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Despite Serious Challenges, South America Has Biotech Potential
The world needs more food as well as sustainable alternatives to fossil fuels. South America is uniquely positioned to help solve both issues.!--h2>
Biotechnology is widely believed to be the next technological frontier for South American countries, given the region's biodiversity, high availability of fertile lands for biomass production, and recent economic growth. However, the development of this industry in the region still faces serious challenges, including low research and development (R&D) spending, reliance on public funding, lagging innovation, structural heterogeneity, weak intellectual property protection, a lack of coordination between private and public sectors, and other structural deficiencies that may jeopardize the region's ambition to be a major player in the scientific breakthroughs biotechnology promises to bring about. The region is mainly a consumer of technologies developed elsewhere, but there are many reasons to believe that this current scenario can change.
The world needs more food as well as sustainable alternatives to fossil fuels, and South America is uniquely positioned to help solve both issues. Since the last decade, the use of genetically modified organisms (GMOs) has grown substantially in farmsteads across Argentina and Brazil—and to a lesser extent in Paraguay and Uruguay—leading to increased productivity. Argentina's biodiesel production has increased to the point where the nation is a key exporter, and, with its enhanced sugarcane, Brazil remains the most efficient producer of bioethanol—and is now pursuing more efficient methods of producing cellulosic ethanol. Chile, which currently does not have any competitive advantages in traditional biotechnology, is working on increasing funds to finance modern biotechnology R&D. Clearly, South American countries have successful stories to share with the world.
The outlook for the biotechnology industry is, however, more important than its current footprint. Investments in R&D, although still insufficient, are increasing. Governments are seeking mechanisms to attract private investments while increasing public funds. The number of students seeking advanced degrees in the field is growing, and biotechnology clusters are being formed worldwide. Brazil, the largest country in South America, accounts for more than 50% of the biotechnology R&D investments in South America.1
Most of the activities—and successes—in South America are related to traditional biotechnology. Modern biotechnology requires skilled labor and large R&D funding, both of which the majority of countries in the region lack. According to the World Bank Data Catalog of South American countries Brazil spends the largest share of its gross domestic product (GDP) on R&D (1.08% in 2008). By comparison, the US devoted 2.79% of its GDP to R&D activities in the same year. The only other country in South America to spend more than 0.40% of its GDP on R&D in 2008 was Argentina, which invested 0.52%.2
With its vast availability of land, Argentina is already the second largest producer of biodiesel in South America and produces the largest amount of genetically modified crops among South American countries. In the 1990s, Argentina created the Agencia Nacional de Promoción Científica y Tecnológica (National Agency for Scientific and Technological Promotion), which created several funds for the development of new technologies. A significant share of these funds was devoted to biotechnology, including Argentina's Technological Fund (FONTAR), the main source of finance used by biotechnology firms. Law 26.270/2007, Promotion of the Development and Production of Modern Biotechnology, was also approved in accordance with the 2005–2015 strategic plan for the Development of Agricultural Biotechnology (resolution 293/2005 of Argentina's Ministry of Economy and Production) to foster investment and research in modern biotechnology.3
Chile differs from other South American countries in land availability and origin of funds. The country is a long, narrow territory compressed between the ocean and the Andes Mountains, but its extensive coastline gives Chile an advantage in producing biofuels from algae. Because land scarcity has given Chile a competitive disadvantage in first-generation biofuels, investors in the region pay greater attention to second-generation biofuels. Chile has also managed to mobilize private funds to promote R&D. For instance, Burrill & Company has established a presence in Chile (as well as in Brazil), and has created the Burrill Chile F3 Life Sciences Capital Fund with $50 million of committed capital. This investment fund is aimed at life science companies that, among other activities, develop research in agricultural and marine biotechnology, industrial biotechnology, and biofuels.4 The main public agency for financing in Chile is the CORFO (Production Development Corporation) through InnovaChile, and Fondo de Innovación para la Competitividad (Innovation Fund for Competitiveness) also finances research. However, R&D investment still represents a low percentage of Chile's GDP, and the success of biotechnology in Chile will depend on the country's ability to increase access to funds. Private investment should play a key role in this process as well.
