Biotechnology is a horizontal technology that comprises different fields, such as biological, environmental, natural, technical and health sciences, and which, like information and communication technologies (ICT), is used horizontally in various spheres of application from the health system to bioeconomy.
During the last 5–10 years bio-technologies, especially system biology, have undergone significant development: increase in capability and price reductions of DNA sequencing, and of DNA synthesis, development of high throughput methods (genomics, proteomics, metabolomics and other omics methods), a considerable increase of big data and modelling capability and the emergence of synthetic biology during the last five years. All these capabilities are also represented in Estonia at scientific level.
The increase of population, an ageing population, increase in the demand for food and clean water, and consistent increase of energy consumption are the global trends that influence the implementation of biotechnology. The importance of green and white biotechnology is increasing compared to red biotechnology. When contributing to education, research and business, it is important to understand that new fields of implementation, discoveries and products/services emerge from the synergy of different sectors and competences.
The main challenges of biotechnology are the following:
- Increasing the population’s disability-free life expectancy – an indicator that integrates the quality of medicine, food, etc.;
- Replacement of fossil fuels with renewable, biomass-based fuels;
- Producing in a more effective and environment friendly way, using products with improved qualities (chemical, textile and food industries, etc.) and promoting a sustainable bio-economy.
Estonia’s chance to influence various spheres of biotechnology are relatively small and require simultaneous coincidence of several favourable factors because the sectors are very capital intensive and it is necessary to have access to different parts of the value chain. The existence of all sub-components of biotechnology value chain in the small Estonian market can be realistically expected only in the food sector and in the implementation of a sustainable bio-economy. In other sectors, such as pharmaceutical industry, chemical industry, medicine or other sectors of the economy, Estonia has the potential of contributing to various global value chains with the production of components, inputs and some successful niche products. Thus it is necessary to create updated study programmes in order to ensure sufficient human capital, and to target the business activities by creating preconditions, and integrated implementation of technologies in growth areas:
- To create integrated study programmes and teams in study process and research activities;
- To create a favourable landscape and eco-system for integrating research and enterprises and building bridges;
- To establish motivating measures for product development of enterprises in different stages and to find answers to involve foreign and private capital in enterprises at the earliest stage;
- To keep in mind that financing of research and the strategic sectors of the state should proceed from common strategy from the standpoint of the integrity of value chain.
Red biotechnology, especially the pharmaceutical industry, is the most investment-intensive. In this sector, Estonia has the potential to introduce new scalable treatment techniques with high added value together with the export of services (import of patients) in the medicine system. It is necessary to create the conditions and criteria for that, in order to get references also in Estonia and to integrate innovative services into the medicine system (regenerative medicine; military, tele-, nuclear medicine; new methods of prognostics and diagnostics that use molecular diagnostics, etc.) in synergy with e-health services. No sector should be given preference in development, but domestic support of the co-financing possibilities of funds available from international financing, and encouraging the involvement of private capital in the implementation and export of scalable services and products could be the criteria. Regarding red biotechnology, the strength of the research base is a significant positive feature in Estonia, but so far there has been little capability for turning that expertise into entrepreneurship or its commercialision. Changing that should be the main objective of biotechnology within the framework of smart specialisation.
In the sectors of green and white biotechnology, the keyword is encouraging technology transfer in the economy. Here, the existence of the necessary raw material as a natural resource in Estonia is of critical importance, and it may become the main limiting factor in planning export products (for example, producing energy based on green biomass for export). Estonia’s role is to participate in producing the components of the value chain as a developer of the quality of processes and optimal solutions, to develop new solutions as an experimental lab and to take part in achieving credibility in introducing new technologies. For that, the technological basis has to be used optimally, and scaling factories for this transition from research to entrepreneurship have to be developed.
In similar way, it is unrealistic to contribute to planning for large volumes of exports in the food sector (the potential of raw materials is a barrier in the context of large markets, such as China, etc.), but to find high quality niche products and markets alongside consumption in the domestic market. In the food industry, it is important to consider the components of the value chain as a whole, and see that they are represented in Estonia, which would ensure maximum growth of added value in the sector. Thus the export of raw materials in unprocessed form is not an economically sustainable solution for Estonia. It is important for the state to support enterprises by:
- encouraging trans-value chain synergetic horizontal level co-operation (e.g. cooperative forms of property) in the enterprises of the value chain;
- encouraging the development of R&D intensive products and exploring new markets/clients;
- contributing to trans-sector branding and marketing of Estonia’s high quality and natural raw materials on the global market.
1.1 General data on the sector
The continuing population increase41 and the deepening of the unequal division of clean water and food are irreversible trends in the global context. In the context of developed countries, an ageing population and increased disability-free life expectancy are critical challenges. In biotechnology, the importance of green and white biotechnology is considerably increasing in comparison to red biotechnology. The borders between the different colours of biotechnology are becoming more and more conditional, because, for example, the photosynthesis mechanisms of plants and cell factories of molecular biology are increasingly used in the production of medicines. Thanks to the integration of the modelling capabilities of molecular biology, engineering sciences and big data and the advent of new biology, clear borders between colours have changed. See different distributions of colours and their connections in Annex 1 of the Report.
In recent years, trends in biology have been influenced by a different view of natural sciences: convergence or new biology that relies on the research results achieved during decades and where innovation emerges at the meeting point of different sectors.42 This in turn brings a new way of thinking to biotechnology, and therefore the sectors of biotechnology are strongly intertwined.
Figure 1. Shaping of convergence on the basis of the earlier breakthroughs of natural sciences. Science is becoming more interdisciplinary, new solutions emerge as a result of uniting earlier inventions with synergy of competences.
The main challenges of biotechnology:
Increase disability-free life expectancy through medicine, diet, etc.; indicator that integrates quality;
Replacing the use of fossil fuels with renewable, biomass-based fuels;
Producing in a more effective and environment friendly way, developing products with improved qualities (chemical, textile and food industries, etc.).
Besides specific requirements and complicated patent strategies, another important peculiarity of the biotechnology sector in comparison with, for example, the ICT sector, is the great intensity of R&D, capital and time. In order to progress from the level of an idea to the industrial level, the biotechnology enterprises have to confront the hazards of dealing with new ideas that do not have a working business model.
