Lithuanian Bioeconomy Development Feasibility Study

Home , Agriculture in Lithuania, Energy in Lithuania

Akademija, Kauno r. 2017

The Study was carried out according to the March 24, 2017, Lithuanian Bioeconomy Deve- lopmeng Feasibility Study public procurement agreement No. 8-49 between the Ministry of Economy of the Republic of Lithuania and Aleksandras Stulginskis University.

Authors Prof. dr. Vlada Vitunskienė, chief researcher (Aleksandras Stulginskis University) Prof. dr. Vilija Aleknevičienė (Aleksandras Stulginskis University) Prof. dr. Astrida Miceikienė (Aleksandras Stulginskis University) Prof. dr. Jonas Čaplikas (Aleksandras Stulginskis University) Prof. habil. dr. Vaclovas Miškinis (Lithuanian Energy Institute) Prof. dr. Irina Pilvere (Latvia University of Agriculture) Assoc. prof. dr. Daiva Makutėnienė (Aleksandras Stulginskis University) Dr. Vida Dabkienė (Lithuanian Institute of Agrarian Economics) Dr. Vidas Lekavičius (Lithuanian Energy Institute) Knut Øistad (Norwegian Institute of Bioeconomy Research) Neringa Ramanauskė (Aleksandras Stulginskis University) Virginija Kargytė (Aleksandras Stulginskis University) Darius Jazepčikas (Aleksandras Stulginskis University) Evaldas Serva (Aleksandras Stulginskis University) Aurelija Markelytė (Aleksandras Stulginskis University)

Consultants Øyvind Halvorsen (Innovation Norway) Rita Bogužaitė (Innovation Norway) Dr. Irena Vitkauskienė (JSC „Plastiksė“) Mindaugas Šilininkas (JSC „Euromediena“)

Acknowledgment We kindly thank the members of Study supervision panel from the Ministry of Economy, Ministry of Health, Ministry of Education and Science, Ministry of Social Security and Labour, Ministry of Agri- culture, Ministry of Environment, Ministry of Energy, Office of the Government, Lithuanian Biotech- nology Association, Association of Lithuanian municipalities, the staff of the Ministry of Economics and the consultants – Øyvind Halvorsen, Rita Bogužaitė, Irena Vitkauskienė and Mindaugas Šilininkas – for their help and support.

Contents

Introduction ...... 7 1. Analysis of the definition of bioeconomy ...... 10 2. Analysis of the condition of Lithuanian bioeconomy and potential directions of its development ..13 2.1. Economic activities attributable to bioeconomy ...... 13 2.2. Analysis of key statistical indicators of Lithuaninan bioeconomy in 2005–2016 ...... 18 Current general economic profile of Lithuanian bioeconomy...... 18 Trends of the development of Lithuanian bioeconomy in 2005–2016 ...... 20 Analysis of business environment factors that have or will have an impact on the development of bioeconomy in Lithuania ...... 37 Forecasts for the development of Lithuanian bioeconomy till 2030 ...... 50 Identification of Lithuanian economic activities attributable to bioeconomy that have the greatest potential ...... 54 3. Analysis of the impact of legal environment on the development of bioeconomy in Lithuania ...... 64 3.1. Legal regulation of bioeconomy in Lithuania ...... 64 3.2. Evaluation of Expedience of the Lithuanian Bioeconomy strategy ...... 69 3.3. Feasibility analysis of efficient cooperation between Lithuanian business, science and state authorities in bioeconomy ...... 74 4. Analysis of Economic Environment Impact on the Development of Bioeconomy in Lithuania ...... 83 4.1. Impact of Tax and Business Environment on the Development of Bioeconomy in Lithuania ....83 4.2. Research and experimental development potential in Lithuanian bioeconomy ...... 92 5. Analysis of the bioeconomy sector of European Union countries ...... 101 5.1. Analysis of strategic documents of the EU and OECD related to bioeconomy development ...101 5.2. Review of bioeconomy development of the European Union countries ...... 106 5.3. Good practice of the EU Member States in the development of bioeconomy and opportunities of its adaptation in Lithuania ...... 115 6. Analysis of the Norwegian bioeconomy sector ...... 130 6.1. Development of Norwegian bioeconomy ...... 130 6.2. Strategic Norwegian documents related to the development of bioeconomy ...... 145 6.3. Norway’s practice in the development of bioeconomy ...... 146 7. Analysis of Lithuanian and Norwegian business cooperation opportunities in the bioeconomy ...152 7.1. Investment and success stories of Norwegian companies in Lithuania ...... 152 7.2. Analysis of areas of cooperation of Lithuanian and Norwegian business and the need therefor ...... 156 7.3. Potential measures to promote cooperation between the Lithuanian and Norwegian business ...... 162 8. Conclusions and Recommendations on the development of bioeconomy and innovation in Lithuania ...... 169 Annexes Summary 3

Table list

Table 1. Definition of bioeconomy in legal acts and other documents ...... 10 Table 2. Basic scope of economic activities in the bioeconomy ...... 15 Table 3. Scope of economic activities in the bioenergy ...... 16 Table 4. Main economic indicators of Lithuanian bioeconomy ...... 19 Table 5. Bioenergy indicators by resources in 2016 ...... 20 Table 6. Transformation input in Lthuanian Bioenergy (thousand TOE) ...... 31 Table 7. Final consumption of bioenergy resources in Lthuania (thousand TOE) ...... 32 Table 8. Changes in components of Lithuania’s business conditions index in the international...... 44 Table 9. Legal acts of the Republic of Lithuania, structural elements and actions related to bioeconomy ...... 65 Table 10. Tax Incentives Relevant for Bioeconomic Enterprises ...... 84 Table 11. Provisions of strategic documents of the EU and OECD on the development of bioeconomy ...... 101 Table 12. Bioeconomy sectors involved in each good practice region ...... 124 Table 13. Potential incentives for promoting cooperation between the Lithuanian and Norwegian business in the bioeconomy area ...... 167 Table 14. Goals, Objectives and Measures of Bioeconomy Development and Innovation Promotion ...... 176

Figures list

Figure 1. Gross value added in bioeconomy sectors in Lithuania ...... 21 Figure 2. Share of bioeconomy sectors in Lithuanian GDP (in percentage) ...... 22 Figure 3. Labour productivity and its growth in bioeconomy sectors ...... 22 Figure 4. Turnover in bioeconomy sectors in Lithuania (in percentage) ...... 24 Figure 5. Export in bioeconomy sectors in Lithuania (in percentage)...... 25 Figure 6. Employment in bioeconomy sectors in Lithuania (in percentage) ...... 26 Figure 7. Gross earnings and its its growth in bioeconomy sectors in Lithuania ...... 27 Figure 8. Growth of bioenergy resource production in Lithuania (2005=100) ...... 30 Figure 9. Production of primary energy by resource in Lithuania ...... 31 Figure 10. Enterprise performance of Lithuanian biotechnology sector ...... 34 Figure 11. Biotechnology R&D statistical indicators in the business sector ...... 35 Figure 12. Significance of factors of the political environment (in points)...... 38 Figure 13. Significance of factors of economic environment (in points) ...... 39 Figure 14. Significance of social environment factors (in points) ...... 40 Figure 15. Significance of technologic environment factors (in points) ...... 41 Figure 16. Significance of factors of natural environment (in points) ...... 42 Figure 17. Significance of legal environment factors (in points) ...... 43 Figure 18. Population projections in Lithuania ...... 45 Figure 19. Projections of the working age population in Lithuania ...... 46 Figure 20. Projections of the world’s population and production and consumption of agriculture, fisheries and food products and ...... 47 Figure 21. Structure of the sales of Lithuanian manufacturing industry products by markets ...... 48 Figure 22. Greenhouse gas emissions by Lithuanian bioeconomy sectors ...... 49 Figure 23. Projections of bioeconomy gross value added in Lithuania ...... 51 Figure 24. Projection of bioeconomy share of GDP in Lithuania ...... 52 Figure 25. Projections employment in bioeconomy in Lithuania ...... 53 Figure 26. Projections of bioeconomy products export in Lithuania ...... 54 Figure 27. Trends of firm performance indicators according to bio-business expectation in short, medium and log run ...... 59 Figure 28. Assessment of need for the Lithuanian bioeconomy strategy through a survey of business, science and government representatives ...... 73 Figure 29. Methods and importance of efficient cooperation of business and government in bioeconomy ...... 75 Figure 30. Methods and importance of efficient cooperation of business and science in bioeconomy ...... 76

