June 2020
BioEk2.0
Technological
Innovation System analysis
2
BioEk2.0 Technological Innovation System analysis
Elena Talalasova, RISE Research Institutes of Sweden
October 2020
1
Contents
1 Introduction ... 2
1.1 Method and process ... 2
2 System definition and scope ... 4
3 Structural analysis ... 7
3.1 Technology ... 7
3.2 Actor network ... 8
3.3 Institutions ... 9
3.3.1 Values and norms ... 9
3.3.2 Policies and regulation ... 12
4 Internal functional pattern ... 16
5 Analysis of contextual influences ... 17
5.1 The Swedish forestry sector ... 17
5.2 The Swedish agriculture sector ... 20
5.3 The Swedish functional foods sector ... 22
5.4 Summary of external influences ... 24
6 Recommendations and discussion ... 24
6.1 Strategy recommendations ... 25
6.2 Policy discussion ... 29
7 References ... 30
Appendix 1 ... 34
2
1
Introduction
This report constitutes the final deliverable of the task Technological Innovation System analysis (TIS) within the BioEk2.0 project, financed by the strategic innovation program BioInnovation. BioEk2.0 consists of six sub-projects that develop technological processes for reutilizing residues from agriculture, forestry and aquaculture, and a coordinating project, which aims to create synergies between the participating projects through knowledge exchange and joint analyses. Apart from TIS, the coordinating project includes sustainability assessment, raw material assessment and process integration analysis.
The TIS task of the coordinating project has two goals, (1) to identify systemic drivers and barriers for the development of the projects’ common value chain, and (2) to develop strategy and/or policy recommendations to address the identified barriers. The analysis targets three of the six participating sub-projects, namely ForceUpValue, AgrInnovate and Rapsåddi, and focuses on production of prebiotics and probiotics for functional food purposes (see Chapter 2 for an elaboration on the scope of the analysis).
Intended uses and target audiences of the report are the following:
• The report may support future research funding applications and continued development of the innovation system. It highlights the main uncertainties and points at the factors that ought to be considered if the ambition is to continue towards upscaled deployment of the technologies. When designing the next funding application, this information can help structure the work so that relevant systemic issues are addressed.
• The report can be used as background information for the market analyses in the participating projects. Several of the takeaways in the report have direct relevance for commercialization activities, from description of norms and attitudes that can affect the demand for the product, to restrictive policies that can entail additional costs, to the analysis of external influences, which can help form the value chain.
• The report draws several conclusions that are not only relevant for the identified scope, but also for the use of byproducts in general and the development of a circular bioeconomy. Therefore, both decision makers and other projects within the BioInnovation program can benefit from the information contained in the report.
1.1
Method and process
The study uses the Technological Innovation Systems (TIS) analytical framework to arrive at strategic recommendations for advancement of the innovation system. A TIS can generally be defined as “a network of agents interacting in a specific economic/industrial area under a particular institutional infrastructure or set of infrastructures and involved in the generation, diffusion, and utilization of technology” (Carlsson and Stankiewicz, 1991, p. 111). Central to TIS is the notion of innovation functions, i.e. emergent sub-processes of the overall innovation process
3
that are the result of complex interactions between the system’s actors and institutions, as well as external factors, which together describe the development and early diffusion of product and process innovations in a particular industrial field. The elements of the functional pattern are summarized in Table 1.
Table 1 - Functions of technological innovation systems (Adapted from Bergek et al., 2008)
Function Description
Knowledge development and dissemination
Creation of necessary knowledge about the innovations through R&D and learning, as well as its dissemination across relevant actor groups Entrepreneurial
experimentation
Attempting to find new commercial applications for the innovations through entrepreneurship practices
Guidance of the direction of search
Establishment of a shared vision and broad strategies to define the role of the innovations in the society
Market formation Creation of price-setting and market developing mechanisms, including public procurement, guaranties, subsidies
Resource mobilization Attracting the necessary financial, physical and human capital to develop the innovations
Legitimation Creation of broad societal acceptance of the innovations and ensuring their compliance with the existing institutions
Source: Adapted from Bergek et al. (2008)
Several project specifics and direct requests from the participants warranted the need for certain adjustments to the methodology. The description of the main deviations from the conventional TIS thinking follows.
One of the key characteristics of the innovation system studied is the early stage of development of the actor network. While not a barrier for using TIS, this makes the network highly dependent on external sectors, and justifies the need to study these influences in detail. A study by Ulmanen and Bergek (under review) was used as a methodological blueprint to zoom in on external effects on the innovation system. In the study, the authors identified two main types of contextual influences, namely, technological and sectoral contexts, and demonstrated how these contextual structures affect the innovation system.
Innovation systems analysis uses structural analysis (analysis of actors, networks, institutions and technology) as a starting point for a more comprehensive functional analysis, as it is argued that it is the interactions between structural elements that either drive or impede the progress of a given technology. During the initial scoping, the project participants expressed an interest in learning about several structural elements, such as policies, norms and attitudes. Thus, it was decided to include a description and brief analysis of the main policy domains (waste and byproducts,
4
bioeconomy, public health and food safety) that the network will potentially be exposed to, should the innovation system develop further. In addition, a summary of the research related to the norms and attitudes surrounding (1) novel foods, (2) foods derived from waste and byproducts and (3) functional foods was included.
The predetermined object of the study is a “common value chain” across three different projects, which develop separate technological processes and use different feedstock. In this situation, the more conventional way to analyze the developments would have been to perform three separate TIS analyses, but it can be argued that treating the projects as one TIS, while methodologically challenging, can help strengthen the network and visualize potential synergies. Such high level of aggregation leads to a low level of detail in the analysis, which, while not substituting a robust and in-depth TIS analysis, can be considered appropriate at the current stage of the development.
The initial interviews with the participating projects and the workshop focused on defining the scope of the study in a way that is both relevant for the projects and the BioInnovation program. In addition, part of the workshop was dedicated to presenting and discussing the novel food regulation that had recently come into force. As the next step, desk research was performed, guided by the methodological framework, an interview questionnaire was designed, and additional interviews conducted. The interviewees were chosen primarily among project participants.