In biotechnology, scaling is very capital intensive. In different stages of production, it is necessary to make investments first in the R&D activity and product development stage (from 50,000 to 500,000 euros), and then in launching the production, where the sums amount to millions (risk capital 1–10 million) and to hundreds of millions of euros, depending on the sector.
Red biotechnology (according to traditional categorisation) forms 60% of the whole biotechnology sector which in 2012 increased in total volume by 9% and reached 304 billion USD44. Approaching of R&D activities to biomedicine issues continues the trend of changes of recent years. The co-operation between industry and academy for the joint use of resources and experts is increasing and academic partners are more and more often used to implement projects of private companies45. Co-development activities are important for the industry, because often the scaling of processes that have been conducted in a small scale within the academy proves to be complicated if it has not been taken into account in the early stage of the development. Although technological knowledge is concentrated mainly in the academy, researchers lack business and regulative knowledge, as well as the knowledge needed to carry out clinical experiments.
During the last decade, health care expenditure in the OECD countries has increased annually by 4% which constitutes 9% of GDP46. The reason for this is a rapidly ageing population and new methods that enable to make more exact, but also more expensive procedures. The most important keywords are prevention of chronic diseases and increasing prices of medicines. The use of pharmacogenetics and biomarker-based tests changes the possibilities for diagnosing and curing of diseases – biomarker-based tests give the doctors information about the stage of the disease, doses of and reaction to medicines, and toxic influences. Identification of biomarkers in the early stage of diseases has an immense preventive potential, because it helps to avoid the disease becoming chronic. Currently it is possible to cure many deadly and serious diseases and medicines help to increase substantially the human life expectancy. Diabetes, cancer, chronic respiratory diseases and dementia are very burdensome diseases from the social-economic standpoint. It is thought that costs due to dementia amount to 604 billion USD per year (1% of the GDP of the world). Keeping in mind the ageing population, this figure is expected to double by 2030, and increase three times by 2050.47 The development of medicines has also changed because industry is trying to find the cure for more and more complicated diseases (cancer, asthma, diabetes), facing often undefined biological targets which causes failures of new medicines at the clinical stages.
The main factors governing green biotechnology come from the environment48. Increasing demand for food produced in an environmentally friendly way, the need for countries to reduce the emission of greenhouse gases now, and in the future, also the increasing cost of fossil fuels associated with biotechnological solutions. OECD has called climate change and CO2 emission the greatest challenge to society. It is predicted that by 2030, 50% more food, 45% more energy and 30% more water will be consumed in the world. By 2050, even 70% more food will be needed.49 Increased demand puts old models at risk and the leading economies of the world will start using bio-based methods for finding solutions (e.g. OECD strategy “Bioeconomy to 2030“)50. Biotechnology will make a considerable contribution to bioecenomy through natural resources, such as forests, plants, cattle, fish and other marine products. Green biotechnology mainly focuses on genetically modified crops in order to noticeably increase the properties of food and make the raw material more resistant to environmental factors. Industrial solutions of the bio-based economy51 (white biotechnology) cover the production of chemicals, enzymes and plastic, neutralisation of environment pollution, biosensors and fuels. Biotechnology can be viewed more widely as a base technology to several fields of application52. At present biotechnological solutions help to produce bio-gas, ethanol and diesel from biomass. Platform technologies that help to produce large amounts of raw materials that can be used for further synthesis of products from different types of biomass will form the basis of bioeconomy in the near future. For example, it is possible to produce sucrose from grasses, and sucrose can be further processed into isoprene (car tyre industry), different types of biofuels (diesels, airplane fuels) and even medicines to combat malaria (artemisinin).
Europe has been one of the leaders of the global chemical industry, but the increasing pressure from the Asian chemical industry is forcing the old world to look towards biotechnology in order to preserve competitiveness and create jobs and economic growth. It has been found that each new job in the US chemical industry will create 7.5 jobs in other sectors of economy.53 Development of biofuels has created 240,000 jobs in the USA and one million jobs in Brazil. OECD predicts that by 2030 industrial biotechnology will be the sector that creates the largest added value in biotechnology54.
Together with white biotechnology, synthetic biotechnology also has a positive impact on our health and environment55. Both are based on cell factories that provide sustainable and environment friendly alternatives to the chemical industry and products of oil shale chemistry. Bioreactors based on eukaryotic cells already now produce a large range of compounds, such as precursors of biopolymers, vitamins, antibiotics and therapeutic proteins for the cure of diseases5657. Cell factories based on the cells of yeast and mammals are the main trend setters of a sustainable bio-based economy. Cell factories are extremely attractive solutions that use renewable carbon sources causing little pollution and produce biocompatible and biodegradable products.
Biotechnology is a very expensive sector and Estonia does not have the capacity or capability to compare itself with the economies and biotechnology sectors of large countries in the global value chain. Estonia has to learn from the success stories and successful solutions of other transitional or smaller counties. The value chain of a bio-based economy is one of the possibilities for Estonia58.
See a more detailed overview of global trends and useful examples and recommendations of pioneering regions in Annexes 2 and 3 of this report – Pioneering regions and global trends in biotechnology.
1.1.1 Overview of Estonian sector
The Estonian biotechnology sector is a young (mainly starting enterprises), small (by turnover and export) and developing (mostly SMEs). In 2010–2013, the Estonian biotechnology programme was initiated to support this sector. The MEAC is still working on assessing its results. A long-term integrated biotechnology programme is necessary for the country, and the past experiences gained from this programme should be taken into account. The following should be kept in mind for the programme:
Management and activities for achieving these aims have to be proportional to the means, i.e. the programme needs a competent team and its own budget;
The purposes, expectations and activities of the programme have to be realistic, long-term and transparent, and in direct correlation with the financial means;
The programme has to be cross-ministerial, as it largely concerns five ministries and needs the relevant authority for its actions, i.e. outside the area of government of ministries;
In building up the programme, the recommendations of this report for shaping the ecosystem, creating pre conditions for start-up enterprises and integrating them with the technology transfer action plan, and replacing subsidy-based financing with enhancing capital involvement (incl. objectives, indicators and measures).