As previously mentioned, both Brazil and Argentina are very competitive when it comes to the production of first-generation biofuels. While Argentina's largest biofuels product is biodiesel, Brazil's largest stake is in ethanol produced from sugarcane. Brazil is the second-largest producer of ethanol globally and was the largest exporter until the US surpassed it in 2011. Brazil's vast territory and favorable water regime enables it to increase biofuel production without competing for resources with food production, at least in the near-term. Brazil also surpasses other South American countries in the amount of capital invested in agricultural R&D. This mainly comprises public funds from the Brazilian Enterprise of Agricultural Research (EMBRAPA) and federal universities. Public policies over the last few decades aimed at creating alternatives to oil products have made Brazilian production of ethanol from sugarcane the most efficient in the world. The size of the domestic market has also contributed to the expansion of ethanol production; Brazil's automobile fleet is largely comprised of ethanol and gasoline flex-fuel vehicles. Such vehicles currently account for almost 90% of new vehicles sold in the country.
Unlike the ethanol industry, modern biotechnology in Brazil did not originate from a centralized strategy by the federal government. It mainly started with individual initiatives, especially those of the genome networks in São Paulo; the Research, Innovation and Diffusion Centers; and Biominas, an important biotechnology cluster in the state of Minas Gerais. In São Paulo, funding from the Foundation for Research Support of the State of São Paulo (FAPESP), excellent universities, and public agencies in traditional biotechnology such as the Agronomic Institute of Campinas (IAC) and the Sugarcane Research Center were essential to the development of this sector. From its beginning, Brazil's biotechnology sector has shown more promise in agro-industrial activities, and the existence of relevant public research centers, such as EMBRAPA and the IAC, demonstrate that this remains the case.
Notwithstanding the non-centralized origin of the modern biotechnology industry in Brazil, the federal government has long acknowledged the importance of this sector. A modern legal system was implemented to allow the development of biotechnology in Brazil. Several laws and decrees were created so that the sector could flourish, including the Innovation Law (Law 10,973/2004) and the Biosecurity Law (Law 11,105/2005). Compared to other South American countries, the capabilities of the Brazilian government to promote industrial policies are unique. The success of the ethanol industry is a telling example. Previous policies, such as the Industrial, Technological and Foreign Trade Policy (PITCE 2003–2007), the Productive Development Policy (PDP 2008–2010), and the Action Plan for Science, Technology and Innovation (PACTI 2007–2010) have paved the way for the creation of Plano Brasil Maior (PBM), Brazil's current industrial policy. These policies have enhanced dialogue among the government, entrepreneurs, and workers, thus creating better conditions to engage the necessary institutions in the creation and maintenance of productive policies. The PBM now seeks to promote economic growth through policies that boost investments in Brazil and increase its competitiveness. Through PACTI, and its National Strategy for Science, Technology and Innovation for 2012–2015, the Ministry of Science and Technology has noted the strategic importance of biotechnology for the development of Brazil. Furthermore, the government is working to encourage the production and use of products made via biotechnology; for instance, the process of registration for biotechnology products takes higher priority than regular products. The deadline for concluding the registration process thus is reduced from up to 5 years to less than 60 days for biological agents.
Last year, the Brazilian Association of Biotechnology was created with strong support from the federal government to coordinate and represent the interests of Brazil's biotechnology companies both within Brazil and worldwide. As one of its first actions, the association released its Brazil Biotec Map 2011, a study mapping the biotech sector in Brazil.5 According to the study, there were 237 biotechnology firms in Brazil in 2011; 39.7% of these firms were related to human health, 14.3% to animal health, 9.7% to agriculture, and 14.8% to environment and bioenergy. These companies are concentrated in the southeastern region of Brazil. They are particularly focused in the states of São Paulo (40.5%) and Minas Gerais (24.5%). Many are new, with 63% founded in or after 2000. The study also shows that 25% of the companies export, while 86% import. Because incubators, technology parks, universities, and research centers are essential for this sector, 95% are connected to universities and research centers via partnerships. As mentioned earlier, investments in R&D and innovation are mainly public (accounting for 78%). Only 14% of the companies use venture capital financing. Around 40% of Brazil's biotech companies either have patent applications or already have patents filed, and the study notes that there is a healthy number of associated faculty and graduate students in biotechnology in the country for support. The report also notes that, because of all the incentives from the Brazilian government, a growing economy, and good science, the sector promises to flourish.