2
System definition and scope
One of the initial challenges was to define the object of the study. The scope had to be relevant for the three participating sub-projects, so as to achieve synergistic effects through BioEk2.0, as well as have a certain relevance for the program as a whole and the broader field of bioeconomy.
Figure 1 features the results of a mapping exercise that were used as a starting point in the scoping discussion, where the multicolored boxes represent overlaps in the activities of the sub-projects. While CoMush project is excluded from this study, it was included in the illustration to demonstrate potential synergies with other project activities.
5
Figure 1 - Raw materials used in the projects and their applications
During the first workshop, it was decided that the most appropriate scope would be to focus on production of probiotics and prebiotics from agricultural, forestry and aquacultural waste streams for functional foods purposes. Thus, the scope would effectively exclude other uses for the waste streams, such as animal feed, chemicals, cosmetics or fuels, and the production of food supplements1. However, these are
discussed in the report to the extent they can affect the development of the innovation system. The geographic scope was set to Sweden, with extensions to the EU when relevant, or when country-level information was not available.
External influences
After the scoping exercise, it was decided to analyze three contextual structures that have an influence on the system development: the forestry, agriculture and functional foods sectors.
The forestry and agricultural sectors represent an upstream influence, mainly as potential resource provider for the network. The physical resources concerned are oat hulls, potato fibers and rapeseed cake residues from the agriculture sector and cello-oligosaccharides from the forestry sector. The effect of these sectors can be both positive, through providing the feedstock, and negative, through restricting the availability of the resources for the network. The functional foods sector is a downstream influence as the sector and the network share the same market. It can affect the network both positively, through knowledge exchange and sharing of the research infrastructure, and negatively, through competition for the market.
6
Due to the broad scope, diverse feedstock and a multitude of potential applications for this feedstock (some even developed in parallel to this analysis by the network themselves), external influences include many other sectors. These are, for instance, the animal feed sector and the construction sector, which represent alternative uses for the same feedstock. The maritime sector is another resource-providing influence on par with forestry and agriculture, but was excluded from the analysis as only one of the projects is benefiting the resources available within this sector. Additional influences were suggested by the project participants but are not included in the functional analysis. One is the Swedish insect network, that deals with many of the same institutional challenges that the BioEk2.0 network is facing. This network is included in the recommendations part of as an example of a network engaging in legitimation.
Relationship between prebiotics, probiotics and functional foods
This report adopts the following definition of functional foods: ”foods that have additional health benefits beyond basic nutrition” (Iriondo-DeHond et al., 2018). Functional foods consist of several subsets, of which probiotics- and prebiotics is one. An important distinction is that between functional foods and food supplements. It is generally acknowledged that, even though the two commonly use the same “active” ingredients, functional foods are presented in the food form, whereas food supplements are presented in dosage, “medicine-like” form.
The relationship between the terms probiotics, prebiotics, functional foods and food supplements is featured in Figure 2.
7
The sizes of the grey, blue and red squares represent the relative size of the global markets for functional foods, probiotics and prebiotics (data obtained from market research database Grand View Research). The focus area of the report is highlighted with black dashed line. Data shows that most of the probiotics and prebiotics are used for functional food purposes, as opposed to food supplements and animal feed purposes. Thus, the scope of the report covers a significant share of the prebiotics- and probiotics market (80-90%), but only a quarter of the functional foods market. To the extent possible, it was attempted to stay within the dashed line when collecting data, but when the information was not available, information about functional foods in general was used instead.
3
Structural analysis
This chapter features a description of the structural components of the system, namely, the main technological processes, actor network and institutions. As described in Chapter 1, the institutional analysis is more elaborate than the other parts.
3.1
Technology
Three different processes are being developed by the BioEk2.0 network, all using a separate raw material. An overview of all the existing technologies, as well as their self-assessed technological readiness level (TRL) is provided in Table 2. The indicated TRL intervals reflect the focus on technology development, but also signal the ambition to go beyond pure technological development (TRL1-6) towards system development (TRL 7). This was taken into consideration when assessing the functional pattern of the system and giving the recommendations.
Table 2 - Overview of the processes
Project Feedstock Technology/process TRL start TRL finish
AgrInnovate Oat hulls and potato fibers
Enzymatic hydrolysis followed
by bleaching 2-4 6 Rapssåddi Rapeseed cake residues 1-5 4-7 ForceUpValue Ascidians and forest
harvesting residues
Enzymatic depolymerization followed by hydrolysis under high gravity conditions
3 7
Some of the technological challenges the projects are currently solving, which can be considered especially relevant in the context of upscaling, are to ensure continuous
8
feed instead of batch feed, as well as correcting the properties of the final product (for instance, color correction through bleaching – AgrInnovate).
3.2
Actor network
Overview of the main actors forming part of the BioEk2.0 network is featured in Figure 3.
Figure 3 - Actors in the BioEk2.0 network
The network is driven by the three participating universities (LU, LTU, SLU) and involves companies at the stages of product testing and complementing process development. Both industries from the raw material supply and the product side, big international companies and startups, cooperatives and small and medium enterprises are part of the network. The supply side consists of an agriculture cooperative (Lantmännen), a potato-based starch and fiber manufacturer (Lyckeby Starch), a rapeseed oil producer (Gunnarshög Jordbruks), an aquaculture startup (Marin Biogas) and a forest owner (Sveaskog). The processing and demand side includes a manufacturer of probiotic bacteria (Essum), a plant extract manufacturer (SwePharm), a food producer (Orkla Foods), a microbiome research company developing novel probiotics (ImmuneBiotech), a global specialty chemicals manufacturer (Nouryon).
A broader overview of the actor types relevant for continued development of the innovation system is featured in Appendix 1. These are accounted for primarily in the functional analysis.
The key actor-related structural challenge facing all the projects is uncertainties associated with choosing a technology provider, as most of the participating companies are hesitant to implement the developed processes on a large scale.
9
3.3
Institutions
The following subchapter features an elaboration on the soft institutions (values and norms) and hard institutions (policies and regulations) relevant for the network.