Figure 31. Methods and importance of efficient cooperation of government and research institutions in bioeconomy ...... 77 Figure 32. Framework scheme of institutional cooperation of Lithuanian government, business, research institutions and the civil society in bioeconomy ...... 79 Figure 33. Principal scheme of the coordination of institutional cooperation of Lithuanian government, business, research institutions and the public in bioeconomy ...... 81 Figure 34. Regarding the leadership of government institutions in the coordination of the bioeconomy policy in Lithuania ...... 82 Figure 35. Public expenditure on Lithuanian bioeconomy sectors according to financing Fund ...... 87 Figure 36. Public expenditures of national and the EU support for agriculture in Lithuania ...... 90 Figure 37. Trend of direct support subsidies and agriculturas output in Lithuania ...... 90 Figure 38. R&D researchers in Lithuanian higher education and government sectors ...... 93 Figure 39. R&D personnel in bioeconomy business enterprise sector in Lithuania ...... 93 Figure 40. Number of doctoral students by field of science attributable to bioeconomy in Lithuania ...... 94 Figure 41. R&D expenditure in higher education and government sectors by field of science ...... 95 Figure 42. Research project by bioeconomy sectors considering project estimates ...... 96 Figure 43. Research projects by bioeconomy themes considering project estimates ...... 96 Figure 44. Number of bioeconomy research projects by field of biotechnology in Lithuania ...... 97 Figure 45. R&D expenditure in business sector in Lituanian bioeconomy ...... 98 Figure 46. Bioeconomy turnover in the EU countries ...... 107 Figure 47. Share of bioeconomy gross value added in the GDP in the EU countries ...... 110 Figure 48. Gross value added in biomass production and fully bio-based manufacturing subsectors in the EU countries ...... 111 Figure 49. Change in the gross value added in the bioeconomy subsectors between 2010 and 2014 in the EU countries (±percent) ...... 112 Figure 50. Employment in bioeconomy subsectors of the EU countries ...... 113 Figure 51. The share of persons employed in bioeconomy sectors of all the persons employed in the EU countries ...... 114 Figure 52. Biorefining pyramid...... 118 Figure 53. Organisational structure of a bio-cluster ...... 126 Figure 54. Gross value added in Norwegian bioeconomy sectors (at current prices) ...... 130 Figure 55. Change in the gross value added in Norwegian bioeconomy sectors ...... 131 Figure 56. Employment in Norwegian bioeconomy sectors ...... 131 Figure 57. Change in the number of people employed in Norwegian bioeconomy sectors ...... 132 Figure 58. Exports in Norwegian bioeconomy sectors in ...... 133 Figure 59. Change of export in the Norwegian bioeconomy sector ...... 133 Figure 60. Agricultural, forest land and inland waters in Norway, 2016 ...... 134 Figure 61. Total growing stock volume and gross annual increment in Norway ...... 135 Figure 62. Fish resources in Norway ...... 136 Figure 63. Biomass production potential in Norwegian agriculture ...... 137 Figure 64. R&D personnel in Norwegian business by bioeconomy subsectors ...... 142 Figure 65. R&D expenditures in Norwegian business by bioeconomy subsectors ...... 142 Figure 66. MTEP R&D expenditure of Norwegian businesses on biotechnology by bioeconomy subsectors ... 143 Figure 67. Norway direct investment in bioeconomy sectors in Lithunia ...... 152 Figure 68. Number of Norway-controlled enterprises in Lithuania at the end of the year ...... 153 Figure 69. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: food sector...... 157 Figure 70. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: forest biomass-based sector ...... 158 Figure 71. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: bio-based chemicals and pharmaceuticals manufacturing ...... 159 Figure 72. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: manufacture of bio-based textiles, apparel and leather ...... 159 Figure 73. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: biowaste treatment ...... 160 Figure 74. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: all bioeconomy sectors ...... 161

Acronyms CAP – Common Agricultural Policy CAS – Closed Aquaculture Systems CF – Cohesion Fund CFFT – Center of Food and Fermentation Technologies (Estonia) CN – Combined Nomenclature (European Classification of Goods) CPA – European Classification of Products by Activity DH – District Heating (Lithuanian) EAFRD – European Agricultural Fund for Rural Development EAGF – European Agricultural Guarantee Fund EAGGF – European Agricultural Guidance and Guarantee Fund EEA – European Economic Area EESC – European Economic and Social Committee EFF – European fisheries Fund EFSI – European Fund for Strategic Investments EIP – European Innovation Partnership EMFF – European Maritime and Fisheries Fund ERDF – European Regional Development Fund EU – European Union FAO – Food and Agriculture Organisation of the United Nations FDI – Foreign Direct Investment FIFG – Financial Instrument for Fisheries Guidance GDP – Gross Domestic Product GHG – Greenhouse Gas GVA – Gross Value Added H2020 – European Union Research and Innovation programme “Horizon 2020“ ICT – Information and Communications Technology ITC – International Trade Center KETs – Key Enabling Technologies LITBIOMA – Lithuanian Biomass Energy Association LQ – Location Quotient NACE – European Classification of Economic Activities OECD – Organisation for Economic Co-operation and Development PGPK – Classification of Products and Services PRODCOM – European System of production statistics for mining and manufacturing R&D – Research and experimental development R&D&I – Research, Experimental Development and Innovation RDP – Rural Development Programme for Lithuania RDPs – Rural Development Programmes RWMC – Regional Waste Management Center SPD – Single Programming Document (SPD) TOE – tonnes of oil equivalent UN – United Nations

Introduction

Long-term forecasts show that, without radical political changes, the current trends in world economic growth and development will have a major impact on the natural resources and the ecosystem1. The population of Europe and the world is constantly growing, and so does its need for food, more and more natural resources are exhausted, the environmental impact and the related climate change challenges are increasing2. It is therefore essential to move to a new way of economic growth that is compatible with environmental protection and sustainable use of limited natural resources, while ensuring a much higher standard of living reducing poverty. The development and application of innovative biotechnology methods and processes in the agriculture, health, chemistry and energy sectors has recently been seen as one of the solutions to accelerate sustainable growth and development3. By focusing more on scientific research and innovation, new products from biomass and new services needed for the development of the bioeconomy would be created, helping to reduce climate change, waste and create new jobs4. The first steps towards bioeconomy in the European Union (EU) were made in 2002, when the Life Science and Biotechnology Strategy was adopted, devoted to the development and application of life sciences and biotechnology5. In 2009, the Renewable Energy Directive of the EU set the renewable energy targets to be met by 2020. One of them was that 20 percent of the EU’s final energy consumption should be generated from renewable energy resources, in order to reduce the carbon dioxide emissions6. The bioeconomy strategy Innovating for Sus- tainable Growth: A Bioeconomy for Europe was adopted in 20127. The Bioeconomy Strategy and its Action Plan have become the foundation for a more innovative, more resource-efficient and more competitive society that combines food security, sustainable use of renewable resources for industrial purposes and environmental protection. The European Commission has set a long-term target for creating a competitive, resource-efficient and low-carbon economy by 2050. It is expected that bioeconomy will be an important element of the low-carbon economy8. Under the Paris Agreement (2016), the EU has committed itself that by 2030, its GHG e- missions would be reduced by at least 40 percent, compared to the level of the 19909.

1 OECD Work on Green Growth. 2015. Green Growth and Global Relations Division. 2 European Commission. 2017. The Bioeconomy Strategy. Research & Innovation: Bioeconomy. 3 Nordic Council of Ministers. 2016. Bioeconomy strategies and policines in the Baltic Sea Region countries. The Baltic Sea Regional Bioeconomy Council Working Paper no.1. 4 Rönnlund I., Pursula, T. et all. 2014. Creating value from bioresources: Innovation in Nordic Bioeconomy. Nordic Innova- tion Report 2014:01. Oslo: Nordic Innovation Publication. 5 European Commission. 2002. Life Sciences and Biotechnology—A Strategy for Europe, COM(2002) 27. 6 European Council. 2009. Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. 7 European Commission. 2012. Innovating for Sustainable Growth: A Bioeconomy for Europe. Communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions. 8 Scarlat, N., Dallemand, J.F. et all. 2015. The role of biomass and bioenergy in a future bioeconomy: Policies and facts // Environmental Development Volume 15. 9 Council of the European Union. 2016. Council Decision (EU) 2016/1841 of 5 October 2016 on the conclusion, on behalf of the European Union, of the Paris Agreement adopted under the United Nations Framework Convention on Climate Change. 7

According to the OECD, by 2055 the bioeconomy will be the key principle of development of the European economy. This means that the focus will be on production of renewable bioresources in agriculture, forestry and aquaculture, and biomass will become the main source of industrial raw materials10. The purpose of this Study is to evaluate the state and the potential of bioeconomy in Lithuania, to take into account the best practices of the EU Member States and Norway and to present the conclusions and recommendations for the development of bioeconomy in Lithuania and the innovation encouraging measures in this sector, to identify the areas of bioeconomy where the business cooperation between Lithuania and Norway has the greatest potential and to establish the measures for promotion of bilateral cooperation. To achieve this, the following tasks have been fulfilled: 1. To analyse the use of the definition of “bioeconomy” in the legislation and guidance documents of the EU institutions, the Organisation for Economic Cooperation and Development (OECD), the EU Member States and Norway and to assess whether the description of the bioeconomy sector provided in Section 1.6 of the Technical Specification used in the European Commission communication “Innovating for Sustainable Growth: A Bioeconomy for Europe” is suitable for defining the bioeconomy sector in the Lithuanian legislation; 2. To analyse the state of bioeconomy in Lithuania and the possible directions of its development; 3. To analyse the impact of the Lithuanian legal environment on the development of bioeconomy in Lithuania; 4. To analyse the impact of the Lithuanian economic environment on the development of bioeconomy in Lithuania; 5. To prepare a questionnaire on business environment assessment and business development forecasts and to interview at least 5 businesses operating in each economic activity attributable to the bioeconomy, at least 10 public and private science and study institutions which activities are related to bioeconomy; 6. To carry our an analysis of the EU bioeconomy sector; 7. To carry our an analysis of the Norwegian bioeconomy sector; 8. To analyse the possibilities of Lithuanian and Norwegian business cooperation in the field of bioeconomy and to propose measures for promotion of bilateral cooperation; 9. To provide recommendations on the development of bioeconomy in Lithuania and innovation encouraging measures in this sector by forming a plan of the proposed measures. Various research methods were used for the Study: general scientific abstraction, induction and deduction, analysis and synthesis, content analysis, statistical data analysis, econometric time series analysis, general equilibrium modelling, questionnaires, interviews, case studies and others. The research methods are more widely presented in the subsections of the Study where the results of the research are described. The surveys of business entities and associations, government and academic institutions are described in Annexes 3–8. The data for empirical research was collected from publicly available statistical databases such as Eurostat, Lithuanian Official Statistics Portal, Norway Statbank, joint statistics of the Organisation for Economic Cooperation and Development (OECD) and the

10 SINTEF. 2015. Towards a bioeconomic future. 8

Food and Agriculture Organisation of the United Nations (FAO) “OECD-FAO Agricultural Outlook 2016–2025”, International Trade Center (ITC) statistics and statistics of the Lithuanian authorities. The Study also included the Lithuanian Official Statistics Portal data provided upon special requests of the authors of the Study (e.g. data from bioeconomic enterprises, i.e. enterprises involved in bioeconomic activities, selected for aggregated research, etc.) as well as various studies, study reports and other data. The data sources and data limitations used in figures and tables, are indicated below the latter, and the data and documents as well as other sources of literature provided in the text, are listed in the footnotes at the bottom of the page. Data limitations. The statistics on national accounts, employment, business, science and technology according to the NACE2 economic activities is not suitable for the macroeconomic indicator analysis of development, R&D and innovation of partially bio-based manufacturing (textile, clothing, leather, chemical products, pharmaceuticals, rubber and plastic products, furniture), bioenergy and biowaste processing sectors. The production of bioenergy resources is integrated into several economic activities: solid biofuels (firewood, chips and pellets) – in forestry and logging as well as the production of wood and its products; bioethanol and biodiesel – in manufacturing of chemical products; biogas production – in gas production and waste management. According to economic activities such as manufacture of textile, clothing, leather, chemical products, pharmaceuticals, rubber and plastic products, furniture, general statistics are provided, irrespective of the origin of the raw materials used in the production, i.e. whether they are wholly or partially derived from mterials of biological origin or wholly of fossil resources. Another limitation is the difference in the time series of cumulative statistics according to the indicators in question. As a result, the beginning and the end of the empirical research period are not strictly defined due to the high diversity of the indicators in question. The Study used the latest statistical data from the above-mentioned statistical databases extracted in May – July 2017.