One of the great differences from the programmes in Finland and other countries is that private capital has not been involved in biotechnology. There is also no co-operation between the state and the sector that would help attract foreign financing to the sector (for example, the good results that Hungary has achieved through the JEREMIE59 programme).
At present the biotechnology sector in Estonia can be characterised as a sector that is still growing and looking for implementation in enterprises. In the more successful countries of this sector, biotechnology programmes have been implemented for decades (in Estonia, the first national plan on biotechnology was launched in 2010). Considering the huge research programme of the Estonian biotechnology sector, it may be expected, on the basis of the experience of other countries- That investments into people and research will start to influence enterprises only after decades of constant and extensive investing,
As the potential of the sector is only partially realised by now, Estonia’s role in the value chain has not become established yet. Several activities in the biotechnology sector remain at the level of base research and do not yet reach the (foreign) market in the nearest future. Ideally, Estonia should position itself in biotechnology as the performer of R&D activities and also the creator of its products. If we look at the Stan Shih Smiling Curve (see the general part of the report) that became known in the ICT sector, it can be seen that a great added value is hidden both in R&D activities and in bringing its own products to the market (especially if a specific brand, etc. is created).60
The experience of Finland shows that values were successfully created both in successful enterprises, and enterprises that have terminated their activities. The development of the knowledge of the workers, business and science relationships that were formed, and the implementation of new methods and work processes must be seen more widely61. In Finland it was hoped that there will be rapid success in the sector, new study programmes were contributed to, and large investments were made by, both private and public sector, but it was obvious that the sector is very resource intensive, and like in many OECD countries, the initial enthusiasm in Finland faded. The long-term view is that human capital is considered the greatest resource for biotechnology in Finland.
The Estonian biotechnology sector is small: according to the Estonian Classification of Economic Activities (EMTAK) code, there are nearly 300 employees in 60–70 enterprises. The added value created by the sector has risen from 3 million to 12.3 million euros (15 million, when CCTs are taken into account), and its share in the business sector has increased from 0.05% to 0.12% (to 0.15%, when CCTs are taken into account), forming a very small part of the total economy (besides business sector, total economy also includes the government sector).
The development of the Estonian biotechnology sector62 in 2005–2012 has been faster than the average development of the business sector, the added value per worker has stayed higher than the Estonian average and the number of workers has increased faster than the general increase of employment (although it has slowed down somewhat in recent years). At the same time it is important to note that all this has taken place in the environment of large state subsidies, which distorts the picture of the independent competitiveness of the sector.
Most of the enterprises try to deal with red biotechnology because great sums of money move in this area. But as the sector is still taking shape and is in its infancy, it is not easy to assess its development patterns. However, the flexibility of the sector in looking for different fields of activity has been remarkable. The Estonian sector is closely connected with the academy and largely depends on subsidies. The sector is greatly influenced by the policies of the state (the influence of programmes and subsidies). For a more detailed analysis, see Annex 4of the Report (MEAC data and the analysis of Centar calculations) and read Lauri’s (2014) comparison with the biotechnology sector of Finland, which has already been referred to.
The Estonian biotechnology sector has no special role in the context of the global value chain. Although Estonia has a strong base research in biotechnology, no breakthrough into the economy has taken place. The greater part of the value chain is located outside Estonia, which in turn makes the functioning of the whole sector harder. On the one hand, the Estonian enterprises have to make expenses for being able to sell in foreign markets and getting to know the customers there. On the other hand, it is necessary to always have partners of international level in the production context. The main activities are producing sub-components of global chains or looking for possible partners and markets. In any case, the food sector, enterprises emerging from bioeconomy, as well as biomedicine sector enterprises should focus also on export markets.
In biotechnology, the potential markets are the countries of Europe, Asia and America. In the food industry, the distance is determined by the preservation time of the goods. In medical tourism, it is possible to focus first on near neighbours – Russia, Latvia, Lithuania and the Nordic Countries.63
In Estonia the biotechnology sector can develop through considerable interoperability by the state, where the state is an important customer and where the researchers can provide innovative solutions based on modern technology to the problems in the environment, economy, health care, agriculture, etc. The existing potential should also be targeted at bioeconomy.
The food sector forms a relatively large part of the Estonian economy (according to Statistics Estonia, the added value produced in the food industry formed 2.5% in current prices from 2005–2013), thus its role in the country’s economy is huge. A total of 13,200 people work in the food industry (nearly 2% of all employed). In 2005 the added value produced in the food industry formed 2.3% of the total added value and the number of workers was 19,800. Although the share in added value has not significantly increased (it has actually decreased because in 2009 the added value of the food industry in current prices formed 3.3% and in 2013 only 2.4%), the added value in current prices has grown 64% from 2005 to 2013. The reason for this is, on the one hand, the rapid growth in the rest of the economy, and on the other hand, these numbers have been influenced by the change in the economic structure as a result of the global crisis.
The Estonian food sector has historical traditions (Estonian butter, crops, etc.), but in the globalising world the competition with the neighbouring countries is constantly becoming more intensive. Estonia has possibilities on the domestic market (to introduce typical Estonian food products to the people) and also on the foreign market in finding possibilities of refined export to food.
On the basis of import data (see Annex 5), Estonia does not depend on food imported from foreign countries and in the strategic sense this is important. But naturally there are aspects for shaping food policy if we look at the export data and the added value data at the same time. The export of unprocessed raw materials for food should be reduced, and it should be processed before being exported. According to Statistics Estonia, the export of milk and fresh cream (not concentrated, produced without sugar and sweeteners, exported, in tons) formed 27.6% of the export of dairy products in 2013, 23.6% in 2012 and 15.7% in 2011 (respectively, 213,000, 170,000 and 109,000 tons were exported). Thus, the export of raw material for dairy industry is increasing.
In the global context, the amount of arable land available is limited, keeping in mind the constant growth in the population of the world and increasing demand for food and clean water. Thus, it can be predicted that together with the increase in demand food prices will also increase in the world. In this context, the world is looking for solutions for increasing yields, finding ways of making food crops more weather resistant, etc. Therefore, the European policy regarding GMO has no perspective for competing on the global market. In that sector, Estonia also has an important role to play.