3.3.1
Values and norms
A shift to alternative food sources and alternative diets is heavily linked to behavioral change and change in the underlying societal norms and consumer attitudes. In this subsection, we investigate the food consumption norms and habits that can either impede or enable the use of functional foods with ingredients derived from agricultural byproducts. Here, we try to answer questions such as:
How does the product being developed by the BioEk2.0 network fit into the general food and nutrition trends and consumption patterns? What can be said about the consumer and societal attitudes towards functional foods in general, and probiotics and prebiotics in particular? Attitudes towards and consumer acceptance level of novel foods in general, and food produced with ingredients derived from agricultural byproducts?
A study by the Food and Agriculture Organization of the United Nations (Lappo et al., 2015) finds that the main factors defining food consumption choices globally are food safety and health benefits, various aspects of sustainability, country and region of origin and production processes. In Sweden, environmental and health concerns are named as key drivers behind food consumption choices of the future (Kuylenstierna et al., 2019). Along the same line, an industry led study from Lantmännen (2018) states that half of the country’s population has an ambition to eat healthier.
Several industry led studies (e.g. Kerry Health and Nutrition Institute, New Nutrition Business, Probi, FoodFriends, Kairos Future) and research institutes and educational institutions reports (e.g. Fraunhofer, 2019, KSLA, 2005) point out digestive wellness, food for health and functional foods as big trends within food and nutrition in the developed countries. Functional foods and novel foods are listed as two of the four emerging food trends in Europe, with market forecasts mirroring the trend (Santeramo et al., 2017).
There is a limited number of peer reviewed studies that focus on societal and consumer attitudes to functional foods in general, and those derived from agricultural byproducts, in particular (Iriondo-DeHond, Miguel and del Castillo, 2018). In fact, there have been calls for further research on the topic (Küster-BoludaaI & Vidal-Capilla, 2017). Results of peer-reviewed quantitative studies looking for patterns in functional foods consumption have been mixed, often targeting specific countries or customer segments, making the comparison difficult. Of the types of functional foods, alternative protein sources have received the most attention. In
10
Sweden, the most researched functional foods product is ProViva, a range of probiotic enriched fruit drinks.
Vella et al. (2014) name consumer awareness and scientific interest for links between health and diet as the main driver behind the rise of functional foods globally. They studied functional food awareness and perceptions in Canadian older adults, paying particular attention to relationship between attitudes and information aspects. Their results indicated high consumption levels and consumer demand for additional information in forms of food labelling and newspapers. Notably, lack of information on the products generally seems to result in concerns for safety and quality. The role of information for increased consumption of functional foods has been stressed by e.g. Lagunes Martínez and Bojnec (2017).
Kuster-Boluda and Vidal-Capilla (2017) studied attitudes towards functional foods in Spanish adults (limited to the region of Valencia). Their conclusions indicate no positive correlation between willingness to consume functional foods and healthy lifestyle, nor did healthier lifestyle seem to affect the attitudes towards functional foods.
Ozen et al. (2014) provide a systematic review of functional foods consumption in European countries. They conclude that Northern Europe is the region with the highest consumption rate of functional foods in general. When it comes to probiotics, the authors stress that differences in categorization across countries generally complicate cross-country comparison. They point out to a study that concludes that 45.8% of Swedish population consume probiotic fruit drinks and 55.9% probiotic milk products.
Landström (2008) studied attitudes towards functional foods among Swedish consumers and health-care professionals. The author pointed out general skepticism and low awareness among both consumers and physicians, and a somewhat more positive attitude and awareness among dieticians. Health-care professionals who consumed functional foods themselves were more likely to be aware of the benefits and recommend it to patients. In a randomized study of 2000 Swedes, Landström et al. (2007) find the following factors to favor consumption of functional foods:
• Interest in natural products • Interest in general health
• Belief in the effects of the products
• Having consumed nutraceutical or dietary supplements • Familiarity with diet-related problems
11
However, a focus group study by some of the same authors (Landström, Koivisto Hursti and Magnusson, 2009) shed light on the potential rebound effects. Functional foods were perceived as the last resort when it comes to improving health, and their consumption was associated with attempts to justify an unhealthy lifestyle.
Of those who choose to consume functional foods, most are not willing to compromise on the taste and the texture of the food in exchange for the health benefits promised. At the same time, many functional food projects conduct sampling tests only at a later stage of product development, making it harder to adjust and dooming their product to small niche markets. In fact, focusing exclusively on the technical aspects as opposed to consumer preferences when developing a functional food or a functional food ingredient was named the main reason behind the high rate of failure in future commercial success of the products (Santeramo et al., 2017). Several studies point out that the critical attitudes towards the use of functional foods have been on the rise despite the constantly increasing interest in food for health and positive market development (Verbeke, 2006, Iriondo-DeHond et al., 2018).
While there are many studies investigating the potential of using byproducts as food or functional food ingredients, the aspect of consumer attitudes is not brought up frequently, as pointed out in a thematic review by Iriondo-DeHond, Miguel and del Castillo (2018) and by Prathamesh Bharat Helkar et al. (2016). They mention potential food safety and quality concerns and argue for a marketing strategy that builds on the novelty aspect of the ingredients.
Most of the studies concerned with the level of consumer acceptance of novel foods focus on insect based proteins, not the least due to their high potential to substitute meat proteins and the subsequent widespread attention it received in Europe in the recent years (see, e.g. Tan et al., 2015; Rumpold, 2013). Mindful of the obvious differences between insects and the BioEk2.0 products, some parallels can nonetheless be drawn.
A relevant finding from a recent study of the acceptance levels of novel insect foods among the Swedish consumers is, for example, the fact that a significantly higher level of acceptance is associated with the invisibility of the ingredient (Wendin et al., 2017). The study also finds out that only 16% of the studied consumers can be considered ”neophobic” (a common indicator used in assessing food preferences that measures aversion towards new or unfamiliar products). A study of German consumers by Hartmann et al. (2015) finds significantly higher willingness to eat processed novel food than non-processed. Higher willingness has also been observed among French, German and US consumers when the insect food is incorporated into familiar food items ( Hamerman, 2015, le Goff & Delarue, 2016 and Orsi et al., 2019.
12
Finally, Nordin et al. (2004) conclude that a decisive factor in the willingness to try a novel food is information on the taste and on the nature of the food.