1. Analysis of the definition of bioeconomy

Table 1 presents the results of the analysis of the definition of bioeconomy in documents of EU institutions, the Organisation for Economic Cooperation and Development (OECD), EU member states and Norwegian legal acts and guidance documents.

Table 1. Definition of bioeconomy in legal acts and other documents

Documents Bioeconomy definition Innovating for Sustainable Growth: The bioeconomy encompasses the production of renewable biological A Bioeconomy for Europe. Euro- resources and the conversion of these resources and waste streams into pean Commission, 2012 value added products, such as food, feed, bio-based products and bioenergy. The bioeconomy includes the sectors of agriculture, forestry, fisheries, food and pulp and paper production, as well as parts of chemical, biotechnological and energy industries. Bio-based products are products that are wholly or partly derived from materials of biological origin, excluding materials embedded in geological formations and/or fossilised. The bioeconomy relies on life sciences, agronomy, ecology, food science and social sciences, biotechnology, nanotechnology, information and communication technologies (ICT), and engineering. Bioeconomy ERA-NET Actions, The bioeconomy encompasses the production of renewable biological European Research Area Networks resources and their conversion into food, feed, bio-based products and of the 6th and 7th Framework Prog- bioenergy. It includes agriculture, forestry, fisheries, food and pulp and rammes. Cologne Paper. En Route paper production, as well as part of chemical, biotechnological, and e- to the Knowledge-Based Bio-Eco- nergy industries. nomy. European Commission, 2007 A Bioeconomy for Europe. Euro- Bioeconomy is production paradigms that rely on biological processes pean Commission, 2010 and, as with natural ecosystems, use natural inputs, expend minimum amounts of energy and do not produce waste as all materials discarded by one process are inputs for another process and are re-used in the ecosystem. A strategy for a bio-based eco- A sustainable bio-economy is based on biomass, is not dependent upon nomy. Green New Deal Series vo- fossil resources and can be seen as a part of a broader green economy. lume 9, European Parliament, 2012 A sustainable bio-economy is first and foremost built on the principle of resource efficiency. The Application of Biotechnology The bio-based economy uses renewable (agricultural, forestry and ma- to Industrial Sustainability – A Pri- rine) and eco-efficient processes (including bioprocesses) to produce mer. OECD, 2001 sustainable bioproducts, jobs and income. Industrial Biotechnology and Cli- In a bio-based economy, society is no longer wholly dependent on mate Change. Opportunities and fossil fuels and industrial raw materials. Challenges. OECD, 2011 International Futures Project The Bioeconomy is transforming life science knowledge into new, sustai- Bioeconomy to 2030: Designing a nable, eco-efficient and competitive products. Policy Agenda, Maine Findings and Policy Conclusions. OECD, 2009 Kjente ressurser – uante mulighe- Bioeconomy includes sustainable, efficient and profitable production, ter: Regjeringens bioøkonomistra- extraction and use of renewable, biological resources into food, feed, tegi. Nærings-og fiskerideparte- ingredients, health products, energy, materials, chemicals, paper, texti- mentet, 2016. les and numerous other products. The use of potential technologies, such as biotechnology, nanotechnology and ICTs in addition to conventional disciplines, such as chemistry, is seen as vital to the development of modern bio-economics.

Baltic Sea Region. Icelandic Presi- The bioeconomy refers to economic activities based on optimal utiliza- dency of the Nordic Council of Mi- tion of maritime and terrestrial biological resources. nisters, 2014 Towards a Belgian and Regional The so-called bio-based economy is the conversion of renewable Strategy for the Economy. Bio.be feedstock (biomass and organic waste) into bio-based products. Bio- policy document, June 2013 based economy is an economy where the basic building blocks for industry and the raw materials for energy are derived from plant-based (i.e. renewable) sources, often processed using “industrial biotechnology”. Denmark as growth hub for a sus- Bioeconomy is an economy in which the basic building blocks used for tainable bioeconomy. Statement by production of energy, chemicals and materials originate from re- the National Bioeconomy Panel, newable biological resources, including plants and animal waste. Pro- September 2014 ducts encompass, for instance, foodstuffs and foodstuff ingredients, a- nimal feed and feed ingredients, others bio-based products (biomass- based chemicals, biomaterials, etc.) and bioenergy. National Bioeconomy profile. Fin- The bioeconomy refers to an economy that relies on renewable natural land. European Commission, 2014 resources to produce food, energy, products and services.

National Bioeconomy Policy Stra- Bioeconomy is the knowledge-based production and use of biological tegy: Renewable resources and bioresources to provide products, processes and services in all economic technological processes as a basis sectors within the frame of a sustainable economic system. for food, industry and energy. Fede- ral Minister of Food and Agricul- ture of Germany, 2014 National Bioeconomy profile: Italy. No official definition has yet been adopted. However, the Bioenergy European Commission, 2014 Sector Plan defines the bio-economy as follows: ‘[t]he bio-economy i- dentifies new trends involving relocation and reorganisation of production and processing, in relation to the natural resources of an area. National Bioeconomy profile: The The bio-based economy is used to describe that part of the economy Netherlands. European Co- that is active in producing bio-based materials and products and bioe- mmission, 2014 nergy. The bio-based economy is ‘an economy in which plastics, transport fuels, electricity, heat and all kinds of everyday products are made from vegetable raw materials (instead of fossil resources’). Swedish Research and Innovation Bioeconomy is related to the sustainable production of biomass to e- Strategy for Bio-based Economy nable increased use within a number of different sectors of society. The Report. FORMAS (Swedish Re- objective is to reduce climate effects and the use of fossil based raw search Council for Environment, materials. Agricultural Sciences and Spatial Planning), March 2012 Bioeconomy facts and figures 2015, The bioeconomy encompasses the wide range of activities that use driving economic growth and pro- bioscience based research and processes to produce products and out- ductivity (United Kingdom). puts such as food, fuel and bio-chemicals – creating jobs, economic BBSRC, 2015 growth and increasing productivity.

Comparative analysis of the definition of bioeconomy in the EU, OECD and the EU member state documents allowed determining that bioeconomy is a part of economics associated with the following:  sustainable production of bioresources and their processing into value added products;  land and water (plants, animals and micro-organisms) and bio-based products;  types of economic activities (in other words – economic sectors) related to the manufacture, processing or recycling and use of such as plants, animals, micro-organisms and their products;

 the use of advanced technologies, such as biotechnology, nanotechnology, information and communication technologies, in addition to traditional technologies. Advanced technologies are seen as the main prerequisite for modern bioeconomy development, while knowledge-based bioeconomy may be an essential part of a viable and sustainable economic system. Thus the definition of bioeconomy according to the Communication from the European Commission “Innovation for Sustainable Growth: A Bioeconomy for Europe” presented in sub- paragraph 1.6 of the Technical specification for the preparation of this Study (see line 1 in Table 1) reflects the essence and the content of bioeconomy, covering all the specified material elements of bioeconomy. According to this Communication, the bioeconomy encompasses the production of renewable biological resources and the conversion of these resources and waste streams into value added products, such as food, feed, bio-based products and bioenergy. This description of bioeconomy is clear, easily understandable and suitable for defining the bioeconomy in Lithuanian legislation. It should be added that this definition of bioeconomy has recently been often quoted in various EU bioeconomy studies.

2. Analysis of the condition of Lithuanian bioeconomy and potential directions of its development

2.1. Economic activities attributable to bioeconomy

Various political documents, researches and statistical reviews analyse different composition of bioeconomy by economic activities and sectors. For example, the Strategy for Sustai- nable Bioeconomy approved by the European Commission11 attributes agriculture, forestry, fisheries, manufacture of food, wood and paper, as well as the industries of chemicals, energy and technology to the bioeconomy sector. The National Bioeconomy Profiles published by the European Commission (by the EU states)12 provide the classification of bioeconomy sectors by a threefold composition of types of economic activities:  biomass production sectors – agriculture, forestry and fisheries;  fully (100 percent) bio-based manufacturing sectors, processing biomass to higher added value products, which include manufacture of food, beverages and tobacco; manufacture of wood, cork and their products, except for furniture; manufacture of paper and its products and manufacture of leather and related products;  partly (less than 100 percent) bio-based manufacturing sectors, where biomass is used as a part of materials. This includes manufacture of textile and apparel, chemicals, pharmaceuticals, rubber and plastics, furniture and other bio-based manufacturing. Manufacture of biogas, biotechnology-based sewerage and biowaste management are also characterised as partly bio-based economic activities. In turn, NACE REV. 2 categorises the production of biofuels as manufacture of chemicals (NACE REV. 2 codes C2014 and C2059), the production of solid biofuels – as logging (NACE REV. 2 code A0220) and manufacture of wood products (NACE REV. 2 codes C1610 and C1629). Construction using wood and its products as construction materials can also be attributed to the partly bio-based sector of economy. The OECD Bioeconomy Strategy 203013 defines three main sectors according to the criterion of the used biotechnology: agricultural, health and industrial sectors. The Innovation in Nordic Bioeconomy Study14 refers to a number of national economy areas comprising bioeconomy. Agriculture, fisheries, aquaculture and forestry are attributed to the core bioeconomy area generating feedstock. Various manufacturing areas cover the processing of feedstock, including the industries of food, wood, bioenergy, chemicals, plastics, textile and pharmaceuticals. Bioeconomy covers the sector using biotechnology, the construction industry, household and industrial sewerage and waste treatment. Bioeconomy is also associated with the service sector covering recreation and tourism that cannot be dissociated from nature. Only six sectors, which completely fall under the bioeconomy area on the basis of feedstock production