In the context of Estonia, it is important that we are able to ensure a secure food supply for our people, and at the same time it is important to focus on export markets of products with high added value. Considering the potential of the arable land in Estonia, it is also possible to increase the production of raw materials for food to a certain extent, but a policy that emphasises quality is more important.
Agricultural land forms about one fifth of the area of Estonia, and together with forests, they form one of the most important renewable natural resources. According to the World Bank data, Estonia holds the 18th place in the world in arable land per person (0.476 ha). But first of all it is important to concentrate on the regions that are our close neighbours and our closest partners in the trade of foodstuffs and energy. When we look at our nearest neighbours, at the Scandinavian countries and other Baltic Sea countries, then the resources of arable land in Estonia is considerably smaller than that of Lithuania or Russia (another issue is whether the resources of Russia that in places stretches 9,000 km from us can be considered a local resource). On the other hand, the resource of arable land per person exceeds the average indicators of the European Union and the world, by more than two times. See table in Annex 5 of the Report.
Estonian Development Fund has analysed the use of agricultural land in Estonia and studied the relationships between the use of land and the sale of products from agricultural enterprises. The results of the research show that the use of agricultural land for food production is uneven. Nearly 90% of agricultural products are produced on the basis of 60% of the agricultural land resource in use. Besides the uneven production, it is also possible to increase the area of agricultural lands by 10% at the expense of the lands that are unused at present. Considering the extent of under exploitation (altogether nearly half of the relevant land resource), the resources of agricultural land is not a limiting factor in food production. The production of foodstuffs is limited mainly by market demand.
Taking into account that the raw materials base of Estonia is limited in the terms of the volumes of the global market, it is more reasonable to focus on the production of raw materials and products with high added value and strict quality requirements. At the same time it will give an important added value to our economy: more focus on technologies, including automation of production (Taking into account the decrease of the working age population and population in rural areas), and export turnover that will be achieved with the help of added value through higher salaries and prices.
The result of R&D activities is usually the introduction of a new product or service with higher added value, through which, first of all, the foreign demand should grow in the relevant sectors. Domestic demand is limited and it is necessary to conquer new markets in order to develop enterprises. The share of R&D in the Estonian food sector is extremely low, especially in comparison to developed countries (see Annex 5 of the Report).
The percentage of the added value of the food industry in the added value produced in the whole country is decreasing in most of the countries, and the main reason for this is the increase of added value in other sectors and the modest increase of products with greater added value in the food sector. This can be seen from the small R&D activity, focusing on customers of higher added value products (e.g. production of premium milk powder), automation of enterprises and concentration (co-operation of producers and processers in value chain). Considering the low salaries of the sector, greater changes are necessary to escape from that trap (see figures in Annex 5).
Thus, the large farms of Estonia should not think of exporting raw materials, but of processing it to produce high-quality powders, special foods and concentrates. Larger farms have an advantage over small farmers namely in the production of high-quality milk, because it is easier/simpler for them to control the quality of production.
Considering the long payback period of R&D expenses, having of international relations and contacts, knowing of foreign markets and contacts to enter these markets, it is clear, support measures and policies of the state are also necessary for finding new markets. If Estonia could process the 27% (2013) of the exported milk sector raw material into high quality products, like powders, before exporting, it could considerably increase the added value in the sector.
Regarding the food sector, it is important to note that it is necessary to proceed from the effectiveness of resources and processing of by products (wastewater and other biological waste) of the main production at each stage of production. In the case of the food industry, this is a totally unused potential that should be separately highlighted. By products into energy or main raw materials for chemical industry, and developing circular bioeconemy and resource effectiveness through that – the planned bioecenomy programme of the state should cover such an integrated approach in each stage of value chain.
One of the main problems of food sector (like other sectors) is horizontal co-operation. As project based activities and institutional approach prevail in Estonia, there is little interaction between people in many areas of work and business for example, the entrepreneurs cannot find technologists and researchers, and are not aware of the advantages of modern technologies, and the researchers are not motivated to find practical outlets for their research. It is necessary to have a long-term integrated strategy that would build the necessary bridges and support the shaping of an ecosystem.
The impact of agricultural subsidies on the added value of food industry should be assessed separately. Does it stimulate added value or not? As the subsidising of farming in Estonia has not yet reached the same level as elsewhere in the EU, then maybe Estonia could have a potential here, to invest first of all in the products with high added value, and have a greater impact on economy. It is of critical importance how we are able to enter foreign markets and if we are able to cooperate to conquer the new markets inside the sector. Each sector (milk, fish, meat, etc.) has to be approached in a specific way (clients, requirements and markets are different) but following the same principles (enhancement of whole chain, horizontal co-operation, technological transfer, long-term planning, etc.).
The role of education and R&D in biotechnology
The biotechnology sector is characterised by the overwhelming importance of research and development activities which go hand in hand with a high failure rate. However, it has to be kept in mind that R&D is accompanied by a positive non-economic outcome, such as contacts and knowledge that may be transferred to successful enterprises.
International excellence of research, which has been the objective of the funding of research in Estonia during the last two decades, has helped keep and raise that level, and has created strong research groups6465 and certain critical human capital in sectors connected with biology. International excellence of research as financing criterion has been rather unsuitable for initiating development projects emerging from enterprises. There have been few such biotechnology enterprises who themselves finance research and development activities to a great extent, so that the proportion of this financing cannot be compared to the contribution from the state. Involvement of risk capital is very rare, loan possibilities are also weak.
Overview of the targeted financing of the Ministry of Education and Research and the grants of the Estonian Science Foundation in 2005– 201266 shows that in the sphere of natural sciences, the financing of physics, chemistry and chemical technology, earth sciences, process technology, materials science and computer sciences is the largest. In the sphere of bio- and environment sciences, ecology, biosystmatics and biophysiology, biochemistry and research connected with bio- and environmental sciences receive the most financing. Medicine bio- and clinical medicine has the best financing. In that list, there are several sectors that are closely connected with biotechnology.