3.3.2
Policies and regulation
The BioEk2.0 network is governed by various, oftentimes overlapping, policy domains, including agriculture, aquaculture and forestry; public health and food safety; and waste and residues. This can create both opportunities – as several drivers from various fields converge, and challenges – when the policy domains are not sufficiently integrated or aligned, leading to mixed signals and insufficient guidance. An overview of the main domains and examples of policies and strategies follows; the list of the main policies, regulations and strategic documents reviewed can be found in the References section.
The agriculture, aquaculture and forestry domains guide the upstream part of the value chain, most notably, the provision of raw materials. It is regulated at the EU, national and regional levels.
A national bieconomy strategy is on its way since 2019 (Skogsindustrierna, 2019). The Swedish Research and Innovation Strategy for a Bio-based Economy by Formas (Formas, 2012) highlights the use of by-products and waste products and substitution for the fossil-based materials.
The national forestry program, implemented in 2017, introduces five focus areas, of which three are in line with the BioEk2.0 network activities. These are innovation, sustainability, and the highlighted potential for diversification of forest use. In particular, the program mentions that the use of logging residues can triple compared with present day’s levels, albeit with a focus on energy applications. The national food strategy 2030 (Näringsdepartementet, 2017) and the associated action plans introduces the envisioned development path of the Swedish agricultural value chain. It has a strong emphasis on organic food production and identifies three focus areas: regulation, consumption and innovation. It does not explicitly mention the use of byproducts in any of the areas.
The aquaculture strategy highlights cultivation of novel species, not the least through their inclusion in local spatial planning, as well as emphasizes diversification by inclusion of non-food products, and mentions the use of byproducts in a resource efficient manner.
Food and food safety policies set rules and requirements for products intended for human consumption. One important type of food policy is food labelling, which proves health and sustainability claims and informs the consumers on the nutritional and other values of the products. Examples of relevant certifications from the EU and
13
Sweden are CE, KRAV, Certified for self-care, nutrition and health claims. Another potentially relevant information policy mechanism is the dietary recommendations by Livsmedelsverket (based on WHO requirements with a few local adjustments). However, since these are introduced at a level of food items and nutrient types, they do not currently influence the value chain.
Regulation (EC) 1924/2006 controls nutrition and health claims made for foods. To date, no probiotic health claims have been approved by the European Food Safety Authority (EFSA), which justified its decision based on the fact that a healthier gut flora is not a health benefit per se (Pen&Tec, 2019). This judgement led the EU to ban the use of the term ”probiotic” in labelling as an unauthorized health claim (EC, 2017). One of the recent additions in the domain of food and food safety is the revised novel food regulation (Regulation (EU) 2015/2283), which aims at ensuring the safety of innovative food products. Manufacturing probiotics through novel processing methods makes them potentially subject to the new regulation (Pen&Tec, 2019). Contrary to the regulation on health claims and nutrition, there are no barriers for applying for registering probiotics as a novel food. For instance, the previous novel food regulation approved a probiotic strain by a German startup Avitop (Food Compliance International, 2015). Whether the products developed by the BioEk2.0 network will be considered novel is up for assessment, which is made on an individual basis in consultation with Livsmedelsverket.
There are several differences compared with the previous novel food regulation. The first and perhaps most significant one is the introduction of a new centralized procedure (European Commission, EFSA, Appendix 2), although consultation on the status of food is still done through the Member States (Livsmedelsverket in the case of Sweden). While the new procedure is centralized, there is currently a lot of confusion among different stakeholder groups regarding the legal status of foods that were prohibited in some countries and allowed in other countries prior to the introduction of the regulation, such as in the case of insect food.
The second major difference is the introduction of a new clause on traditional food from third countries2, featuring a simplified procedure for foods with documented
evidence of safe and significant use in third countries within the last 25 years. Finally, generic authorization is applied, meaning that everyone can produce the product once it is approved. However, the regulation also introduces a possibility for granting data protection.
The response to the idea behind the new regulation has so far been mostly positive, citing the faster and more streamlined process and the introduction of the fast track
14
for traditional foods (Nutraingredients, 2018). However, direct communication with the companies that are currently applying for novel food status revealed that, in practice, the time pauses each time a question is posed by EFSA to the applicant, significantly slowing down the process.
Policies related to waste and residues define the incentives, rules and feasibility of the use of specific raw materials. Depending on the arrangement and the side streams used, it can become a barrier, particularly if an item falls under the category of waste. The Swedish Environmental Code regulates whether an item is classified as waste or as a byproduct. Following controversies regarding the definition of waste vs byproduct, the Code was revised in January 2020.
In general, classifying a feedstock as waste makes it subject to the Swedish Waste Ordinance, which complicates and restricts its use. Whether an item can be classified as a byproduct is based on it fulfilling several criteria: guarantee of continued use, possibility to use the item without further processing than what can be considered normal within the industry, production as part of the integrated production process, and compliance with the relevant regulation (illustrated in Figure 4). Generally, if the residues are meant to be disposed of, they are classified as waste regardless of their physical properties and chemical composition (Naturvårdsverket, n/a). If an item is currently used as animal feed, it is considered a byproduct and not waste (Jordbruksverket, 2020).
Figure 4 - Criteria deciding whether a material is considered a byproduct or waste.
Source: adapted from Naturvårdsverket
In summary, the biggest policy push lies at the intersection of, on the one hand, the agriculture, aquaculture and forestry domains and, on the other hand, the waste and byproducts domains, with the use of byproducts generally incentivized and in line with the existing strategies at the national level. The biggest potential policy constraint lies at the intersection of waste and byproducts and public health and
15
food safety domains, with novel food regulation and health claims regulation the most problematic aspects. Figure 5 features an indicative assessment of how the policy domains may affect the BioEk2.0 network going forward.
16
4
Internal functional pattern
The chapter describes the internal functional pattern of the innovation system, achieved through the interactions between the network’s elements. As previously mentioned, due to the early stage of the development and its almost exclusive focus so far on process development, the internally driven innovation system processes are expected to be weak.