11 European Commission. 2012. Innovating for Sustainable Growth: A Bioeconomy for Europe. Communication from the commission to the european parliament, the council, the european economic and social committee and the committee of the regions. 12 European Commission. 2014. National bioeconomy profile. Policy Structure of the Bioeconomy Institutional system (Uni- ted Kingdom, Latvia, Ireland, Netherlands, etc.). 13 OECD. 2009. The Bioeconomy to 2030: Designing a Policy Agenda. OECD Publishing. Paris. 14 Rönnlund, I., Pursula, T., Bröckl, M., Hakala, L., Luoma, P., Aho, M., ... & Pallesen, B. E. 2014. Creating value from bioresources: Innovation in Nordic Bioeconomy. Nordic Innova-tion. Oslo. 13 and processing, were included in the assessment of the Nordic bioeconomy development: agriculture, fisheries and aquaculture, logging, food industry, forestry and bioenergy. The significance of bioeconomy sectors has been determined to be very different among the Nordic countries. For example, in Finland and Sweden, forestry-based industries are highly developed, Denmark can be characterised by the importance of its agricultural sector and food processing, while Iceland and Norway are known for fisheries. Different areas of manufacture of renewable energy sources have been developed in Norway and Sweden. In addition to wind energy, manufacture of agro-biomass is well developed in Demark, and manufacture of forest biomass – in Finland and Sweden. The Bioeconomy Study drafted by the international economic research company “Capital Economics”15 classifies components of direct bioeconomy into five groups of economic activities (agriculture and fisheries, forestry and logging, food processing, industrial biotechnology, bioenergy, and water supply). It also analyses two-fold impacts: “upstream” impacts, i.e. the benefit received by those areas of economic activities in the “value chain” from which bioeconomic enterprises and farms purchase feedstock and services (for example, energy, equipment, feed industry and others) and “downstream” impacts, i.e. the benefits received by economic activities, using bioeconomy products (such as food trade and catering, medicine, etc.). The examined material revealed that the attribution of certain economic activities or economic sectors to bioeconomy may be based on different concepts. Their practical application may depend on different goals, factors or criteria. The scope of bioeconomy composition is not finite – it changes with time, because bioeconomic activities are developing. It has been emphasised that new technologies creates possibilities to replace products made of fossil resources with fully or partly bio-based products16, or to use biomass as “the energy carrier” in new sectors of economy in the future17. The summary of analysis of the concept and composition of bioeconomy allows stating that different scope of bioeconomy may be applied in Lithuania, depending on the examined context and goals. The recommended base list of areas of economic activities attributable to bioeconomy is presented in Table 2, while an extended detailed list by NACE REV. 2 four-digit code is available in Annex No 1. However, as previously mentioned, the attribution of economic activities to bioeconomy is not finite. Certain products of party bio-based manufacture that are fully or partly derived from materials of biological origin are not clearly described in statistical databases, because as per the bioeconomy report18: 1) new products are continuously being created, and can therefore not yet be found in official databases; and/or 2) these products are traditionally derived from fossil raw materials, thus the available databases do not specify the origin (bio-based or fossil-based (such as polyethylene, polyethylene terephthalate, polypropylene, etc.)) of the raw materials used to produce them; or

15 Chambers, G., Dreisin, A. and Pragnell, M. 2015. The British bioeconomy: An assessment of the impact of the bioeconomy on the United Kingdom economy. Capital Economics. 11 June. 16 Innovation in Nordic Bioeconomy: creating value from bioresources. Nordic innovation report, May 2014. 17 Vesterinen, P., Alakangas, E., Veijonen, K., & Junginger, M. 2010. Prospects of bioenergy in new industrial sectors–D2. 3. Solutions for Biomass Fuel Market Barriers and Raw Material Availability EUBIONET-3. VTR. 18 European Commission. 2017. JRC Science for Policy Report: Bioeconomy Report 2016. EUR 28468 EN. 14

3) when a product is made of a partly bio-based material (for example, certain polymers), this distinction is not made in the database either. It has also been observed that certain studies attempted to collect data on this sector, but solely the amount of biomass used in the production of bio-materials was assessed. On the other hand, the reliability of the received data was still limited, thus the detailed list of activities attributable to bioeconomy by NACE REV. 2 four-digit codes is not finite either.

Table 2. Basic scope of economic activities in the bioeconomy

NACE Abbreviated NACE Rev. 2 labels used in Rev. 2 Corresponding NACE Rev. 2 labels this Study codes Biomass production A01 Crop and animal production, hunting and related ser- Agriculture vice activities A02 Forestry and logging Forestry and logging A03 Fishing and aquaculture Fishing and aquaculture Fully (100%) bio-based manufacturing C10 Manufacture of food products Manufacture of food C11 Manufacture of beverages Manufacture of beverages C12 Manufacture of tobacco products Manufacture of tobacco C16 Manufacture of wood and of products of wood and Manufacture of wood products cork, except furniture; manufacture of articles of straw and plaiting materials C17 Manufacture of paper and paper products Manufacture of paper Partly (< 100%) bio-based manufacturing C13 Manufacture of textiles Manufacture of bio-based textiles C14 Manufacture of wearing apparel Manufacture of bio-based wearing apparel C15 Manufacture of leather and related products Manufacture of leather products C20 Manufacture of chemicals and chemical products Manufacture of bio-based chemicals C21 Manufacture of basic pharmaceutical products and Manufacture of bio-based pharmaceuti- pharmaceutical preparations cals C22 Manufacture of rubber and plastic products Manufacture of bio-based plastics C2365 Manufacture of fibre cement Manufacture of fibre cement C31 Manufacture of furniture Manufacture of bio-based furniture C32 Other manufacturing Other bio-based manufacturing Partly (< 100%) bio-based others activities D3521 Manufacture of gas Manufacture of biogas E38 Waste collection, treatment and disposal activities; ma- Biowaste treatment terials recovery

Bioenergy is not distinguished into a separate type of economic activities in NACE REV. 2. manufacture of bioenergy products falls within certain areas of logging, wood products and chemicals, gas production and waste management, as per Table No 3. the Bio-Based In- dustries Consortium (BIC) annual report distinguishes two areas of bioenergy, namely, biofuels (bioethanol and biodiesel) and bioenergy (biogas and solid biomass) for the production of heat and electricity19.

19 Bio-based Industries Consortium (BIC). 2017. Annual Report 2016, January 15

Table 3. Scope of economic activities in the bioenergy

NACE Rev. 2 Corresponding NACE Rev. 2 labels Broduct descriptions in PGPK or PRODCOM codes A0220 Logging Firewood and charcoal produced in the forest C1610 Sawmilling and planing of wood Wood in chips or particle C1629 Manufacture of other products of wood; Briquettes, pellets and other biofuels from wood, manufacture of articles of cork, straw logging waste and straw and plaiting materials C2014 Manufacture of other organic basic chemi- Undenatured and denatured ethyl alcohol, wood cals charcoal whether or not agglomerated C2059 Manufacture of other chemical products Biofuels (diesel substitute) n.e.c. D3521 Manufacture of gas Production of gas from by-products of agriculture or from waste E3821 Treatment and disposal of non-hazardous Treatment and disposal services of non-hazardous waste (in order to obtain biogas) waste in order to obtain biogas

Biotechnology sector According to the latest OECD definition, biotechnology is defined as “the application of science and technology to living organisms as well as parts, products and models thereof, to alter living or non-living materials for the production of knowledge, goods and services”20. Main biotechnology activities include21:  research and experimental development on biotechnology (R&D), which covers 1) the development of biotechnology techniques and processes or the creation of products and 2) knowledge received in the performance of R&D. The Frascati Ma- nual22 distinguishes four biotechnology R&D fields, i.e. environmental biotechnology, industrial biotechnology, medical biotechnology and agricultural biotechnology;  manufacture, such as 1) the use of biotechnology techniques to manufacture bioproducts and 2) the use of biotechnology processes in manufacture, including environmental protection goals. The main areas of application of biotechnology in the EU economy can be classified into three large groups23: in healthcare and pharmaceutical applications, biotechnology has led to the discovery and development of advanced medicines, therapies, diagnostics and vaccines; in agriculture, aquaculture and veterinary, biotechnology has improved animal feed, produced vaccines for livestock, improved diagnostics of diseases and plant selection, created genetically modifie organisms; and in industrial processes and manufacturing, biotechnology has promoted the use of enzymes in the production of detergents, pulp and paper, textiles, biomass, biofuels and other bio-materials, and instead of traditional chemical synthesis, it has led to higher efficiency of industrial processes and decreased energy and water consumption, which in turn led to the reduction of toxic waste.