According to the data of the Estonian Research Information System ETIS, the Research Competence Council and the Estonian Research Council, nearly 45 research groups are active in the sphere of biotechnology in Estonia. Most of them (around 30) are at the University of Tartu (dealing mainly with molecular and cell biology, gene technology and biochemistry research), 12 are at Tallinn University of Technology (specialising in neurobiology, cancer biology base research, gene technology of plants system biology and fermentation technology research); there are also some groups in the University of Life Sciences (2), National Institute for Health Development (1) and National Institute of Chemical Physics and Biophysics(2)67. Generally the R&D activities of Estonian biotechnology focus mainly on base research in biochemistry and molecular biology, and there are few clinical applications. As greater potential of base research is in the sectors of biomedicine, synthetic biology and bioprocessing, the emergence of entrepreneurship can be expected in these sectors, and also in bioeconomy and food sector as a whole.
During the period from 2001 to 2013 the Estonian Research Council allocated 267.3 million euros to research.
As biotechnology belongs under several sectors (except under social sciences), its project basis nature has to be brought out separately (incl. food (0.2%) and compared to ICT (5%)). Thus, we get the following distribution of finances: 26% of the total sum has been allocated to biotechnology.
Centres of excellence connected with biotechnology that have been financed from different sources in 2007–2013 (original data: SA Archimedes and Männik 2014 (R&D background analysis) 68):
National Centre for Translational and Clinical Research, University of Tartu (biomedicine);
Frontiers in Biodiversity Research Centre of Excellence, University of Tartu (bio-based economy);
Estonian Centre of Excellence in Environmental Adaptation ENVIRON, Estonian University of Life Sciences (bio-based economy);
Centre of Excellence in Genomics, Estonian Biocentre, UT Genome Centre (genome research, bioinformatics);
Centre of Excellence in Chemical Biology, University of Tartu, Tallinn University of Technology (biomedicine);
Centre for Integrated Electronic Systems and Biomedical Engineering (CEBE), Tallinn University of Technology (biomedicine, bioinformatics, ICT).
In 2003–2010 Enterprise Estonia has supported biotechnology enterprises through different projects (applied research and product development) with altogether 49 million euros (Enterprise Estonia data).
The purpose of intensifying co-operation between enterprises and researchers should be carried out by technology development centres that have been created with the help of the CCT measure of the EU as of 2014 (all together 8). The following are connected with biotechnology:
Competence Centre of Fermentation and Food Technologies (synthetic biology, bioprocessing, food, bioinformatics);
Bio-Competence Centre of Healthy Dairy Products (food);
Competence Centre for Cancer Research (biomedicine);
Competence Centre on Reproductive Medicine (biomedicine).
Recent analysis69 in the methods of financing Estonian research shows that the expectations on CCTs do not correspond to the logic of financing. As financing is based on the excellence of research like the research activities of universities, it is not possible to expect a different result (the number of publications is measured, not prototype products and product development or the capability to involve private capital).
It is a positive sign that the health, food, environmental and agricultural sectors will increase (e.g. for covering the lab services and other research needed by R&D activities), however, the percentage of employees with an academic degree involved in the industry is very low. Estonia has preconditions for the evolutionary development of the biotechnology business sector, but there is not enough human capital with academic degrees for growth to leap (e.g. for establishing big pharma). Because of that, it is necessary to consider, if, and how much the created preconditions (excellence of research and centres of excellence, as well as CCTs) contribute and could additionally contribute to the development of R&D in business and the economy. Are the infra-investments to research open to all Estonian enterprises for R&D activities, so that their application and use would be maximised? Are research institutions open to product development, to offering their labs and equipment to enterprises, for participation in international projects, etc. – for all that creates these preconditions for the emergence of new enterprises, products, services and jobs and, through it, for the emergence of economic activity? During the next period, the skilled application and use of means invested in the infrastructure and base research, incl. technology transfer and co-operation with the business sector will be of critical importance.
1.3 Strengths, weaknesses, competition advantages in biotechnology sector
As stressed before, biotechnology can be integrated with other fields of application and sectors of the economy, and it is research intensive, i.e. expensive. This in turn helps create products with high added value and to bring the economy from a labour intensive level to a technology intensive level.
In Estonia, the most important advantage of the biotechnology sector is strong research (excellence of research), world-level top researchers and top-level research infrastructure, into which much has been invested in recent years. Thus, there are good preconditions for study, research and applied research and technology transfer. It is important to maintain that level, but there must also be output into the economy as well. The established infrastructure should be used to the maximum extent before it becomes morally outdated.
Thus, the research potential can be used for establishing new enterprises, for exporting our research services by participating in international projects or by attracting international centres to Estonia and creating jobs through research or applied research initiatives.
To sum up, the most important strengths of the sector are the following:
A very strong level of base research in several sectors,7071 remarkable level of research in several sectors;
High level of education obtained from school; a considerable number of people with a higher education have come to the sector recently and they have been hired by universities;
Positive impact of CCTs as mediators of the academy and enterprises;
Estonia’s smallness and flexibility, but sufficient human capital and the existence of natural resources (like forests, biomass) has enabled to develop new approaches, like e-health based services, optimisation of work processes, etc.
Regarding the biotechnology sector, it is important that Estonia has a national biotechnology programme (BTP) for 2010– 2013, and the sector is administered by several ministries and there is no ministry that directly deals with it (MER, MEAC, MSA, MA, ME). Pursuant to the OECD reports and general global trends, biotechnology is a strategically important sector for the state. Taking into account the resource intensiveness of the sector, it is necessary to find a balance between the excessive fragmentation of resources and the “lagging behind” of key developments. Thus, the evaluation of the first period of BTP and drafting follow-up programme are naturally of importance. The evaluation of the first period is planned by the MEAC and is expected shortly.
The important obstacles of the biotechnology sector are mutually interconnected. Estonia’s small size means that the sector and domestic market are relatively small as well and that makes it important to focus on the export market. At the same time, it creates a situation where it is not possible to find co-operation partners at home, and it is necessary to know the international networks and markets/customers. This in turn reduces the possibilities for the emergence of new enterprises, for the transfer from research to business or for finding investors.