The processes of knowledge development and diffusion and entrepreneurial experimentation have so far been the primary focus of the network’s activities. The network has focused on experimenting with different process setups and parameters. Exchange of knowledge between the three participating projects, particularly through the coordinating project, was also observed, and in some cases yielded potential process synergies and spills over to the participating companies. However, creation of knowledge related to technology remains the focus of the interactions. Despite indications that the product and market related knowledge is equally important for continued development, these discussions remain significantly more limited. Examples of market related knowledge creation within the network Is the ongoing market validation analysis (ForceUpValue).
The process of guiding the direction of search is to a large extent driven externally, not the least through participating companies’ research and development priorities and the political priorities within the circular bioeconomy, outlined in the previous chapter. The network itself remains flexible with regards to the potential applications for the products being developed – be it functional foods, animal feed or other applications. This is partly due to the pending product analysis, where lab results describing product characteristics will define what purposes they are most suitable for.
Due to the issues and uncertainties outlined above, the network does not currently engage in market formation activities. Physical resource mobilization is realized to the extent necessary for the process development and lab trials. The financial resources mobilized to date come mainly from public research funds, with limited participation from the industry, while no financial commitments have been made by the companies for continued development beyond the project timeline. Some discussions on mobilizing the physical resources of the participating companies for the upscaled processes are ongoing but are generally subject to demonstrated financial feasibility of the concept (e.g. AgrInnovate and Lantmännen).
The network recognizes the novelty of the products being developed and the potential institutional issues it might result in. However, it is not directly involved in
17
legitimation activities beyond those that are driven separately by the participating companies, particularly within the functional foods sector.
5
Analysis of contextual influences
As previously mentioned, it is mostly the external influences that drive the development, define its direction and conditions for success, given the early stage of the network. Three sectors were chosen to demonstrate such influences on the development of the focal TIS: forestry, agricultural and functional foods.
5.1
The Swedish forestry sector
For the purposes of this study, the forestry sector is defined as the production and consumption system for harvesting and processing of forests. Key actors include forest owners and processing industries (pulp and paper including biorefineries, sawmills), industrial associations (Skogsindustrierna, Skogsentreprenörerna, LRF Skogsägarna), and government agencies (e.g. Swedish Forest Agency, Swedish Energy Agency). The sector encompasses several technologies in different stages of development and has so far acted as the cornerstone of the transition towards a bioeconomy in Sweden. The sector owns a feedstock of relevance for the BioEk2.0 network, namely logging residues, which is currently either not used (for economic reasons) or used for energy purposes.
Knowledge development, diffusion and entrepreneurial experimentation
The forestry sector contributes to development of knowledge relevant for the BioEk2.0 network in several ways. An example of such knowledge is creation of analytical methods for characterization of logging residues, stated as one of the priority research areas in the forestry industry research program (Skogsindustrierna, 2018). Such knowledge related to the highly variable properties of the raw material can help guide the entrepreneurial activities within the network in terms of finding suitable applications for the feedstock. Likewise, the R&D activities on the corporate level contribute to the creation of relevant market and technology related knowledge. An example of such activities is Stora Enso’s Innovation Center for Biomaterials, which focuses on developing new applications for wood-based raw materials. Some of this knowledge is already being disseminated through the industrial actors in the network (e.g. Sveaskog). However, given the strategic importance of product diversification for many of the sector’s actors (Skogforsk, 2017), some knowledge dissemination may likely be hindered by intellectual property concerns.
18 Guidance of the direction of search
The convergence of the trends of circular and bio-based economy within the forestry sector is guiding the use of the sector’s residues towards a diverse range of applications, potentially including the network’s solutions. The growing interest of companies in using as many residues as possible was highlighted by one of the interviewees. The interviewee stated that both environmental drivers – the desire of the sector to contribute to sustainability transition, and economic drivers – the need to increase the value and interest in the sector’s products – played a role. Another economic driver that contributed to the increased focus on diversification is the historic price development and subsequent decline of the energy market for logging residues. In Northern Sweden, the market of logging residues for heat and power has gradually died out due to low prices and competition with municipal solid waste, which has pushed companies to look for new applications.
Development of new biobased products is one of the four research priorities in the sector’s research program (Skogsindustrierna, 2018). While areas such as textile, wooden buildings and innovative packaging solutions are highlighted, the sector seems to also be searching for new, unconventional applications. For instance, Sveaskog, together with partners, has several ongoing research projects aimed at finding applications for logging residues, such as substituting plastic in tailored packaging, using bark for substituting adhesives and substituting microplastics in artificial grass (Sveaskog, 2019).
However, within the non-energy applications of biomass and forestry residues, foods are perceived as one of the hardest markets to enter for the sector, both due to the associated institutional barriers and the distance between the food sector and the forestry sector, with no established value chains and relationships between the sectors’ actors. These difficulties may drive the actors’ interest away from BioEk2.0 network’s solutions.
In addition, with the recent rise in interest in biofuels, notably within the aviation sector, the interest towards energy applications for logging residues might be revived, locking in the resources from non-energy related applications. The fossil free roadmap, developed by the forestry industry as part of the Fossil Free Sweden initiative, sets a goal of drastically increasing the availability of forest residues for bioenergy purposes, particularly for transportation sector (Fossilfritt Sverige, 2018). Logging residues and black liquor are named the two most efficient and promising feedstocks for producing biojet fuel through Fischer-Tropsch process (LTU, 2018).
19 Resource mobilization
The sector is advocating for doubling the investments in R&D (Skogsindustrierna, 2018), with a large portion benchmarked for development of pilot facilities and test beds. An example of such test beds is multiproduct biorefineries, where multiple products are co-produced, potentially providing physical space for BioEk2.0 solutions.
The mobilization of physical resources in form of feedstock presents no issue at this point when the scale is small. However, large scale implementation, and the associated bigger volumes, might not be attainable if other applications, described above, are strategically prioritized and this one marginalized3.
A factor that may impede the mobilization of the sector’s financial resources beyond test and demo is failed previous attempts to prove the economic feasibility of a pulping technique similar to the one being developed within BioEk2.0 (organosolv/ForceUpValue). This previous experience might hinder the willingness to invest in upscaled deployment from a range of actors within the sector.
