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
Sources: Capital Economics, TBR and the Office for National Statistics
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)
Sources: Capital Economics, TBR and the Office for National Statistics
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
Logging, silviculture and other forestry activities
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
Bio-pharmaceuticals and bio-processed pharmaceuticals
2.0 0.4 0.8
Bio-plastics 11.3 0.2 0.6
Engineering, construction, design and technical support
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)
Sources: Capital Economics and the Office for National Statistics
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
Sources: Capital Economics and the Office for National Statistics
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
Yorkshire and the Humber: 2.7
East Midlands: 3.1
West Midlands:2.5
London: 1.4
South East: 1.8South West: 2.2
Wales: 3.0
Northern Ireland: 2.8
East of England: 2.2
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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
19
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
Sources: Capital Economics and the Office for National Statistics
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
Yorkshire and the Humber: 8.1
East Midlands: 7.7
West Midlands:7.0
East of England: 6.8
London: 5.3
South East: 6.2South West: 7.3
Wales: 8.6
Northern Ireland: 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
Sources: Capital Economics and the Office for National Statistics
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
Yorkshire and the Humber: 1.61
East Midlands: 1.42
West Midlands:1.60
London: 0.84
South East: 1.19South West: 1.36
Wales: 1.52
Northern Ireland: 1.61
East of England: 1.27
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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
Sources: Capital Economics and the Office for National Statistics
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
Yorkshire and the Humber: 16.9
East Midlands: 16.9
West Midlands:14.8
London: 9.0
South East: 12.1South West: 14.7
Wales: 17.5
Northern Ireland: 17.4
East of England: 14.6
23
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
Logging, silviculture and other forestry activities
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
Bio-pharmaceuticals and bio-processed pharmaceuticals
738 691 -48
Bio-plastics and rubber products 478 324 -154
Engineering, construction, design and technical support
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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Pro
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Production (right-hand-side) Production forecast (right-hand-side)Consumption (right-hand-side) Consumption forecast (right-hand-side)Price (left-hand-side) Price forecast (left-hand-side)
29
Figure 18: Index of global prices, production and consumption for palm oil and soybean oil
Sources: Capital Economics, Bloomberg and United States Department of Agriculture
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)
Sources: Capital Economics, Bloomberg and United States Department of Agriculture
0
50
100
150
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250
300
0
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)
Production (right-hand-side) Production forecast (right-hand-side)Consumption (right-hand-side) Consumption forecast (right-hand-side)Price (left-hand-side) Price forecast (left-hand-side)
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Production (right-hand-side) Production forecast (right-hand-side)
Consumption (right-hand-side) Consumption forecast (right-hand-side)
Price (left-hand-side) Price forecast (left-hand-side)
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
potential taking into account the main criteria determining biomass availability from different sources, 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
potential taking into account the main criteria determining biomass availability from different sources, 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.
Technologies for the conversion of
biomass to higher value products
require further development.
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
Technologies for the conversion of
straw to higher value products
require further development.
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)
Sources: Capital Economics and the Office for National Statistics
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
1.4
1.2 1.2
1.2 1.2
1.2
0
50
100
150
200
250
300
350
0
2
4
6
8
10
12
14
16
18
20
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)
Sources: Capital Economics and the Office for National Statistics
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)
Sources: Capital Economics and the Office for National Statistics
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
0.90.8 0.8
1.3
1.1
1.2
1.2 1.1 1.3
0
1
2
3
4
5
6
7
8
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
1.6 1.5 1.51.7
0.9 1.11.0
0.8
1.2
0.7 0.8
0.60.7
0.70.8 1.0
0.7
0.6 0.8 0.8
0.7
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
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
0.1 0.0 0.0 0.0 0.0 0.0 0.0
0.0 0.0 0.0 0.0 0.0
0.20.2
0.2 0.2
0.2
0.30.2 0.3 0.3 0.3 0.3 0.4
0.3 0.3 0.3 0.3 0.3
0.30.4
0.4 0.4
0.4
0.4
0.3 0.3 0.30.3
0.4 0.5
0.40.4 0.4 0.4 0.4
0.2
0.20.2
0.2
0.2
0.2
0.2 0.2 0.20.2
0.20.2
0.20.1 0.1 0.1 0.2
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
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
Sources: Capital Economics and the Office for National Statistics
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
Sources: Capital Economics and Eurostat
Figure 30: 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
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
Sources: Capital Economics and Eurostat
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
Paolo, Turin), October 2014
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
Sources: Capital Economics and Eurostat
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
Paolo, Turin), October 2014
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
0.5
1.0
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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
Sources: Capital Economics and Department for Business, Innovation and Skills
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)
Sources: Capital Economics and Department for Business, Innovation and Skills
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
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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
Sources: Capital Economics and the Office for National Statistics
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
Sources: Capital Economics and the Office for National Statistics
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
Source: TCR database
Figure 46: Employment by type of firm within the transformative bioeconomy, persons
Source: TCR database
-
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
Continuing Firms Closures Startups Mayflies
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
Source: TCR database
Figure 48: Labour productivity, measured as gross value added per employee, by type of firm in the transformative bioeconomy 2004 to 2014, £ thousands
Source: TCR database
-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
Continuing Firms Closures Startups Mayflies
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
Sources: Capital Economics and the Office for National Statistics
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
87
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
88
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
89
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
91
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
response to the House of Lords Select Committee on Science and Technology call for evidence), November
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,
Volume 10, Issue 1, January 2016
92
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
recommendations to kick-start bioeconomy innovation in the UK’, Biofuels, bioproducts and biorefining,
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
response to the House of Lords Select Committee on Science and Technology call for evidence), November
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
response to the House of Lords Select Committee on Science and Technology call for evidence), November
2013 133 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 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
recommendations to kick-start bioeconomy innovation in the UK’, Biofuels, bioproducts and biorefining,
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
96
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
97
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.
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