20 OECD glossary http://stats.oecd.org/glossary/detail.asp?ID=219. 21 OECD. 2005. A framework for biotechnology statistics. 22 OECD. 2015. Frascati Manual 2015: Guidelines for Collecting and Reporting Data on Research and Experimental Deve- lopment, The Measurement of Scientific, Technological and Innovation Activities, 23 Biotechnology’s contribution to the EU economy. European Commission > Growth > Sectors > Biotechnology 16

The list-based definition of biotechnology techniques and process DNA/RNA: Genomics, pharmacogenomics, gene probes, genetic engineering, DNA/RNA sequencing/ synthesis/amplification, gene expression profiling, and use of antisense technology. Proteins and other molecules: Sequencing/synthesis/engineering of proteins and peptides (including large molecule hormones); improved delivery methods for large molecule drugs; proteomics, protein isolation and puri- fication, signaling, identification of cell receptors. Cell and tissue culture and engineering: Cell/tissue culture, tissue engineering (including tissue scaffolds and biomedical engineering), cellular fusion, vaccine/immune stimulants, embryo manipulation. Process biotechnology techniques: Fermentation using bioreactors, bioprocessing, bioleaching, biopulping, biobleaching, biodesulphurisation, bioremediation, biofiltration and phytoremediation. Gene and RNA vectors: Gene therapy, viral vectors. Bioinformatics: Construction of databases on genomes, protein sequences; modelling complex biological processes, including systems biology. Nanobiotechnology: Applies the tools and processes of nano/microfabrication to build devices for studying biosystems and applications in drug delivery, diagnostics, etc.

Sources: A framework for biotechnology statistics. OECD, 2005

Because biotechnology is a process rather than a product or an industry, it cannot be easily identified on the basis existing classification of economic activities or products24. Accor- ding to the provided OECD definition of biotechnology, R&D, production and service activities creating or applying biotechnology techniques and processes are attributable to the biotechnology sector. According to the presented explanation of the concept of biotechnology and its activities, the following types of economic activities according to NACE REV. 2 are attributable to the biotechnology sector:  manufacturing activities (for example, C10-C23), when biotechnology techniques or processes are applied in manufacture;  agriculture (A01), which applies biotechnology techniques;  aquaculture (A032), which applies biotechnology techniques;  other activities, which apply biotechnology techniques or processes (for example, sewerage (C37));  research and experimental development on biotechnology (M7211);  hospital activities (Q8610), which apply biotechnology techniques;  veterinary activities (M75), which apply biotechnology techniques, and others. According to the definition presented in Section 1, bioeconomy is understood as a production activity, i.e. manufacture of biomass and the transformation thereof and biowaste into value added products. As a result, only a part of biotechnology activities, i.e. manufacturing activities only, are attributable to bioeconomy. Such activities of bioeconomy as R&D and services (medicine and veterinary) are not attributable to bioeconomy.

24 OECD. 2002. Frascati Manual 2002. Proposed Standard Practice for Surveys on Research and Experimental Development. 17

2.2. Analysis of key statistical indicators of Lithuaninan bioeconomy in 2005–2016

Current general economic profile of Lithuanian bioeconomy

The analysis of Lithuanian bioeconomy statistical indicators (gross value added, employment, labour productivity, turnover, exports, earnings and the number of economic entities in operation, including farms) was conducted according to the three first groups of activities attributable to bioeconomy indicated in Table 2, i.e. biomass production, fully bio-based manufacturing sectors and partly bio-based manufacturing sectors, and types of economic activities attributable thereto, which have also been referred to as subsectors in the Study. Other partially bio-based activities (NACE REV. 2 codes D352 and E3821) were not included in the analysis because of the lack of data based whereon the bio-proportion therein could be determined. Actual statistical data were used for the analysis of indicators of gross value added (GVA), employment, turnover, exports, earnings and the number of economic entities in operation of biomass production and fully bio-based manufacturing sectors. Statistical data of the bio-based manufacturing sector were recalculated according to the proportion of bioproducts fully or partly made of bio-materials. The statistics on the sale of industrial products according to the PRODCOM list was used to determine this proportion in partly bio-based manufacturing. Its share in sales was determined on the basis thereof. Also, indicators of GVA, turnover and the number of employees were determined on the basis of this proportion in economic activities attributable to bioeconomy according to the following NACE REV. 2 codes: C13-C15, C20-C22 and C31-C32 (see group “partly bio-based manufacturing” in Table 2). To measure the bio- proportion by each of the said economic activities, equivalent products according to PRODCOM 8-digit codes were analysed: 1) Statistical classification of economic activities (NACE REV. 2) by 2 or 4-digit codes; 2) Classification of Products and Services (PGPK) by codes; 3) Combined Nomenclature (CN) by 4 or 6-digit codes. Tables of linking codes of products and economic activities of Statistics Lithuania were used to identify equivalent codes of goods in NACE REV. 2, PRODCOM, PGPK and CN ver- sions. Table 4 illustrates the latest statistical data of the Lithuanian bioeconomy, and data from 2005 is available in Annex No. 2. Almost EUR 4680.8 million in GVA was created in Lithua- nian bioeconomy (in 2014), while its contribution to the country’s GDP accounted for 12.8 percent. Bioeconomy turnover (EUR 11562.0 million in 2015) accounted for a sixth of the total turnover of non-financial companies. Exports of biomass and its products totalled EUR 9890.5 million (in 2016), which accounted for 43.7 percent of the total value of exports of Lithuanian goods. 234.4 thousand people were employed in bioeconomy, accounting for more than a sixth (17.6 percent) of persons employed in Lithuanian economy. Almost EUR 1251.6 million (in 2014) of value added was created in the biomass production sector, which accounted for 3.4 percent of the country’s GDP. The majority was created in agriculture, where GVA was EUR 1019.7 million. Agricultural products accounted for the major share (95.7 percent, or EUR 1310.8 million in 2016) of exports of the biomass production sector. 105.2 thousand people were employed in agriculture (in 2015), accounting for 87.6 18 percent of all the people employed in the sector. Many family farms (171.1 thousand in 20125), also enterprises and other agricultural companies (1143 – in the beginning of 201726) were engaged in farming. Forestry, logging, fisheries and aquaculture companies employed a very small share of people (about 1 percent).

Table 4. Main economic indicators of Lithuanian bioeconomy

Number of GVA in mil- Turnover in Thousands of economic en- NACE activities lions EUR millions EUR employees tities in ope- (2014) (2015) (2015) ration (2016) Biomass production Agriculture 1019.7 2664.1 105.2 123.8**( thou.) Forestry and logging 201.6 400.2 13.7 1018 Fishing and aquaculture 30.3 71.5 1.9 190 TOTAL 1251.6 3135.7 120.8 125**( thou.) % of all economic activities 3.4* 4.1 9.1 - Fully bio-based manufacturing Mnufacture of food, beverages and tobacco 1480.8 4575.8 43.0 988 Manufacture of wood products 455.3 1081.5 21.5 1263 Manufacture of paper 177.8 412.5 4.8 107 TOTAL 2113.9 6069.8 69.3 2350 % of all economic activities 5.8* 7.9 5.2 - Partly bio-based manufacturing Manufacture of bio-based textiles and apparel, leather 369.2 815.2 21.1 n.d. Manufacture of bio-based chemicals 51.0 200.5 0.7 n.d. Manufacture of bio-based pharmaceuticals 133.6 215.4 0.2 n.d. Manufacture of bio-based plastics n.d. n.d. n.d. n.d. Manufacture of bio-based furniture and other products 761.5 1125.3 22.3 n.d. TOTAL 1315.3 2356.5 44.3 n.d. % of all economic activities 3.6* 3.1 3.3 - TOTAL TOTAL bioeconomy 4680.8 11562.0 234.4 n.d. % of all economic activities 12.8* 15.0 17.6 - * percentage of GDP, ** including family farms (2013)

Data source: authors elaboration on information on Eurostat (National accounts aggregates by industry and GDP and main components) and Lithuanian Official Statistics Portal (Turnover of non-financial business activities; Economic entities in operation and Farm structure survey in 2013)

In 2014, EUR 2113.9 million in GVA was created in fully bio-based manufacturing sector, accounting for 5.8 percent of Lithuania’s GDP. Turnover of companies operating in the sector (EUR 6069.8 million in 2015) accounted for 7.9 percent of the total turnover, while exports of goods (EUR 4355.5 million) accounted for almost a fifth of the total value of Lithu- anian exports of goods. 2.35 thousand companies operated in the sector (in the beginning of 2017), employing 69.3 thousand people. The major share of GVA of the sector was created in manufacture of food, beverages and tobacco products (70 percent). The share of the latter industries have also accounted for the major share of the bioeconomy turnover, exports and employment of the sector. GVA created in partly bio-based manufacturing sector (EUR 1315.3 million in 2014) accounted for 3.6 percent of the country’s GDP, and its turnover (EUR 2356.5 million in 2015) made up 3.1 percent of the total turnover. Exports of bioproducts accounted for almost a fifth

25 Statistics Lithuania. 2015. Results of the Farm Structure Survey 2013 in Lithuania. 26 Lithuanian Official Statistics Portal: Economic entities in operation statistics. 19

(18.1 percent) of the value of exports of Lithuanian goods. More than a half of GVA (57.9 percent in 2014) was created in manufacture of wood and bio-based furniture, and slightly more than a fourth (28.1 percent) – in bio-based manufacture of textiles, apparel and leather. Exports of goods of both subsectors accounted for almost a fourth of exports value of each subsector. Both subsectors employed almost 98 percent of employees of the sector. The significance of bioenergy increased in Lithuania having decommissioned the Ignalina Power Plant in 2009. The contribution of bioenergy to the production of primary energy in Lithuania lately accounted for about 73 percent27, of which firewood and wood waste for fuel accounted for 64 percent, biodiesel made up about 5 percent, biogas – almost 2 percent, and the remaining types of biofuel – less than one percent each. The current scopes of the production of biofuel, total consumption, final use and exports in in-kind units of measure are presented in Table 5. The production of solid biofuels is mainly targeted at the domestic market, exporting slightly more than a tenth of the output. Firewood and chips are consumed in the domestic market, while wood and straw pellets are exported28. Export of biodiesel and agricultural waste for bioenergy accounts for the major share of their production (79 and 86 percent in 2016, respectively). About a half of produced bioethanol is exported, while biogas is consumed in the domestic market.