Legitimation
In Sweden, relatively few legitimacy issues are associated with the use of logging residues and forest feedstock in general. There is a clear norm towards using waste resources and side streams, institutionalized in the documents outlined in Chapter 3. Products that have their origin in the Swedish forestry sector are generally well received due to the abundance of resource locally and the historically good forestry management. As a consequence, biobased products enjoy a broad political support across applications. However, this applies to the field of biobased materials in general, and not specifically food applications. The strong sustainability advantage of other applications comes from the substitution effect, whereby the products are intended to substitute fossil-based materials. Lack of an equally compelling argument for BioEk2.0 solutions might undermine its legitimacy vis-à-vis other applications.
In addition, the rising interest in forest-based materials leads to increasing concerns over competition for forest resources and the long-term availability and sustainability of the resource. A growing political concern is biodiversity, which in some cases limits potential for using branches and tops, for instance within the FSC certification system.
3 A quick estimation within the coordinating project revealed that about 10% of the currently available forestry
20
5.2
The Swedish agriculture sector
The Swedish agriculture sector is defined as the production and consumption system for the cultivating and processing of plants and livestock. The sector is highly integrated with the food sector through both shared actors (e.g. vertically integrated companies such as Lantmännen) and shared institutions (e.g. the National food strategy, which covers the whole value chain). Key actors include farmers and agricultural companies, industry associations (LRF, Livsmedelsföretagen) and government agencies (Livsmedelsverket, Jordbruksverket). The sector provides feedstock to the BioEk2.0, but also contains alternative uses for the feedstock, such as energy and animal feed (currently the two primary uses).
Knowledge development, diffusion and entrepreneurial experimentation
The research and development activity of the Swedish agricultural sector in general is significantly lower than the industrial average and has been stagnating for the last three periods of measurement (Vinnova, 2015, SCB, 2017). Innovation within the sector is shaped and driven by bigger, vertically integrated companies, such as Lantmännen. The company spends a yearly 250-300 MSEK on research, with 25 MSEK going to universities and research institutes. Their three research priorities are bioenergy, biomaterials and increased value of residual products (Lantmännen, 2019). However, the latter currently has an explicit focus on energy applications. Another important research stream for the sector is food innovation and food and health research.
Guidance of the direction of search
In contrast to the forestry sector, the agricultural sector might have a preference towards directing the materials to food applications due to its strong links to the food sector in the form of established value chains and close relationships. However, according to a survey conducted by the Swedish Agricultural Agency (Jordbruksverket, 2017), the dominating innovation goals for the companies in the agricultural sector are process improvements with the goals of increasing the quality of produce, improving conditions for work, reducing energy consumption and climate impact. The activities of the network do not directly contribute towards these goals, potentially guiding the actors’ search away from BioEk2.0 applications. Low research and development activity of the sector, highlighted above, could be another indicator of a lowe willingness of the actors in the sector to engage in the highly innovative activities within BioEk2.0 network.
Resource mobilization
The sector could provide resources for upscaled implementation, both when it comes to the feedstock and the physical space for processing equipment. Big amounts of
21
feedstock are readily available within the sector, currently used for applications with low profitability. The actors in the sector already facilitate resource mobilization for the network. Namely, Lantmännen stated that they are willing to discuss installation of the equipment on one of their sites.
However, there are signs of increasing competition for resources that can negatively impact the availability of resources. Since 2017, one of the companies that are involved in BioEk2.0 has participated in a Vinnova-funded project focusing on the development of furniture from oat hulls, which was finished in June 2020 (Vinnova project database, Lantmännen). In the neighboring country Finland, Fazer is investing EUR 40 million for a backwards integrated xylitol production plant, with plans to expansion to Sweden (see case box).
Oat hulls to xylitol – an example from Fazer, Finland
The Finnish food industry giant Fazer invested EUR 40 million into building a factory for extracting xylitol from oat hulls. Xylitol is a sugar substitute with an EFSA approved health claim; it is derived from xylos, typically available within certain plants and trees. The facility is built next to the company’s oat mill in Lahti and is the first backwards integrated xylitol facility in the world. When asked about the drivers behind the decision, the company representative named circular economy and the growing health food segment. The facility will pertain the company’s Lifestyle foods business segment. The patents for the technology are pending. The facility is expected to start operating in late 2020, and the company already announced plans to expand production to Sweden.
While there may have been a plentitude of factors that contributed to the company’s decision to invest in backwards integration of the value chain for xylitol, the key are geographic proximity to and ownership of the raw material, strategic relevance of xylitol for several of the company’s product groups and the growing market for the product, as perceived by the company.
Source: Fazer Group
However, at the current stage of development of these innovative applications for agricultural residues, the competition for physical resources remains hypothetical; it is rather competition for financial resources that might be decisive in defining the success of one technology over the others. A much bigger issue is a lock-in to the already existing uses (energy and animal feed) that, while having low value, mark the easiest alternative consistent with the sector’s norms and practices.
The sector’s industry association (LRF) has recently expanded their membership offer to include legal guidance services, a potentially important resource for the BioEk2.0 network.
22
5.3
The Swedish functional foods sector
The functional foods sector is defined as a subset of the food sector, with many overlapping structural elements. The sector’s actors include traditional food industry actors (e.g. Lantmännen), specialized functional foods and nutrition actors (e.g. Probi, BioGaia), and companies from the biotechnology industry (e.g. Aventure, Essum, ImmuneBiotech), which typically act as ingredient suppliers. The sector is part of the industry association Svensk Egenvård and is regulated by several government agencies, most notably Livsmedelsverket. The sector caters to the same market as the BioEk2.0 network but uses different feedstock.
Knowledge development and entrepreneurial experimentation
The sector can be characterized as research-intensive, with high industrial involvement in research activities. In fact, developing new foods and providing patent support is at the core of the business model for some of the sector’s actors. At the current stage of BioEk2.0 development, the sector contributes with analyzing the properties of the products developed by the network. However, high research intensity also brings about intellectual property rights concerns, potentially limiting knowledge dissemination and leading to entry barriers for the network.