Obstacles to Biotech Development
The Brazilian biotechnological industry has typically relied mostly on public funds, the largest sources being the Brazilian Development Bank (BNDES), Funding Organization for Studies and Projects (FINEP), the Sectoral Fund of Biotechnology (CT Biotecnologia), FAPESP, Foundation for Research Support of the State of Minas Gerais (FAPEMIG), and Support Program for Scientific and Technological Development (PADCT). Although it is necessary to increase private financing, the current reality with the international crisis drying up private funds and liquidity—especially venture capital—is that Brazil's biotech sector is ironically well-positioned relative to other regions. Nevertheless, more coordination between the public and private sectors must be sought, because a truly innovative biotechnology industry relies on increased private funds for R&D. Not only do these funds seek market-oriented projects, but they also demand higher efficiency and productivity levels. FINEP, for example, seeks to provide venture capital for biotechnology companies. In 2001, FINEP held the first call of InovarFundos. Since then, 18 venture capital and private equity funds have been created. The first call of InovarSemente (“semente” means seed) was held in 2006, and through this call another six funds were approved. According to FINEP, these calls have raised funds for more than 80 innovative companies. FINEP has also established a partnership with Burrill & Company (San Francisco), which is responsible for the Burrill Brasil Fund I. The fund, launched in 2010, commits $150 million of capital over a 10-year period to life science companies.
Besides the need for more coordination between government and the private sector in Brazil and other South American countries, several other issues also need to be addressed for biotech to flourish in the region. Access to the continent's biodiversity is one of these critical issues. The richness of South America's biodiversity is well-acknowledged, but governments in the region fear private players will unduly appropriate these resources. Hence, most countries have regulations restricting access to biogenetic resources and prohibit their biological riches from patent protection. In Brazil, researchers have to go through an extremely bureaucratic process to obtain permission from Brazil's Council for the Administration and Management of Genetic Resources before undertaking research using the country's biodiversity resources. Not only is this process slow, but there are also uncertainties related to the criteria for granting such permits and it is difficult to comply with the legal obligations to share profits from research that uses traditional knowledge and access to biogenetic material. It is also necessary to revise intellectual property legislation in South American countries to generate private sector interest in undertaking R&D. Another critical issue affecting the business environment is the shortage of qualified professionals. Even though there has been an increase in the number of graduates in the area of biotechnology, this number needs to grow faster to match the demand a robust biotechnology sector requires. Just as important as the number of professionals available are market-orientated qualifications—which the current pool of professionals lacks.
Despite South America's structural deficiencies and regulatory loopholes, several companies have found success in the region. In Brazil, biofuel firm GraalBio (São Paulo) will construct the first plant in the southern hemisphere to produce cellulosic ethanol from sugarcane's straw and bagasse. With investments of about $150 million, the plant is expected to produce 82 million liters of cellulosic ethanol per year. In its laboratories in Campinas, Brazil, Amyris (Emeryville, CA) has developed genetically modified varieties of yeast to increase the productivity of several products derived from sugarcane, including ethanol, diesel, rubber, and plastic. The company is now building two plants in São Paulo, which should be completed next year. In Minas Gerais, a partnership between the Enterprise of Agricultural Research of Minas Gerais, EMBRAPA, and Fundação Triângulo has created a more profitable brown soybean with better taste and enhanced characteristics. In Argentina, Syngenta (Basel, Switzerland) has formed a partnership with local Buck Semillas to develop new, high-performance wheat varieties. Finally, in Chile, three consortia have been created to develop technologies for cost-efficient production of biofuels from algae: Algaefuel, Desert Bioenergy, and BAL-Biofuels.
Biotechnology is slowly finding its way in South America. Brazil is certainly the largest player, as it has the critical mass and means to coordinate efforts and policies to make the sector successful. There is a growing perception that biotechnology is essential for the development of the country, and the Brazilian government is taking steps to enable the industry to grow. For South America as a whole, matching the dynamism of the biotech industry with effective policies will be the biggest challenge in the coming years.
Ricardo Camargo Mendes is a partner with Prospectiva Consulting in São Paulo, Brazil. Caio Jacon is a consultant at Prospectiva Consulting in Brasília, Brazil. Prospectiva is a strategic consulting firm with expertise in projects related to international business, public policies, and regulatory measures. The firm designs, implements, and monitors business strategies in which domestic and international relations and public policies are key factors for viability. Contact: Ricardo Camargo Mendes, Prospectiva Consulting, Rua Diogo Moreira, 135 Pinheiros São Paulo - SP 05423-010 Brasil. Phone: +55 11 3816 3636; Fax: +55 11 3816 0510; Email: email@example.com
Industrial Biotechnology, published by Mary Ann Liebert, Inc., is a peer-reviewed bimonthly research journal focused on biobased industrial and environmental products and processes. The above article was first published in the October 2012 issue of Industrial Biotechnology with the title “Despite Serious Challenges, South America's Potential in Biotechnology Cannot Be Eclipsed”. The views expressed here are those of the authors and are not necessarily those of Industrial Biotechnology journal, Mary Ann Liebert, Inc., publishers, or their affiliates. No endorsement of any entity or technology is implied.
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