Table 5. Bioenergy indicators by resources in 2016 Gross con- Final con- Bioenergy resources Production* Exports sumption sumption Firewood and wood waste (thou. cubic metres) 6054,5 6130,0 3158,4 691,3 Charcoal (thou. tonnes) 0,5 1,3 1,3 5,9 Agriculture waste (thou. tonnes) 40,3 14,1 8,3 27,4 Renewable municipal waste (thou. tonnes) 99,4 98,4 6,2 - Bioethanol (thou. tonnes) 14,1 9,9 9,9 6,8 Biodiesel (thous. tonnes) 103,1 56,7 56,7 81,8 Biogas (mill. cubic metres)** 67 67 17,2 - * including recovered products and interproduct transfers; ** including landfill biogas, sludge biogas and other biogas Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Fuel commodities balances)

Trends of the development of Lithuanian bioeconomy in 2005–2016

Gross value added trends The food sector creates more than a half (54 percent in 2014) of GVA in bioeconomy (which covers agriculture, fisheries and manufacture of food), and forest biomass-based sector (which includes forestry and logging, manufacture of wood, paper products and furniture) creates slightly more than a third (34.1 percent) of GVA. When it comes to individual subsectors, food industry (together with manufacture of beverages and tobacco products), agriculture and bio-based furniture production creates the major share of GVA in bioeconomy, while manufacture of medicines, pharmaceutical products and chemicals – the smallest share, as per Figure 1.

27 Authors elaboration on information in Lithuanian Official Statistics Portal Energy commodities balances sheets for energy production in tonnes of oil equivalent (TOE). 28 Interview of LITBIOMA representative 20

The comparison of the structure of GVA at the beginning and at the end of the period allowed determining that the shares of agriculture, manufacture of bio-based textiles, apparel and leather, and the wood industry decreased significantly in the past decade (from 29.1 to 21.8 percent, from 17.7 to 7.9 percent and from 11.7 to 9.7 percent, respectively). Shares of food industry together with manufacture of beverages and tobacco products, manufacture of bio- based furniture, paper industry and manufacture of bio-based pharmaceutical products increased significantly (from 26.8 to 31.6 percent, from 11.6 to 16.2 percent, from 2.2 to 3.8 percent and from 0.4 to 2.5 percent, respectively). Shares of forestry, bio-based chemicals industry and fisheries in GVA of bioeconomy changed slightly.

Figure 1. Gross value added in bioeconomy sectors in Lithuania

Percentage in 2014 Manufacture of bio- Manufacture of bio-based based chemicals; pharmaceuticals; 2.9% 1.1% Manufacture of paper; Fishing and 3.8% aquaculture; 0.6% Forestry and logging; 4.3%

Manufacture of bio-based Manufacture of food, textiles, wearing apparel and beverages and tobacco; leather; 7.9% 31.6%

Manufacture of wood products; 9.7%

Manufacture of bio-based furniture Agriculture; 21.8% and other products; 16.2%

Data source: authors elaboration on information in annex 2 table 3

Indicators of GVA of Lithuanian bioeconomy during the analysed period are presented in Table 3 of Annex 2. The nominal value of bioeconomy was determined to have grown by 70 percent over the decade (2005 – 2014), from EUR 2746.7 to EUR 4680.8 million, while its share in Lithuania’s GDP changed slightly, accounting for an average of about 12 percent. The contribution of the biomass production sector to GDP decreased, but that of the bio-based manufacturing experienced growth. The share of bioeconomy subsectors in the country’s GDP and its change over the past decade is illustrated in Figure 2. The contribution of subsectors of agriculture and manufacture of bio-based textiles, apparel and leather decreased significantly, and the share of wood industry also dropped. Shares of food industry and manufacture of bio-based furniture increased significantly. The share of the sub-sector of bio-based manufacture of pharmaceutical products in GDP also grew by almost 7 times from 0.05 to 0.37 percent, while the scope of its GVA increased by two and a half times. Since this is a very small sector of bioeconomy, its rapid growth has not had any significant impact on the growth of the country’s economy, including bioeconomy.

Figure 2. Share of bioeconomy sectors in Lithuanian GDP (in percentage)

Share in GDP (%)

Manufacture of food, beverages and tobacco 4.05% 2014 2005 Agriculture 2.79% Manufacture of bio-based furniture and other 2.08% Manufacture of wood products 1.24% Manufacture of bio-based textiles, apparel and leather 1.01% Forestry and logging 0.55% Manufacture of paper 0.49% Manufacture of bio-based pharmaceuticals 0.37% Manufacture of bio-based chemicals 0.14% Fishing and aquaculture 0.08%

0% 1% 2% 3% 4% 5%

Data source: Authors elaboration on information in annex 2 table 3

Trends of labour productivity In bioeconomy, labour productivity (value added created by one employee per year, in thousand EUR) is lower than average productivity in the overall economy of Lithuania, as per Figure 3. In 2014, the average labour productivity in bioeconomy was almost EUR 20 thousand per employee, which was by a fifth lower than the average labour productivity in Lithuania. This gap decreased significantly over the decade (for more information, see Table 4 of Annex 2).

Figure 3. Labour productivity and its growth in bioeconomy sectors

GVA per persons employed (EUR thou.), 2014 Index 2005=100 Agriculture

Manufacture of bio-based Forestry and logging 336 pharmaceuticals Fishing and aquaculture Manufacture of bio-based 80 chemicals 1000 Manufacture of food, beverages and tobacco Manufacture of paper 39 Manufacture of wood products 900 Manufacture of bio-based furniture Manufacture of paper 37 and other products 800 Manufacture of bio-based textiles, wearing apparel and Manufacture of food, beverages 33 leather and tobacco Manufacture of bio-based chemicals 700 Fishing and aquaculture 25 Manufacture of bio-based pharmaceuticals 600 Average: all NACE activities 25 Manufacture of bio-based furniture and other products 500 Average: Bioeconomy Manufacture of wood products 20 Average: all NACE activities 400 Average: Bioeconomy 20 Manufacture of bio-based textiles, 18 300 wearing apparel and leather

Forestry and logging 15 200

Agriculture 10 100

0 100 200 300 400 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Data source: Authors elaboration on information in annex 2 table 4

Labour productivity in manufacture of pharmaceutical products and the production of chemicals is very high in Lithuanian bioeconomy. Here labour productivity is from a few dozen to several times higher compared to the average labour productivity of the entire country. The lowest labour productivity levels have been observed in agriculture (which is by a half lower than the average of the country) employing almost a half of workforce of bioeconomy (44.9 percent in 2015, see Figure 7). Thus such labour productivity in agriculture significantly affects the average labour productivity level in bioeconomy. Low levels of labour productivity have also been observed in forestry and logging, manufacture of textiles, apparel and leather, as well as in wood industry. Such differences in labour productivity mainly come as a result of differences in intensity of technology use. According to the classification of manufacturing industries prepared by OECD based on technological intensity, manufacture of pharmaceutical products is attributable to high-technology industry29 and is a knowledge intensive business industry30, manufacture of chemicals is attributable to medium-high technology industry, and manufacture of rubber and plastics – to medium-low technology industry. All other manufacturing industries of bioeconomy (manufacture of food, beverages and tobacco products, textiles, apparel, leather, wood and paper products, as well as furniture) are attributable to low technology industry. In terms of technological intensity, primary production of biomass (agriculture, forestry and fisheries) also is a low technology industry of bioeconomy. On the other hand, the gap in labour productivity between bioeconomy and the entire economy as well as among sectors of bioeconomy has also decreased due to innovative technological solutions in low technology industry, also in aquaculture, agriculture and logging. Over the decade, the average labour productivity in bioeconomy increased by more than that of the national Lithuanian economy (2.6 and 1.9 times, respectively), especially in manufacture of bio-based pharmaceutical products (almost by 16 times) and the fisheries and aquaculture sector (by 7.6 times) as per Figure 3. Also, labour productivity in such bioeconomy subsectors as manufacture of furniture, chemicals, food and beverages, paper and agriculture increased more rapidly than the economy of the country. It grew somewhat slower in wood industry, manufacture of textiles, apparel and leather.

Turnover trends As per Figure 4, in 2015, more than two thirds (63.2 percent) of turnover in bioeconomy was generated in the food sector, and slightly more than a fourth (26.1 percent) – in the forest biomass-based sector, where turnover of manufacture of bio-based textiles, apparel and leather as well as bio-based chemicals and pharmaceuticals is a mere 7.1 and 3.6 percent, respectively. The comparison of indicators of structure of bioeconomy turnover in the beginning and end of the period being analysed allowed determining that the share of manufacture of bio- based textiles, apparel and leather products decreased significantly during the period from 2005 till 2015 (by 7 percentage points), while the share of bio-based furniture industry turnover increased by 2.8 percentage points. The share of the remaining bio-economy subsectors in the overall bioeconomy turnover changed only slightly.

29 Eurostat indicators on High-tech industry and Knowledge – intensive services. Annex 3 – High-tech aggregation by NACE Rev.2. 30 Eurostat indicators on High-tech industry and Knowledge – intensive services. Annex 8 – Knowledge Intensive Activi-ties by NACE Rev. 2. 23

Figure 4. Turnover in bioeconomy sectors in Lithuania (in percentage)

Turnover, 2015 Manufacture of bio-based Manufacture of bio- pharmaceuticals; 1.9% based chemicals; 1.7% Forestry and logging; 3.5% Fishing and aquaculture; 0.6% Manufacture of paper; 3.6%

Manufacture of bio-based textiles, wearing apparel and Manufacture of food, leather; 7.1% beverages and tobacco; 39.6% Manufacture of wood products; 9.4%

Manufacture of bio-based furniture and other products; 9.6% Agriculture; 23.0%

Data source: authors elaboration on information in annex 2 table 5

Turnover indicators by sectors and subsectors of bioeconomy during the analysed period are presented in Table 5 of Annex No 2. The following trends were identified in 2005–2015:  bioeconomy turnover increased by 75 percent, i.e. from EUR 6606.9 to EUR 11562.0 million. Its share in the overall turnover of non-financial companies remained almost the same, i.e. decreased from 15.7 to 15 percent;  in the biomass production sector, turnover increased by 77.4 percent, i.e. from EUR 1767.5 to 3135.7 million. It should be noted that the turnover of forestry and logging companies increased by 2.4 times during the same period, while turnover of fishery and aquaculture companies grew by 20 percent only;  turnover of the fully bio-based manufacturing sector companies increased by 79.3 percent, i.e. from EUR 3385.7 to EUR 6069.8 million. Turnover of companies producing paper and its products increased the most (3.2 times), and turnover of companies engaged in the manufacture of wood and its products increased the least (52 percent);  turnover of the partly bio-based manufacturing sector increased by more than 62 percent, i.e. from EUR 1453.8 to nearly EUR 2356.5 million. Turnover of companies producing bio-chemicals and pharmaceutical products increased the most, by 5.4 and 6.8 times, respectively, while turnover of wood and bio-based furniture production grew by nearly two and a half times.