Another factor that negatively affects entrepreneurial experimentation and innovation activities within the sector is the increasingly stringent health claim regulation (Moors, 2012), through high development costs and legal uncertainty. Guidance of the direction of search
The direction of search towards functional foods as a product group is positively affected by the societal trends towards personalized nutrition and norms favoring healthy and sustainable food consumption, as outlined in Chapter 3. This pushes some of the companies within the food industry to enter the functional foods market. One recent example of this is Lantmännen, that last year branched out to create a new company, Lantmännen Functional Foods, which engages in development, market research and sales of “medical and functional foods”.
Ongoing research provides some indication that the functional foods sector is looking for new sources of prebiotics and probiotics, of which industrial food waste is one (Patel and Goyal, 2012). An additional factor that drives direction of search to the BioEk2.0 network is general consumer preference towards nature-based functional foods: globally, the natural food segment is expected to take a large share of the total market for functional foods (Zeon Market Research, 2019).
23 Market formation
Driven by the increasing interest towards personalized nutrition and health foods, the market for functional foods has seen steady growth. Globally, the prebiotics market is expected to grow twofold, from USD 4 billion to USD 8.5 billion in just five years (GMI Insights, 2019). In addition, market research points out at a growing willingness to pay a premium for products with prebiotic ingredients (Grand View Research), which self-reportedly stimulates market growth.
The European probiotics market is expected to grow by 25 per cent in the next five years (Mordor Intelligence, 2019). However, most of the growth is expected in the food supplements and animal feed segments, as opposed to functional foods (Probi, 2016). Contrary to the European trend, the Swedish market for probiotics saw some downward fluctuations in the medium term, having only recently recovered (Svensk Egenvård, 2017).
The major restricting factor for market development for functional foods is health requirements regulation and the associated limitations on the use of health claims (Probi, 2018). It was especially detrimental for probiotics product group, with the introduction of a ban on using the term. The stricter regulation impeded market entrance of smaller actors and led to a sharp increase in costs for the sector. This further reinforces the high degree of consolidation of especially the probiotics market, which is dominated by a few major players. This could indicate that the entry barriers are high and, consequently, the BioEk 2.0 actors might not be able to get access to the market.
Legitimation
There is an ongoing societal debate surrounding the benefits of probiotics, prebiotics and functional foods, as witnessed in the national news outlets (see, e.g. GP, 2019, SVT, 2019) and institutionalized in the health claims regulation. Some of the reasons for controversy are the highly variable quality of the products available on the market, the fact that many of the products have not undergone clinical trials, and several instances of contested health claims. In addition, a Nordic study points out that the presence of health claims generally tends to negatively affect the perceived naturalness of the product (Lähteenmäki, Lampila, 2008).
The situation is aggravated by the fragmented knowledge in the scientific community surrounding the health benefits of prebiotics and probiotics enriched foods. In 2018, Livsmedelsverket did a state-of-the-art analysis of the knowledge related to the relationship between food and microbiome. The study pointed at several controversies and knowledge gaps. Likewise, the Swedish National Food Research Program (Formas, 2019) points out continued knowledge creation as the key
24
condition to functional foods’ potential contribution to sustainable diets. These concerns may result in contested legitimacy of the applications chosen by the Bioek2.0 network.
5.4
Summary of external influences
Table 3 features a summary of positive and negative external influences from the forestry, agricultural and functional foods sectors.
Table 3 - Summary of external influences that affect the functional pattern of the BioEk2.0 TIS
There are several issues weakening the functionality of the innovation system. Physical and financial resource mobilization, direction of search and legitimation represent the biggest bottlenecks. Sustained resource mobilization particularly from the forestry sector is problematic due not the least to competition with other applications within the sector (energy and biomaterials), while most of legitimacy concerns and market formation barriers come from the functional foods sector, and are related to contested health benefits of functional foods, policies and regulations complicating market entrance of new actors. While both negative and positive influences are found, many of the positive influences remain hypothetical.
6
Recommendations and discussion
This chapter suggests strategy level recommendations for the development of the innovation system, as well as reflects on the broader bioeconomy, food and innovation policy implications of this project.
25
6.1
Strategy recommendations
To address the issues outlined in the previous chapter, several suggestions for continued activities within the BioEk2.0 network are outlined. Namely, we recommend the actors in the network to explore alternative ways to mobilize resources for projects, participate in legitimation activities and develop strategies to deal with the negative effects of the novel food regulation as one of the most problematic institutional elements.
Exploring ways of project financing and organizational forms
One of the issues facing the network is resource mobilization for upscaled deployment of the technological process, where lack of targeted political support, competition with other uses of the same feedstock, regulatory risks and previous failed attempts are the main factors that contribute to weak functional performance. There are several strategies the network might choose to address the issue, including operating as parts of multipurpose clusters, organizing into a joint venture and using offtake agreements.
The early development stage of the network entails certain flexibility in terms of geographic placement. In this situation, a viable strategy could be to tap into existing cluster arrangements and bioeconomy test beds, where several product groups are produced simultaneously. An example of such a cluster is The Biorefinery of the Future, a hub for forest biorefinery development, which includes a biorefinery pilot plant in Örnsköldsvik, where a multitude of products are produced, including textile, medication, foods, paints, fuels, building materials and hygiene products (Sekab, n/a). Operating at the premises of multi-purpose test beds or multiproduct biorefineries could be an attractive way for the BioEk2.0 network to mobilize the necessary physical resources while exploring potential process integration and knowledge sharing synergies. Examples of food production integrated with biorefining are provided by Sheppard et al. (2019).
When it comes to mobilizing financial resources, offtake agreements can act as one mechanism to secure financing for construction of a facility. Figure 6 features a description of the logic behind offtake agreements. The producer and the buyer agree on the terms, particularly specifications of the final product. Then, the buyer guarantees the demand for the product, while the producer guarantees the supply. The secured market for the product typically makes financing easier and cheaper, as it reduces risks of default on payment.
26
Figure 6 - Offtake agreement
Source: Adapted from Yescombe (2013)
This of course is conditioned by the presence of these three parties and their willingness to enter into an agreement. The challenge for the BioEk2.0 network consists of both finding the actors that act as technology providers, and those that act as buyers of the final product. There, results of business feasibility and product property studies currently performed by parts of the network have a central role in ensuring success. On the financing side, involvement of smaller regional banks that support agricultural activities, or cooperatively owned banks with a strong sustainability profile may be beneficial.