For the transfer of bio-technologies to business sector, it is important to strengthen horizontal co-operation between the academy and business and to create a favourable supporting ecosystem. Bridges between different sectors do not exist or are weak. There are a couple of CCTs for connecting business and universities, but there are no clusters. The role of CCTs or competence centres is to introduce technology transfer to enterprises. In the case of incubators-accelerators-foundations, the state can support by boosting the involvement of capital, encourage the implementation of R&D through strategic competitions of the state, e.g. in environment protection and bioeconomy, and also in health care and the food sector. Long-term strategic activities are necessary.
The analysis of the barriers and new possibilities of smart specialisation that draws attention to the obstacles and solutions of S3, compiled by the Development Fund in 2013, also discusses the system failures and other obstacles of the sector in detail.72
To sum up, the most important weaknesses of the biotechnology sector are:
Enterprises are not able to compete with the academy in offering jobs;
Lack of entrepreneurship expertise – there are few business managers and enterprising people with a natural science background;
Lack of great success stories;
Support measures for enterprises who do not take into account the peculiarities of the biotechnology sector;
Social support for new biotechnology ideas is weak;
Often there is no business model, and also no knowledge and initiative for increasing production;
Biotechnology is not integrated into national strategies;
Domestic market is extremely small or absent, foreign markets are far away;
Minimal involvement of private capital;
Large international enterprises are not interested in Estonia. There are no possibilities for the involvement of foreign experts. Lack of international involvement contributes to the isolation of the sector.
To sum up, the possibilities of the biotechnology sector are:
To use the ICT success story and expand it by creating an image of a (bio)technological country, opening up markets and being of interest to investors;
Increase of global biotechnology market because it offers the greatest potential for fighting against such problems as the ageing of the population, growing need for food and fuels (energy), environment pollution; also rapid (more than 10%) growth of developing markets;
More inventions are coming from the academy than are used in enterprises or the technology transfer can gravitate to foreign markets;
Focusing on the beginning stage and small investors who are more interested in starting enterprises or small enterprises with a potential;
Mobile enhancement, like mobile biofactories;
The existing potential should be used now, later the building up of the sector will be expensive;
Flexibility in adapting to global changes;
Niche markets and adapted solutions.
Threats to the sector:
Most of the Estonian biotechnology enterprises are in red biotechnology where the global competition is getting stronger and it is hard to make a breakthrough. Global markets are moving from red biotechnology to white, green and blue;
Movement of people from rural regions to towns;
Latent expertise is harmful for the economy and the society;
Importance of the sector is not understood because there are no serious problems related to resources, environment, energy or clean water;
Strict regulations that are becoming even harsher restrict the development of the sector;
Relative decrease in the finance of research (considering the inflation).
Keeping in mind all that has been said already, it is necessary to make efforts for horizontal co-operation between the sectors and ministries and financing measures – vertically they are not strong enough to implement important changes in the structure of the environment (from service to product, more technology intensive in the longer perspective).
Estonia’s possibility is to realise the research potential in different expertise and create the preconditions for integrated synergy. It is necessary to establish a national strategy for technology transfer as well as for boosting private and foreign capital. The implementation of such a combined model for financing (state, private and foreign capital) and the development of research and product development (research and applied research) for the same purposes could boost and create synergic results in the sector. Such a model would give the researchers the chance to move from science to business and cooperate internationally, and would enable new ideas to enter the economy (for example as the results of spin-offs or start-up programmes).
The international co-operation platform of the new biology centre (synthetic biology73), that has been formed on the basis of a similar model (private and foreign capital, researchers and the state), are for example Singapore and Denmark: they are good examples of the so-called Singapore model74 or the Danish centre75, because both are small countries and are based on a skilful business model and research potential. Estonia could have a potential for establishing such a centre in synthetic biology, regenerative medicine, radiopharmacy or genomics.
1.4 Strengths, weaknesses and competition advantages of food sector
Main strengths of the food sector:
Strong and broad production base, certain potential for increasing raw material capacity;
Traditions, strategically important share in domestic market consumption;
Low use of fertilizers, high quality and strong raw material base;
Production and products with high quality and high level.
Weaknesses of the sector:
Low pay of the sector, low AV in export, no products with high AV;
Small automation of industry;
Low export capability (small trade volume, insufficient knowledge about the markets, or the expertise is not available to entrepreneurs);
Insufficient use of R&D in production, research potential is not sufficiently available.
More important opportunities:
Strong R&D potential and researchers (plant and animal breeding, synthetic biology and other biotechnologies, molecular biology, lab services and infrastructure, bioinformatics, etc.);
The population has a relatively high opinion of healthy eating (but is price sensitive);
Local raw material could help produce food for particular nutritional uses;
Export possibilities and markets are not yet sufficiently explored;
Local market still has potential (50–80% consume local products).
Political situation causes loss of markets;
Workforce is becoming more expensive;
Consolidation of trade in domestic markets (brands with especially low price, like own brand labels, are created).
As Estonia has relatively few CCTs and there are no clusters at all in the food sector, the number of related institutions is not significant. The only competence centre is Polli Horticultural Research Centre, and there are also two CCTs: Bio-Competence Centre of Healthy Dairy Products and Competence Centre of Food and Fermentation Technologies. Both are first steps to establishing co-operation between enterprises and research. The Competence Centre of Food and Fermentation Technologies deals with system technologies and bioinformatics in a wider sense, as well as the food sector, but the Bio-Competence Centre of Healthy Dairy Products is relatively specialised. The main task of CCTs is to involve as wide a range of enterprises as possible in the application of the same technologies. In the future, there is scope and former experience for enlargement. The problem is rather in the small awareness of motivation of enterprises, because long- term plans are necessary for R&D developments but there is not sufficient capability to contribute financially in longterm research investments. The role of the University of Life Sciences in the horizontal co-operation end ecosystem as a bridge between enterprises and research is the more important.
It is clear that CCTs are not necessary in all areas and sectors (meat, fish, cereals, etc.), but choice and flexibility are important for covering different needs in a better way – for example, by expanding the role of universities, competence centres or other institutions of learning and research (Olustvere) through technology transfer, co-operation projects, networks (clusters) or the activities of the state. One of the most important trends is still taking shape at the universities in the form of TT, because the universities have considered study and research activities as their main role, i.e., they do not see their role in applied sciences or contributing to the economy of the state through technology transfer and integrating knowledge in the whole society (e.g. by informing the population).