Trends of exports Figure 5 illustrates the structure of exports of bioeconomy goods (i.e. biomass and bioproducts). In 2016, products of the food sector accounted for almost a half (44.7 percent) of the value of these exports, while exports of agriculture and food products alone – for 41.8 percent. Exports of goods of forest biomass-based sector accounted for slightly more than a fourth of bioeconomy exports (26.4 percent). The share of exports of the subsector of manufacture of bio-based textiles, apparel and leather products was 12 percent. Moreover, it should be noted

24 that in 2005–2016, it dropped by a half, especially the share of bio-materials-based apparel, which decreased from 15.2 percent in the beginning of the period to 6 percent at the end of the period. The share of exports of the subsector of manufacture of bio-based pharmaceutical products in the value of bio-economy exports increased 3.4 times during the analysed period (from 2.2 percent in 2005 to 7.4 percent – in 2016). The share of exports of beverages also experienced significant increase (from 0.5 to 2.7 percent) during that same period.

Figure 5. Export in bioeconomy sectors in Lithuania (in percentage)

Export: 2016 Manufacture of leather Manufacture of bioproducts; 1.4% based chemicals; 2.5% Forestry and Manufacture of bio- logging; 1.4% based textiles; 2.6% Other bio-based Manufacture of manufacturing; beverages; 3.3% 0.2% Manufacture of paper; Fishing and 3.7% aquaculture; 0.1% Manufacture of tobacco; 4.4% Manufacture of food; Manufacture of bio-based 27.2% wearing apparel; 7.6%

Manufacture of bio-based pharmaceuticals; 8.3% Manufacture of Agriculture; 14.8% wood products; 10.6% Manufacture of bio-based furniture; 11.9%

Data source: authors elaboration on information in annex 2 table 6

Bioeconomy export indicators by economic activities are presented in Table 6 of Annex No 2 during the analysed period. The analysis of exports in 2005–2016 revealed the following trends:  the value of exports of bioeconomy goods increased by 2.6 times, i.e. from EUR 3874.9 to nearly EUR 9890.5 million. Its share in the overall exports of goods increased by more than 4.2 percentage points, i.e. from 39.8 to 44.1 percent;  the value of exports of the biomass production sector in 2016 was EUR 1445.1 million and increased by almost 4.4 times during the analysed period. The share of this sector in the country’s exports of goods nearly doubled (from 3.5 to 6.4 percent). The value of exports of agricultural products increased almost 4.7 times, and that of exports of fisheries or aquaculture – almost 4.4 times. The value of exports of forestry and logging products increased 2.4 times;  the value of exports of the fully bio-based manufacturing sector almost tripled during the analysed period, i.e. it grew from EUR 1473.3 to EUR 4355.5 million. The value of exports of beverages, except for mineral water, water and other bio-ingredients – free beverages increased the most (16 times);  exports of goods of the partly bio-based manufacturing sector more than doubled, i.e. from EUR 2072.7 to EUR 4089.9 million, with exports of bio-based pharmaceutical products as well as chemicals having increased the most, by 10 and 5.5 times, respectively, and exports of furniture made of wood or containing wood – 3.1 times.

Employment trends As per Figure 6, almost two thirds (64.1 percent) of persons having worked in bioeconomy were employed in the food sector. Slightly more than a fourth (26.5 percent) of them worked in the bio-based forestry sector, less than a tenth (9 percent) – in manufacture of bio- based textile, apparel and leather products and a very small share (0.4 percent) – in subsectors of manufacture of bio-based chemicals and pharmaceutical products, where chemicals, pharmaceutical products are fully or partly derived from bio-materials. Having compared the structure of employment in bioeconomy at the beginning and the end of the analysed period, it was determined that the share of persons employed in the food sector decreased the most over the decade (2.7 percentage points). Also the share of persons employed in manufacture of bio- based textile, apparel and leather products decreased (by 1.5 percent points). The proportion of persons employed in the remaining sectors increased: 4.1 percentage points – in the forestry bio-based sector and 0.1 percentage points – in manufacture of bio-based chemicals and pharmaceutical products.

Figure 6. Employment in bioeconomy sectors in Lithuania (in percentage)

Employment, 2015 Fishing and aquaculture; Manufacture of 0.8% Forestry and logging; paper; 2.0% 5.8% Manufacture of bio- based chemicals; 0.3% Manufacture of bio-based textiles, wearing apparel and leather; 9.0% Manufacture of bio- based pharmaceuticals; 0.1% Manufacture of wood products; 9.2%

Manufacture of bio- based furniture and other products; 9.5% Manufacture of food, beverages and tobacco; Agriculture; 44.9% 18.4%

Data source: authors elaboration on information in annex 2 table 7

Annex No 2 presents indicators of employment in bioeconomy during the analysed period by sectors and subsectors. The following trends in the change of employment were observed in 2005–2015:  the number of persons employed in bioeconomy decreased by a third, or 117.4 thousand (from 351.8 to 234.4 thousand), of which the reduction of as many as 71.3 thousand was in agriculture. Employment in the economy of the country decreased by 6.1 percent during the same period, leading to significantly decreased contribution of the bioeconomy into the Lithuanian labour market – the share of persons employed in bioeconomy decreased from 24.8 to 17.6 percent;  the greatest decline was observed in the number of persons employed in the biomass production sector – 39 percent, i.e. from 199.7 to 120.7 thousand. The number of people working in fisheries and aquaculture decreased by more than a half. A large

share (40.4 percent) of employees left the agriculture sector and more than a fourth (26.7 percent) – the forestry and logging sector;  the number of people working in the fully bio-based manufacturing sector decreased by 17.7 thousand, or a fifth, i.e. from 87 thousand to 69.3 thousand. The number of people employed in manufacture of wood and its products decreased the most (by 26.9 percent) followed by manufacture of food (with decrease of 20.2 percent). The number of persons employed in manufacture of paper and its products increased by more than a fourth (29.7 percent), but the number of employees in this sector is very low – 4.8 thousand (in 2015).  employment in the partly bio-based manufacturing sector decreased by almost a third, i.e. from 65.1 to 44.3 thousand. The manufacture of bio-based pharmaceutical products faced the greatest decrease in the number of employees – by almost three fourths. Employment in manufacture of bio-based textile, apparel and leather products decreased by 42.9 percent and bio-based furniture – by 16.9 percent. Solely the industry of bio-chemicals faced employment growth of 28.7 percent.

Trends of gross earnings (monthly) Average indicators of monthly gross earnings by subsectors of bioeconomy and their comparison with the average earnings in the economy of the country are presented in Table 9 of Annex No 2. Figure 7 illustrates its expression in EUR in 2016 and growth rates since 2007. The indicators for the period from 2007 till 2016 are illustrated in the figure, because the statistics of earnings of previous years is presented according to the older NACE REV. 1.1, thus the data cannot be compared.

Figure 7. Gross earnings and its its growth in bioeconomy sectors in Lithuania

Gross earnings (monthly, EUR) Index (2007=100) Average in all NACE activities Manufacture of 1 378 Agriculture pharmaceuticals* Forestry and logging Manufacture of chemicals* 1 288 Fishing and aquaculture Manufacture of food, beverages and tobacco Fishing and aquaculture 774 Manufacture of textiles, wearing apparel and leather* Manufacture of wood, paper and printing Average in all NACE 774 Manufacture of chemicals* activities 190 Manufacture of pharmaceuticals* Manufacture of food, 180 760 180 Manufacture of furniture* beverages and tobacco 170 172 Manufacture of wood, paper 731 and printing 160 150 157 Manufacture of furniture* 722 140 146 Agriculture 686 130 134 120 Forestry and logging 639 110 Manufacture of textiles, 100 608 wearing apparel and leather* 90 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 500 1000 1500 * the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Average earnings (monthly)in whole economy including individual enterprises)

The average gross monthly earnings in almost all sectors of bioeconomy are below the average of the national economy, except for manufacture of chemicals, pharmaceutical products, fisheries and aquaculture (Figure 7 and Table 9 of Annex No 2). The lowest earnings were observed in manufacture of apparel, leather and its products, where they accounted for a mere 72 percent (in 2016) of the average of the economy of the country. Low earnings level was also observed in forestry and logging, and agriculture, with 82.6 and 88.6 percent of the average of the country’s economy, respectively. As previously mentioned, the highest monthly earnings were in manufacture of chemicals, pharmaceutical products – here the average gross monthly earnings significantly exceeded the national economy’s average, by 78 and 66 percent, respectively. Such differences in earnings (just like differences in labour productivity) were mainly determined by different employee qualifications. As previously mentioned, manufacture of pharmaceutical products is knowledge-intensive and attributable to high technology industry, while manufacture of chemicals – to medium-high technology industry. Other examined types of bioeconomy manufacturing are attributable to low technology industry. It should be noted that from the perspective of sustainable development, another advantage which bioeconomy brings to the society is a relatively high number of jobs created for labour force with less qualified professions, thus reducing social exclusion and poverty. Thus subsectors of agriculture, forestry and fisheries as well as low technology manufacturing should not be treated as less significant based on labour productivity and value added criteria alone. As per Figure 7, the average gross monthly earnings increased the most in agriculture (80 percent), wood and paper industries, and fisheries (by 72 percent each) in 2007–2016. A somewhat lower increase thereof was observed in manufacture of textiles, apparel and leather products (66 percent) followed by manufacture of chemicals and pharmaceutical products (65 percent). The average gross monthly earnings increased the most in forestry and logging (34 percent) and chemistry (46 percent) sectors. It should be noted that the average monthly gross earnings in the national economy increased by 48 percent during the same period.

