Policy paper

UK Bioeconomy Strategy: background analytical note

Published 5 December 2018

This policy paper was withdrawn on 30 November 2021

In the last 3 years, the UK’s economic environment has changed, bringing new opportunities and challenges for our businesses. This 2018 publication has been supplanted by the 2021 Innovation Strategy and other government strategies that support our Net Zero Strategy objectives.

Introduction

This note provides summary background material on the bioeconomy in the UK, the strategic objectives and market failure rationales that lie behind the Bioeconomy Strategy, and explains what analysis will be undertaken as the strategy results in specific policy proposals in the future.

The UK Bioeconomy: background and definition

The bioeconomy has no single definition, and its size and impacts need to be constructed by bringing together a number of different sectors. The government’s ‘call for evidence’, for which a formal response is published alongside the strategy, received some 90 responses on how the bioeconomy should best be defined. The strategy sets out that: “The bioeconomy represents the economic potential of harnessing the power of bioscience, using renewable biological resources to replace fossil resources in innovative products, processes and services.” This means that quantifying precisely the size and contribution the bioeconomy makes to the UK economy, both in terms of its direct and indirect impacts, involves a degree of uncertainty.

The main piece of research on the UK’s bioeconomy is the 2016 Biotechnology and Biological Sciences Research Council (BBSRC) and the Department for Business, Innovation & Skills (now BEIS) commissioned Capital Economics, E4tech and TBR report.^{[footnote 1]} This provides a review of the contribution of the bioeconomy to the United Kingdom and the prospects for increased productivity and future growth.

The Capital Economics Report provides an estimate for the ‘transformative bioeconomy’ comprising:

• agriculture and fishing
• forestry and logging
• water and remediation activities
• food products and beverages
• industrial biotechnology and bioenergy

It estimates that these represented 3.5% of gross value added (GVA) in the United Kingdom – worth £56.0 billion in 2014, and involving employment of just below 1 million. These estimates include a range of activities from animal and crop production, to paper production, and the manufacture of food and beverages.

In addition, the report says that upstream activities related to the ‘transformative bioeconomy include “the provision of bio-based feedstocks as well as other required inputs such as machinery, power and even financial services.” They represent what the ‘transformative bio-economy’ demands as inputs from other industries, and are estimated to be worth almost £36 billion in value added.

In turn, downstream activities which “utilise the products of the bioeconomy to make other products or deliver services”, are estimated to be worth over £108 billion in value added. These estimates are of the use by other industries of the outputs of the ‘transformative bio-economy.

Further, the report estimates induced effects, which occur when money that is spent on goods and services by employees of the transformative bioeconomy supports other economic activity – often referred to as multiplier effects or second round impacts. The estimate here is of a further £20 billion in value added to the economy. Overall this gives an estimate of the impact of activities in the bioeconomy of some £220 billion.

The Bioeconomy Strategy: strategic opportunities

The Bioeconomy Strategy outlines a range of opportunities that are available to the UK as world population grows, average life expectancy increases, and the need to protect our environment and tackle the effects of climate change increases.

The UK already benefits from its world class bioscience base. By developing this we can boost national productivity and help address key global challenges in, for example, food, energy production, and the environment by: increasing the productivity, sustainability and resilience of agriculture; creating new forms of clean energy and high-value industrial chemicals; and producing smarter, cheaper materials as part of a more circular, low-carbon economy.

As the strategy says:

• global biorefineries market is set to grow from around £350 billion to £550 billion by 2021^{[footnote 2]}
• the annual turnover of the UK industrial biotechnology and bioenergy sectors was £2.9 billion in 2013/14 and was forecast to increase to £8.6 billion by 2035^{[footnote 3]}
• the global market for bioplastics is expected to grow from £13 billion in 2017 to over £33 billion by 2022^{[footnote 4]} • the global market for agricultural biotechnology is set to grow from £22 billion in 2016 to £40 billion by 2022^{[footnote 5]}

Global challenges and research frontiers are shifting rapidly, but the UK is well paced to take advantage of these. The Capital Economics report notes “The United Kingdom is particularly strong in the pure research and innovation aspect of the bio-economy. 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.”

If the UK is able to seize the opportunities available, and overcome barriers that have limited the commercialisation of successful research in the past, then this should have a direct impact on UK exports of bioeconomy goods and services, and make the UK a more attractive place for overseas investment in bio-resources. In turn, these should have a positive impact in terms of improving the productivity of the UK economy, and increasing prosperity.

