five

recommendations to kick-start bioeconomy innovation in the UK’, Biofuels, bioproducts and biorefining,

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Policy uncertainty or lack of coordination was a third recurring issue, but the issues vary from

industry to industry:

In markets that are driven by the Government policy (the bioenergy and biofuel

industries), there is evidence that policy changes and the lack of clear indications on future

policies have hampered investment and growth. Various studies suggest that a significant

increase in sustainable biomass use is possible, but biomass suppliers require a stable

market demand and secure long term policies to invest in the infrastructure required.

There is also evidence of inconsistencies between Government policies acting as a barrier to

market growth. In the case of biomass crops, sustainable domestic production of biomass

crops is expected to make a positive contribution to the United Kingdom’s long term

decarbonisation strategy, however the Energy Crop Scheme, which aimed to encourage

farmers and landowners to grow energy crops, and therefore support the development of

this new industry, was closed in 2013. It is therefore very challenging to present an

attractive business case for the production of energy crops, and the path towards long term

decarbonisation targets is unclear. This point was repeated during our expert interviews.

The Organisation for Economic Cooperation and Development have also referred to

“debates over the relative merits of using land to produce crops for non-food use rather

than food use” as a barrier for the bioplastics sector. This report also recognised that some

countries could be dependent on imports for biomass resources.126

The NNFCC states that departments covering the bioeconomy “all face significant cuts,

which makes the future of research and development, facilities, and business support less

certain”. In addition, “in the bioenergy and biofuels sectors, there is uncertainty after

changes to a number of renewable energy policies, including changes to biofuel and

renewable heat incentive criteria; grandfathering policies; and an uncertain budget for

bioenergy”. 127

The House of Lords Science and Technology Select Committee has noted that government

has created incentives for companies to convert waste products into energy production and

generation. While overall a positive advancement, this has unintentionally created a

distortion in the market by pushing waste towards lower value uses, rather than push

materials into reuse or recycling options. This means that it is unattractive for investors to

make significant investment in higher value waste processing such as chemical

production.128

For the Royal Society of Chemistry it is the need for a clear higher education strategy “to

nurture and incentivise the multidisciplinary skills-base that will be required for sector

growth”. 129

126 Organisation for Economic Cooperation and Development, ‘Policies for bioplastics in the context of a

bioeconomy’, OECD Science, Technology and Industry Policy Papers, Number 10 127 Caitlin Burns, Adrian Higson (NNFCC) and Edward Hodgson (University of Aberystwyth), ‘Five


Volume 10, Issue 1, January 2016 128 House of Lords Science and Technology Select Committee, Waste or resource? Stimulating a

bioeconomy, HL Paper 141, (The Stationary Office Limited, London), 2014 129 Royal Society of Chemistry, Waste opportunities: stimulating a bioeconomy, (Royal Society of Chemistry


2013

93

The government has itself referred to a “complex legislative framework” in respect of the

bioeconomy.130

At a regional level, both the lack of investment resources for scale-up and the uncertainty over

bioenergy policy were mentioned in a recent consultation of Innovation is the Low Carbon Energy

and Environment Network for Wales.131

The Royal Society of Chemistry referred to a barrier in respect of “risks associated with investing

in low-value, high volume novel processes which compete with well-established commodity

markets.” 132 This concern was reflected in our interviews in quite a different sector, when we

identified that advances in robotic agriculture may not attract investment from agri-chemical

companies for fear of undermining traditional chemical sales.

The Royal Society of Chemistry has identified working across sectors as something that could be

improved in the area of biochemicals. Barriers existed in terms of:

Lack of connectivity, communication and collaboration between waste-providing

upstream and waste-using downstream supply chains in the United Kingdom, in particular

between the food sector (upstream) and the chemicals sector (downstream).