At the moment the attention of the producers is mainly focused on neighbouring markets (Nordic Countries, Russia, Baltic States), mostly because of the limitations of transport and storage life, where generally a maximum distance of 600 km is taken into account. On the one hand, it is possible to find solutions in co-operation with the researchers to improve packaging and storage conditions to increase this distance, but on the other hand it would be more feasible to find niche products, which requires production of products with a higher quality and added value that, may have a global range of export, similar to that of Ireland. This requires a national strategy – occupying of markets by producers separately is not enough. Finding of exotic markets may always depend on favourable close contacts (e.g. in Oman, etc.), but a strategic approach is important from the point of view of the economy of the country. For that, it is necessary to move into the export market and a marketing programme for Estonian food. The Estonian companies are not able to compete with the marketing strategies of other countries or large concerns on their own.
Here it is strategically important that Estonia should develop a common conception for the creation of the country brand of Estonia. Development of the country of origin brand is an alternative, but shaping it on the target markets is more complicated76. The need for developing the country brand of Estonia has been stressed at consultations with focus groups and enterprises, and also on the basis of the opinions of marketing specialists (A.-M. Naarits). Co-operation between different sectors is critical for ensuring synergy and better use of resources. It would be reasonable to thoroughly consider the concept of the new brand, and here not only the brand, but also having a credible and competitive story behind is important (story + quality). It is important that both the MA77 and the MEAC, and also the export sectors (food, wood, etc.), cooperated in the creation of the country brand for export. The experience of other countries shows that having a country brand influences export.
2 Objectives and indicators of the sector
2.1 Biotechnology sector according to the narrower definition (according to the OECD definition)
In the case of biotechnology, Estonia has a strong research base but its success in entrepreneurship has been limited so far. Therefore, it is necessary to make sure that more research activities evolve into businesses, and to create scalable products (to supplement the services part). The support of enterprises would help create more added value in this sector.
Objective of the sector: to establish more enterprises in the biotechnology sector; create new products and services with high added value by combining research expertise with entrepreneurship.
Biotechnology sector is sufficiently small to depend on the market situation of individual enterprises, therefore the aggregate indicators of the sector are also characterised by great volatility – the added value of the whole sector per person may fluctuate yearly by one third. Therefore, predicting the future of this sector is extremely uncertain.
One possible scenario can be found by extrapolating the recent past, i.e. assuming that the number of workers will grow in 2012–2021 at approximately the same rate as it did in 2005–2012, or almost double (this means presuming that the recent slow down of growth was a temporary reaction to the decline in the international economic environment during the economic crisis, and in the future, the growth will continue more slowly than during the period under observation).
This would mean a substantial increase of 8% in the number of workers employed every year. And at the end of this period the number of people employed would increase to 50 persons every year.
In this scenario, added value per worker is by about one third higher than the Estonian average, or it could grow at the same speed as the general labour productivity in Estonia (Figure 7).
Such a scenario would increase the number of workers to 725 by 2021 (outside technology development centres (Figure 20)) and (on the basis of the Ministry of Finance long-term forecast on the increase of productivity and inflation) would allow to predict nearly 52,000 euros added value per worker at current prices (with present prices, nearly 40,000 euros per employee).
The total added value of this sector would thus be 38 million euros and its share in the whole economy would double in line with the expansion of the sector to 0.25%. This is an indication as to whether or not it is possible to commercialise the knowledge of biotechnology.
It is also clear that some success stories, or the failure of a large enterprise, can quickly change this picture.
To summarise: the objective of the biotechnology sector is to create products and services with high added value by combining research expertise with entrepreneurship. The national action plan of technology transfer and the ability to attract international capital are critical preconditions for achieving this.
2.2 Objectives and indicators of the food sector
In 2011 the added value per employee in the food sector was 17,200 euros, accounting for only 77% of the average added value of Estonian enterprises. In 2011 the food sector engaged 12,610 people which made it a relatively large sector where higher added value should be aimed at in each section of the value chain: crop growing and plant breeding, quality of feeding-stuffs and raw materials, animal breeding and monitoring of safety, automation of production and improving of management, development of new products with high AV, the improvement of storage times and packaging, processing of by products, monitoring of markets-customers and marketing, and raising the awareness of the population.
The objective of the food sector as a whole is to increase AV. Estonia has great potential to achieve this. The following factors influence the growth of added value in the food sector and should be taken into account when achieving this objective:
Automation of the food industry and consideration of its present low level of technology use and very low salaries. Greater pressure on salaries will encourage to invest into technology and products with higher R&D intensiveness;
Processing of raw materials for food before exporting it; raw materials with improved quality and products made from them will have a more stable price level for export;
Finding niche products with higher added value to make it possible to find suitable export markets. Considering that the Estonian raw material base is very small in the world market scale, niches should be found for specific products that do not have a large market, e.g. special foods, like baby and gourmet foods, etc., or food that is directed at consumers with special dietary needs (lactose-free food or food enriched with additives, etc.).
Product development is the key issue in all spheres of activity, in order to use more innovations and to bring new products to the market. This would achieve higher added value and set a goal for the sector, so that in 2021 the added value per worker in the sector would be 38,000 euros in nominal prices, which means that when in 2011 the added value of the sector was 23% lower than the Estonian average, then in 2021 it would be only 10%.
To summarise: the objective of the food sector is higher AV, which is achieved through higher AV product development, automation of enterprises and entering new export markets. The objective is to halt the downturn of added value and to increase it, so that it would be 38,000 euros per person in 2021. To achieve this it is necessary to minimise the export of unprocessed raw materials, and to support the production of high-quality raw materials and investments into products with high R&D intensity with the help of agricultural and S3 measures.
To sum up the chapter of indicators, the most important indicators for measuring the objectives in biotechnology and food sectors are the following:
More scalable services and enterprises (biotechnology)
Biotechnology enterprises and added value (incl. salaries, export, jobs), number of new start-ups (SuE statistics);
Percentage of involving private capital in enterprises (percentage of turnover, private capital); in monitoring it is necessary to evaluate the dynamics of the percentage of research, state capital and private capital;
Percentage of the involvement of private capital in research work (dynamics of the volume of contracts with universities, capital of enterprises in euros);
TT programme and action plan (dynamics of the number of spin-offs of universities, participation in CCTs, clusters, competence centres, capacity of cell research, IP, patents);
Product development programme and action plan (number of enterprises that have involved state capital in private investments, dynamics of private investments in euros).