The type of actor that may act as a producer depends on the feedstock. For agricultural feedstock, a vertically integrated food producing company would be the most obvious option. For wood-based feedstock, it could be a pulp and paper mill striving to diversify project portfolio or a specialized company that is part of a multi-product biorefinery. In any case, factors such as proximity to the feedstock and established relationships with the buyer industry will play a role.
Choosing to operate as a joint venture can help mobilize resources and knowledge from several parties while spreading and isolating the associated risks for each participating party. There are different types of joint ventures depending on the organizational arrangement and the participants4. A functional based joint venture,
with actors from different value chains, may be most suitable for the network, as the network is comprised of a variety of actors operating in different sectors and the solution requires knowledge from several fields.
27 Active participation in legitimation
The main legitimacy issues are related to the absence of norms for using byproducts for food production purposes and the conflicting norms related to novel and functional food consumption. These issues justify the need to engage in legitimation processes early in the development process in order to open up the markets and mobilize the resources from relevant sectors, such as forestry and agriculture. As a relatively small network, engaging in legitimation on a political level is not likely to yield significant results. However, the network can, and to some extent already does, capitalize on the BioInnovation program to create awareness on the benefits of the solutions. Early incorporation of customer attitude studies into research may prove more feasible given the resource constraints of an early development stage. This would guide further product development and can potentially attract more companies.
The case described in the box below shows how another small network actively engages in legitimation activities through user involvement and a dialogue with authorities.
The Swedish insect-based food network and their work with legitimation
The Swedish insect-based network is facing many of the same challenges of the BioEk2.0 network. Both were initiated by educational institutions, both are in early stages of development, and both are exploring controversial raw materials for food applications. Both networks experiment with process development, but the insect network goes one step further when it comes to legitimation. The network is financed through the Knowledge Foundation and has a double focus on process development and attitudes research. A network representative notes a growing interest for insect-based foods in Swedish and European society, as well as some interest from politicians on the European level, driven by the interest in sustainable foods and the search for alternative protein sources. But the development is not without its challenges. The network representative notes that there is still a long way ahead to overcome consumer prejudices towards insect-based food. To address the challenge, the network arranges meetings and activities to spread knowledge about insect-based food, which often include interactive elements such as meal cooking, recipe development and customer engagement in product development. Additional activities include meetings with regulatory entities and legal consultants related to novel food regulation, to facilitate creation of mutual understanding.
Another challenge for the network is attracting companies on a longer-term basis. Interestingly, companies from the forestry sector have expressed interest in participating, as they are looking for new applications for the forest insects and potentially also could use forest residues as insect feed. The network is generally positive to the new novel food regulation as it has potential to solve many of the issues of the previous regulation, which were caused by differences in implementation by
28
different countries. The future of the network, however, is stalling in wait of the decision on the status of insect-based food as novel food.
Outside of the network, these issues and other issues have justified the creation of a separate interest organization – Insektföretagen – within Livsmedelsföretagen, to act as a central node in communication with the authorities and communicating the interests of the participating “entopreneurs”.
Strategies for dealing with novel food regulation
Novel food regulation is the structural element that may negatively affect several of the functions, particularly guidance of search and legitimation. The regulation has various potentially negative implications for companies, especially pronounced in food innovation SMEs. The main impacts as well as countermeasures are summarized in Table 4.
Table 4 - Impact areas of the novel food regulation
Impact Measures and alternatives
High costs for information
collection Partner with big industry Long time (between 8 and 18
months) to go through the process
Avoid the need for EFSA involvement through exhaustive information provision, to avoid consultation with the Food Agency Generic authorization means
that everyone can produce the food when it is approved
Ask for data protection provision (individual authorization for five years if substantial scientific research preceded the application) Wait until someone else applies (lost first mover advantage) Consumers can be reluctant to
buy non-conventional food
Find the right market segments
Communicate the application process to the customers
Arguably, the most pronounced negative impact is associated with added costs for information collection. There, aligning the parameters measured within the research project to the parameters required by the regulation early on can help avoid extra costs at the application stage.
Advice on the applicability of the regulation can be sought from the industrial associations through the participating companies. For example, LRF has legal advice as one of their core activities, and Svensk Egenvård has recently added legal advice as one of their members offers.
29
6.2
Policy discussion
When it comes to food and nutrition policy, the study revealed several potential issues. All the food and nutrition trend studies and food market analyses reviewed for the purposes of this study point at a trend towards an increased use of functional foods and personalized nutrition. On the flip side of this development is the observed controversy and polarized societal and political debate surrounding the health benefits of functional foods and probiotics- and prebiotics- based foods. Arguably, one of the reasons is that independent research is not keeping up with the rapidly changing societal norms. With prevailing industry-driven research and without clear policy guidance, maximization of sustainability benefits cannot be guaranteed. A public research strategy that focuses on health benefits of functional foods in general, and pre- and probiotics in particular, as well as increasing societal awareness, is the first crucial step to steering the development towards social sustainability.
A rise in functional foods and personalized nutrition brings about many additional challenges to the current food policy system. One such challenge is that of incorporating the individual approach behind personalized nutrition into the existing, inherently generalized food, health and safety standardization routines and procedures. Certification systems will likely have to be reviewed to accommodate for the no one-fits-all logic behind personalized nutrition. A related challenge is the national dietary recommendations, whose level may need to be adjusted to accommodate the new knowledge.
When it comes to bioeconomy policy, the development is currently in the searching phase, with many alternative bioeconomy applications being developed at the same time. While spurring technological discoveries, it does not ensure positive sustainability outcomes. Identification and prioritization of the areas where bioeconomy solutions contribute the most with regards to both social and environmental sustainability should be an integral part of the upcoming bioeconomy strategy; introducing policy instruments, such as mandatory quotas for biobased materials or others, before such a strategy is established can lead to suboptimal sustainability outcomes. Instead, a holistic approach should be embraced, where other considerations such as related trends in the energy and other sectors are considered. This is crucial to avoid competition for resources, negative sustainability outcomes, as well as creation of stranded assets.