Limited permeation of multidisciplinary skill-sets across relevant sectors to facilitate

collaboration and knowledge sharing.133

At the European level, the European Commission has expressed similar concerns.134

In general, the availability of feedstocks has not been frequently cited as a barrier, though the

Environmental Services Association have cited concerns about feedstock security and feedstock

quality assurance135 and the European Commission list the future gap between demand and

supply as a potential barrier and note that there is a fear that demand will outstrip supply of key

biomass products.136 As noted in section three, we do not see this as being a problem in the near

future, but it will remain something to be monitored, not only with respect to supply but also with

130 HM Government, Building a high value bioeconomy: opportunities from waste, (HM Government, London),

2015 131 Low Carbon Energy and Environment Network for Wales, Connecting low carbon Wales, (University of

Aberystwyth) 132 Royal Society of Chemistry, Waste opportunities: stimulating a bioeconomy, (Royal Society of Chemistry


2013 133 Royal Society of Chemistry, Waste opportunities: stimulating a bioeconomy, (Royal Society of Chemistry


2013 134 European bioeconomy panel and the standing committee on agricultural research strategic working

group, Where next for the European bioeconomy?, (European Commission, Brussels), 2014 135 Environmental Services Association, Circular organics: biowaste in a circular economy, September 2014 136 European bioeconomy panel and the standing committee on agricultural research strategic working

group, Where next for the European bioeconomy?, (European Commission, Brussels), 2014

94

respect to price. The government has stated that it sees the need for published data on the

feedstock supply chain.137

The Environmental Services Association in a report on biowaste138 and two expert interview

respondents cited excessive and burdensome regulations as a barrier to the development and

marketing of new products.

There are many rules and regulations on the disposal of waste products, as many products

and bi-products of the biotechnology industry can be harmful not only to the environment,

but to people’s health. Managing waste involves permits, transfer notifications, deposit

notices, as well as the charges that accompany these. The Environmental Services

Association stated that these regulations could potentially be improved by more

consistency in regulating across different waste products.

In expert interviews, regulations that products in development in the food and

biopharmaceutical sectors need to meet were cited as being potentially excessive – such as

the evidential requirements for incremental innovation food products.

European Union regulations were cited in literature as being barriers in two specific respects:

Waste treatment. The European Union Waste Framework Directive provides the legislative

framework for the collection, transport, recovery and disposal of waste. Achievement of

“end-of-waste” – where it can be demonstrated - imposes obligations that may be

disproportionate to the potential adverse impacts of the material. While intended to

safeguard the environment, the processes and classifications to reach “end-of-waste” status

can be cumbersome, and can create obstacles and disincentives to bioeconomy

development.

Genetically-modified foods. It is widely recognised that the European Union has one of the

most restrictive regimes globally regarding the consumption, planting and even trials of

genetically-modified foods. For some agri-business representatives, this obviously

represents a substantial barrier to growth.

6.3.2 Individually cited barriers

The NNFCC lamented the “fragmented and small nature” of industrial biotechnology in the

United Kingdom – the predominance of small and medium-sized enterprises and general lack of

large innovative bioeconomy companies (except in biopharmaceuticals). They see addressing this,

through attracting large multinationals or through clustering, as one thing that could increase

investment in pioneering and scale-up investment.139

137 HM Government, Building a high value bioeconomy: opportunities from waste, (HM Government, London),

2015 138 Environmental Services Association, Circular organics: biowaste in a circular economy, September 2014 139 Caitlin Burns, Adrian Higson (NNFCC) and Edward Hodgson (University of Aberystwyth), ‘Five


Volume 10, Issue 1, January 2016

95

The House of Lords Science and Technology Select Committee has stated that long term contracts,

used for example by local authorities for lower value uses of waste, may act as a barrier as

technologies to make higher value use of waste come on line.140

As well as mentioning some issues already cited in this section, the Organisation for Economic

Cooperation and Development identified a number of additional actual and potential barriers to

the growth of a bioplastics sector.141 Although specifically referring to bioplastics, it seems

plausible that they could apply to other emerging bio-based sectors:

Competition for biomass from more established sectors such as the biofuels sector, which

also benefits in many countries from preferential policy regimes that disadvantage rival

sectors such as bioplastics;

Production costs that are currently higher than those for petrochemicals;

The possibility of public resistance to the use of technologies such as synthetic biology in

advanced bioprocessing facilities (e.g. consolidated bioprocessing plants);

Lack of standardisation and limited harmonisation of standards internationally concerning

terms and concepts such as sustainability, which could act as a barrier to international

trade;

Lack of consensus on the methodologies needed to perform life cycle analyses, preventing

adequate assessments of the potential of bioplastics to reduce greenhouse gas emissions;

and

Inadequate recycling and disposal infrastructures for both biodegradable and durable

bioplastics leading, for example to the accumulation of plastics and ‘microplastics’ in the

environment, particularly the marine environment.