Higher AV in food sector: maximising the processing at each stage of the whole value chain (milk, fish, cereals, meat); more products with higher AV in export markets
To minimise (0–5%) the export of raw materials (e.g. unprocessed milk);
To increase the added value of the food sector by products of higher added value, larger exports, increase in salaries and the automation of industry.
3 Explanation of the selection of growth area and domains
3.1 Selection of domains in biotechnology
The policy research into the possibilities and challenges of smart specialisation in Estonia until 202078 of the research and innovation policy monitoring programme (TIPS) recommends not adopting the popular priority development sectors of major countries. The compilers of this document support a relatively large choice which would take into account existing sectors but would not be against new ideas in order to encourage a bottom-up approach.
The objective of the biotechnology domain is to increase the number of jobs in the sector as much as possible, and to increase the turnover of services/products with high added value and employment in the sector. On the basis of the TIPS report and the fact that the Estonian biotechnology sector is very small, there is a strong argument against highlighting more detailed domains. In biotechnology domains, the most important objective is contributing to activating of the sector79 and to create an environment promoting activeness, where the allocation of finances is decided on the basis of results and contribution.
Biotechnology is divided into four domains that should be given priority development in Estonia:
Biotechnology in medicine (biomedicine);
Food supporting health.
In the case of biotechnology domains, scalable products with high added value or products with potential in export markets are an important criterion.
A detailed description and explanation of the biotechnology domains are in Annex 6.
In the case of food sector domains, all activities of the food supply chain are included that increase the AV of the sector and carry on from the objectives of good quality and healthy food.
The food sector domain comprises the applications of the food industry that aim to preserve and raise the healthy qualities of foodstuffs by biological methods (through the whole food raw material supply chain and processing industry), valuing quality and nutritional value, and using proven lab methods. In this domain, the activities are mainly focused on two objectives:
Maximum processing of food raw materials in Estonia;
Production and sale of export products based on raw materials with higher added value.
The activities that process the medium products (e.g. processing of sheeps' wool) or waste (fuel and heat economy) of the food supply chain are not objects of S3 growth areas, but are certainly important for the national comprehensive bioeconomy development plan.
Sector-specific barriers and activities
OBJECTIVE: More scalable services and enterprises (biotechnology)
SUB-OBJECTIVE: Involve private capital in the sector (at an earlier stage)
SUB-OBJECTIVE: More start-ups in the sector
BARRIERS: In comparison to ICT sector, the biotech sector involves more capital, time and is R&D intensive, therefore the achieving of results takes longer, the interest of private capital to invest at an early stage is low, especially in a small country like Estonia. Most of the customers are outside Estonia and the sums needed for seed capital and scaling are huge. As there is no large biotech industry in Estonia in global terms, the business experience, investors, contacts and partners of the sector have to be found in foreign markets (for more details, see Annex X).
Starting activities for shaping the biotech start-up landscape with the aim of launching new potential start-ups or the so-called personal accelerators in co-operation with universities, public sector and enterprises;
Finding additional risk capital and loan possibilities for the market, preferably through boosting the co-financing of foundations by the state, preferably in co-operation with a Nordic foundation to cover the risk of small markets and competences;
Adapting state subsidies into more motivating capital involvement programmes:
consider the long duration of biotech programmes and there greater need for capital in financing;
replace subsidies by capital subsidies with the change of participation;
appoint fund managers knowing the sector to accompany the capital of enterprises;
encourage involvement of foreign capital together with state capital;
support financing applied research to enterprises with co-financing;
Enable enterprises to apply for applied research proportionally with self-financing;
Supplement study programmes;
with courses in entrepreneurship and project management and technology;
combine possibilities for integrated learning – synergy of molecular biology, chemistry, engineering and bioinformatics – into homogenous study programmes, taking into account the logic of convergence;
Create motivating grant programmes for teams in order to connect entrepreneurship and trainee-ships at an earlier stage in their studies (BA, MA, PhD);
Develop a technology transfer action plan and a suitable model for Estonia for finding outputs from research into business (testBEDs, access to research infrastructure, co-operation programmes for enterprises and research, so called excellent start-ups, planning of state and public sector, incl. local government initiatives for involving researchers in modern problem solving, etc.);
Continue BTP trends of activity, taking into account the recommendations of this report and S3 and to integrate these principles into the bioeconomy action plan;
S3 MEASURES NS: Startup ESTONIA, grants, CCT, clusters, applied research
MEASURES: Development programme, capital funds, innovation shares
OBJECTIVE: Higher AV in food sector
SUB-OBJECTIVE: Maximising of processing in each stage of the value chain (milk, fish, meat, cereals)
SUB-OBJECTIVE: More product with high AV to export markets
BARRIERS: R&D capability, motivation and awareness of the sector are low. The sector is divided between two government ministries, knowledge of foreign customers and markets and marketing skills are poor, experience is still developing, co-operation between producers and processers/marketers is small in the sector, which fragments the sector and prevents competitive prices in export markets, a lack of skills for the long-term planning for the development of high-quality niche products for new markets. Instead, easy money is sought (the sale of unprocessed raw materials).
Enable enterprises to apply for applied research in proportion with self-financing;
Encourage co-operation between enterprises in entering foreign markets with a common country brand, support market research and establish contacts at state level;
Enable access to co-operation on foreign markets through foreign representatives of Estonia;
Support the administrative capacity of enterprises through innovation shares or some other way, so that enterprises would involve more researchers in product development, planning of automation of factories and conducting the research necessary for entering new markets;
Launch the development and marketing of Estonian high quality export product brands similar to the tourism strategy;
Increase awareness of healthy eating among the population and to explain to them the value of high quality local food and the impact of domestic consumption of food on the economy (incl. among the Russian-speaking population);
Establish preconditions for building technology transfer bridges between science and enterprises.
S3 MEASURES: CCT, clusters, demand side policies (DSP)
MEASURES: Innovation shares, development programmes, the Economy Development Plan, brand Estonia