The Bioeconomy Strategy: role of government

The Bioeconomy Strategy outlines why, left to its own devices, the market may not direct the optimal level of resources into the bioeconomy. These market failures, which could justify government intervention, include:

Financial market imperfections:

Particularly for technology-based SMEs, the relative risk, long lead times, and disproportionate costs of appraisal and monitoring (compared to larger, and ‘more traditional’ type investments), can result in problems in accessing finance at reasonable costs for growth-orientated small firms and innovative firms. In response to the government’s ‘call for evidence’ - in relation to barriers hindering the UK’s bioeconomy, financial support featured prominently. In particular, a number of responses suggested an effective lack of funding for translational activities, commercialisation and “scale-up”.

Knowledge, and training spill-overs:

Businesses operating in, or considering entering, the bioeconomy may not be able to capture the full benefits associated with the innovation activity they undertake, and so will lack incentives to invest in R&D at optimal levels. In addition, there are imperfections in the labour market that mean that there can be too little training - the ‘poaching’ of trained staff being one example.^{[footnote 6]} In response to the government’s ‘call for evidence’, skills shortage was seen as a concern by a number of respondents.

Information failures:

The public good nature of some information (where excludability is imperfect, and not everyone pays for the information they receive) can mean that the market under-supplies information as providers do not earn a sufficient return to cover their costs. Problems may also arise if there are economies of scale in information provision, and if there is asymmetry of information where, for example, sellers have information that buyers don’t (or vice versa) about some aspect of product or service quality. Government provision of information can potentially help alleviate these problems. In response to the government’s ‘call for evidence’ weight was placed on the importance of the public’s perceptions of the bioeconomy. A number of respondents believed that engaging the public and raising awareness was a key way of ensuring a positive perception to growth of the sector.

Environmental externalities:

The benefits from less environmentally damaging growth will not always be recognised by, or accrue completely to, businesses. There can thus be a lack of incentive for stakeholders considering entering, or expanding, in the bioeconomy to mitigate or reduce environmental damage through investment in the development of new technologies to meet these challenges. The classic example in the context of the environment is where a polluter imposes an external cost on other users, or alternatively, a reduction in pollution confers an external benefit upon other uses. The Bioeconomy Strategy will contribute to the delivery of the government’s Clean Growth Strategy, and objective of decarbonising the UK economy.

Coordination failures:

The diverse stakeholders involved in the bio-economy, often across a range of industries and sectors, means effective collaboration can be difficult to achieve. There can be a role for government in bringing these diverse actors together to facilitate more effective outcomes. In response to the government’s ‘call for evidence’ a particular barrier mentioned related to ‘silo’ approaches and narrowly defined objectives which could limit sector collaboration. Another issue raised was the need to balance the benefits of intellectual property protection against the benefits of encouraging openness to foster collaborations. A specific example of where collaboration can be difficult was between networks, researchers and farmers, where interaction is not commonplace and potential benefits not well understood.

Conclusions and next steps

This short analytical note outlines the evidence underpinning the potential opportunities to the UK’s bioeconomy from a successful Bioeconomy Strategy.

These opportunities stem from the potential growth in the sector from a global perspective and the ability of the UK to play a leading role in future innovation and technological developments to gain, for example, future export markets and inward investment. These represent the strategic objectives behind the strategy.

The strategy is also driven by a clear role for government in the face of market and other failures to overcome existing barriers to the development of the sector. Market failures, such as externalities, and public good aspects of R&D mean that investment in the bioeconomy can be too low from the viewpoint of society. Correcting these represent the market failure objectives of the strategy.

As the government delivers the Bioeconomy Strategy and finalises policies, these will be accompanied with their own impact assessments (IAs), where appropriate, which will set out the specific costs and benefits of the range of options available.

In addition, the Equality Act 2010 introduced the Public Sector Equality Duty (PSED) to ensure that all public bodies play their part in making society fairer by tackling discrimination and providing equality of opportunity for all.

BEIS has a legal obligation to provide evidence that it has given due regard to the impact of policy or practices on particular communities, or on groups within communities. Any specific proposals or policies emanating from the strategy will thus be subject to an equity analysis, and also, potentially the ‘family test’.

1. Evidencing the Bioeconomy: A report by Capital Economics, TBR and E4tech for the Biotechnology and Biological Sciences Research Council and the Department for Business, Innovation & Skills (2016) ↩

2. Research and Markets, Biorefinery Products: Global Markets (2017) ↩

3. BBSRC, Biotech Britain (2015) ↩

4. Research and Markets, Global Bioplastics Market Forecasts (2017) ↩

5. Research and Markets, Agricultural Biotechnology: Emerging Technologies and Global Markets (2017) ↩

6. (See, for example, www.oecd.org/els/emp/34932691.pdf) ↩