140 House of Lords Science and Technology Select Committee, Waste or resource? Stimulating a

bioeconomy, HL Paper 141, (The Stationary Office Limited, London), 2014 141 Organisation for Economic Cooperation and Development, ‘Policies for bioplastics in the context of a

bioeconomy’, OECD Science, Technology and Industry Policy Papers, Number 10

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Highlights of section six

The transformative bioeconomy has been falling as a share of the economy over the last twenty

years, due mainly to relative decline of agriculture and fishing and forestry and logging,

falling from 4.9 to 3.3 per cent of whole economy gross value added in real terms between 1997

and 2013. In terms of productivity, water and remediation and upstream activities registered

the highest increases in the 2004 to 2014 period.

We project that the real output of the United Kingdom bioeconomy could grow by thirteen per

cent over the years ahead – from £52 billion in 2013 to £58 billion in 2030 (in 2013 prices), or by

0.7 per cent per annum.

Looking at the growth prospects in biotech innovation, biofuels and bioenergy sectors have

become established in the United Kingdom with the support of a policy framework, and the

continued growth of these sectors is dependent on a continuation of policy support to 2020

and beyond. The bio-based chemicals and bio-plastics sectors have largely emerged without

the support of a policy framework, and continued growth will depend upon their

competitiveness – either directly on price or on the basis of improved properties and

functionality. Moreover, individual sectors are often mutually dependent on each other for

raw materials and energy, and recent developments may have increased the level of

integration between biotechnology fields.

Recurring barriers have been cited in the areas of:

Investment in translation / scale-up

Public and investor awareness of opportunities and potential

Policy clarity and coordination

Innovative ideas that may be subject to market distortions

Lack of sufficient cross-sectoral cooperation

Achieving cost competitiveness and sustainability in feedstocks

Overly burdensome regulations stifling both product launches and growth

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APPENDIX – EVIDENCE GAPS

During the course of this assignment we identified the following significant evidence gaps:

There are little economic data available on the industrial uses of biomass (to produce

chemicals and material goods) with no official databases for this purpose in the United

Kingdom or European Union. It is therefore challenging to identify economic activity

related to the use of biomass in sectors that belong only partially to the bioeconomy.

o In the British context, we noted in section two how the bioeconomy cuts across

standard industrial classifications in that an increasingly number of sub-sectors are

partially using bio-processes or producing goods that are partially biological. In this

study, we were able to estimate the shares of such sectors using the TCR database.

However, this was an inexact measure and may become more difficult in the future

as the number of partially biological sub-sectors increases.

o At a European level, there are no specific statistical data available for bio-based

products and it is not possible to infer the amounts of bio-based products from the

available databases, due to there being no linkage between raw materials and

products. Structural Business Statistics and Eurostat include data on employment,

salaries and value added, by industry, reported for the EU-28 and individual

member states. However the NACE classifications do not differentiate between bio-

based and non-bio-based sectors, so, in this report, we had to assume that bio-based

shares mirrored those for the same sub-sectors in the United Kingdom.

Information on the production of materials from biomass feedstocks exists at a European

level, but not for the United Kingdom. However, the information that is available at the

European level is also often incomplete, disparate, or not sufficiently detailed.

There is a significant lack of data when it comes to investment statistics. Although

aggregate gross fixed capital formation was available for the United Kingdom, the

breakdowns of this data were not so reliable. Whilst we have presented data on the

research and development share in total investment and the public / private split, it is not

clear whether the sources we have utilised in those cases include all bioeconomy research

and development spending and all public bioeconomy investment.

At the European level, the data available on investment levels is poorer still and we noted

in section five how the investment data in the European bioeconomy observatory appear to

have quite disparate levels of coverage between countries and there is no information on

whether investment is going towards capital or research and development. Nationally and

at the European level, there is an absence of reports commenting on future levels of

bioeconomy investment, except in a purely qualitative sense.

There is a rapidly developing literature on bioeconomy policies enacted across countries

and this is starting to lead to evaluations of the same, but there is still relatively little on

quantitative forecasts of overall, or even sectoral, growth of countries’ bioeconomies. What

growth projections do exist tend to be at the sub-sector level.

evidencing the bioeconomy - bbsrc

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