Trends of the number of economic entities in operation Table 8 of Annex No 2 lists indicators of companies operating in bioeconomy (along with family farms) by economic activities throughout the entire analysed period. It should be noted that determining the total number of companies operating in bioeconomy is impossible for two reasons. On one hand, there are many farms engaged in self-farming in agriculture. There is one number thereof registered in the Register of Farmers’ Farms31, and a different number – in the Register of Agricultural and Rural Business32, yet another number thereof is indicated in statistics of agricultural censuses and research of the structure of farms33. The latter data have been used in the analysis, thus the current data reflect the situation in 2013. On the other hand, there are no data based thereon companies that produce products from that are fully

31 According to the Farmers' Farm Register of the Republic of Lithuania, there were 122.5 thousand farms as of January 1, 2016, based on data supplied by the Agricultural Information and Rural Business Centre; it is unclear, however, how many of them are in operation. 32 As of January 1, 2016, there were 184.5 thousand agricultural holdings, according to Agricultural Information and Rural Business Centre data. On the other hand, in 2016, nearly 134.6 thousand agricultural holdings declared crops (National Paying Agency under the Ministry of Agriculture 2016 direct payments for agricultural lands and crop areas data). The difference between the aforementioned data points is too large to be explained by the number of farms keeping animals but without declared crops. 33 According to Farm Structure Survey, in 2013, there were 171.1 thousand family farms over 1 ha. It should be noted that the preliminary results of the 2016 Farm Structure Survey will be published in October, 2017. 28 or partly of biological origin could be identified. Thus the total number of companies (economic entities) operating in bioeconomy was not determined in this Study. Data in the said table are presented solely by separate economic activities attributable to bioeconomy. The following trends were observed in 2005–2016:  there were about 173 thousand companies and farms operating in the biomass production sector in 2013, of which 172 thousand (99.4 percent) were economic entities engaged in agricultural activities, i.e. family farms, agricultural companies and other corporate farms. In 2005–2013, the total number of farms decreased by almost a third in Lithuanian agriculture (32.1 percent), but the number of agricultural enterprises and other agricultural companies increased by 48.2 percent to 1143. The number of companies operating in forestry and fisheries grew by 31.5 and 25 percent, respectively;  the number of companies operating in the fully bio-based manufacturing sector decreased by more than a sixth (16.3 percent), i.e. from 2.8 to 2.4 thousand. The greatest reduction was observed in enterprises engaged in manufacture of wood and its products (18.9 percent);  An increase of 12.7 percent, from 2.2 to 2.5 thousand companies, was observed in the partly bio-based manufacturing sector. It should be noted that this is the total number of companies operating in the sector, which does not distinguish the number of companies producing products from raw materials that are wholly or partly of biological origin. During the said period, the number of companies engaged in manufacture of furniture and chemicals increased (by 59.1 and 11.5 percent, respectively), but the number of enterprises operating in textiles, apparel and leather products and manufacture of pharmaceutical products decreased by 22.8 and 6.3 percent, respectively.

Bioenergy trends More significant development of bioenergy started in Lithuania in the beginning of this century only, after the use of biomass in the production of electricity and district heating intensified. Figure 8 shows the extent of increase of production scope in 2005–2016 and the renewable municipal waste used for fuel in 2013–2016. As previously mentioned, the production of gas intensified during this period the most, i.e. more than seventeen times, production of biofuels of both types increased almost 15 times and the amount of agricultural waste for fuel – more than 6 times, however, the production of biodiesel and bioethanol has decreased since 2015. In terms of the average annual growth, the production of biogas (by an average of 21.4 percent per year) and agricultural waste for fuel (by an average of 17.1 percent per year) intensified over the past mid-term period (2010–2016). The production of wood for firewood and fuel slowly increased during the same period (by an average of 2.9 percent per year). Scope of renewable municipal waste as a source of bioenergy have increased by almost 24 percent per year since 2013. End energy users (such as companies engaged in industrial, construction, agricultural and other economic activities, and households) received more than a half of wood waste for firewood and fuel, and biodiesel, 70 percent of bioethanol and about a fourth of biogas.

Figure 8. Growth of bioenergy resource production in Lithuania (2005=100)

Index (2005 =100) Firewood and wood waste (thou. cubic metres) Agriculture waste (thou. tonnes) Municipal waste (renewable) (thou. tonnes) Bioethanol (thou. tonnes) 2000 Biodiesel (thou. tonnes) 1718 1800 Biogas* (mill. cubic metres) 1473 1600 1400 1200 1473 1000 800 620 600 400 189 200 0 141 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 * including landfill biogas, sludge biogas and other biogas

Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Fuel commodities balances)

Since 2015 the shrinking of the biofuels sector has also been affected by the changed EU biofuel production policy. In order to reduce adverse effect of production of conventional biofuels on the balance of food products and greenhouse gases (GHG) emissions, proposals were made to limit the production of conventional (i.e. first generation) biofuels from rape and cereal grains according to Directive (EU) 2015/1513 of the European Parliament and of the Council of 9 September 2015 (partly amending Directive 98/70/EC relating to the quality of petrol and diesel fuels and amending Directive 2009/28/EC on the promotion of the use of energy from renewable sources), replacing a part of them with advanced (i.e. second generation) biofuels made of agricultural and wood waste and algae that do not need soil. As previously mentioned, the biogas sector has rapidly developed in Lithuania in recent years. In 2014–2016, the production of biogas from agricultural waste increased by an average of 49 percent per year, and from sewage sludge – by 28 percent per year. Even though a few years ago, biogas production potential was mainly associated with sewage sludge and animal manure in Lithuania, now biogas is also made of crop production waste (produced by UAB Kurana), waste from food and beverage industry, such as lees (produced by UAB Vilniaus Degtinė), carcass waste (produced by UAB Agaras) and milk processing waste (produced by AB Rokiškio Sūris). According to statistics, the use of biodegradable landfill waste in biogas production has slowly increased; the production of biogas from this waste increased by an average of 5.9 percent per year in 2013–2016. Data in Figure 9 illustrates the contribution of in the production of primary energy in Lithuania over the past decade. In 2010, the production of primary energy decreased almost three times in 2010 as a result of the decommissioning of the Ignalina Nuclear Power Plant. Scopes of the production of bioenergy have started to gradually increase since 2011. Since 2010, firewood and wood waste for fuel have become the main source of primary energy. The use of solid biofuels in Lithuania is called “the national success story”34. On the other hand, import of energy recourses has remained important for Lithuania. It was 14.3 toe, while export totalled 8.8 mln. toe in 2015. Import of crude oils and export of oil products account for the major share of foreign energy sources; 134.7 thousand toe of solid state bioenergy sources and 55 thousand toe of biogas and liquid biofuels were imported in 2015. That same year, export of

34 Kaimo vietovių apsirūpinimo šilumine energija galimybių studija. Asociacija “Slėnis Nemunas” 2011. 30 solid state bioenergy sources totalled 146 thousand toe and export of biogas and liquid biofuels was 99.7 thousand toe.

Figure 9. Production of primary energy by resource in Lithuania

thou. TNE Biogas and liquid biofuels (bioethanol and biodiesel) Firewood, wood waste and agriculture waste 5000 Other kinds of fuel and energy 113 4000 13 71 34 1003 846 18 884 937 3000 902

2000 139 3 143 3 230 137 137 2 665 2 992 2 974 114 95 122 1000 1003 984 993 1042 1117 1206

458 444 463 498 472 0 406 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Energy balances)

Bioenergy resources are transformed to other types of energy in Lithuania (heat, e- lectricity, fuels) or are used as end-use energy products as per Table 6. Growth trends were observed in the use of for transforming energy in 2005–2015: consumption of bio-gas increased 14.6 times; scopes of the transformation of biomass to heat and electricity increased 3.9 times. The production of energy from municipal waste, a part whereof is materials of biological origin, was started only in 2013.

Table 6. Transformation input in Lthuanian Bioenergy (thousand TOE)

Biofuels (firewood, wood Municipal waste Biogas Bioethanol Total waste and agricul- (renewable) ture waste) 2005 151,4 1,1 0,0 - 152,5 2006 175,2 1,0 3,7 - 179,9 2007 182,1 1,1 7,0 - 190,2 2008 214,7 1,6 7,4 - 223,7 2009 250,6 2,6 0,0 - 253,2 2010 252,1 5,5 - - 257,6 2011 236,8 8,0 - - 244,8 2012 312,3 8,5 - - 320,8 2013 356,0 11,3 - 11 378,3 2014 449,2 14,5 - 11,4 475,1 2015 584,1 16,1 - 15,7 615,9 Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Energy balances)

Regardless of the rapihd increase of use of bioenergy for transforming it into other sources of energy, there also are certain limitations. For example, heat demand, which is determined by such factors as decreasing number of consumers, climate conditions and the implementation of measures for increasing efficiency of energy use, etc., limits the use of biomass in the production of district heat. The limitations are also closely related to the use of biomass in the production of electricity, even though the total production of heat and electricity (cogeneration) allows achieving good results from both economic and resource efficiency perspective, 31 but limited demand for heat energy is faced. Table 7 illustrates data on final consumption of bioenergy in recent years. Trends of decreasing final consumption of biofuel can be observed – the consumption of solid biofuel (firewood, wood and agricultural waste) has decreased by more than a tenth since 2006, but the consumption of other sources of bioenergy increased significantly (9.4 times of biogas, 16 times – of bioethanol and 20.7 times – of biodiesel).

Table 7. Final consumption of bioenergy resources in Lthuania (thousand TOE)

Biofuels (firewood, wood waste and ag- Charcoal Biogas Bioethanol Biodiesel riculture waste) 2005 693,9 0,5 0,8 0,6 2,8 2006 702,3 0,6 1 1,7 14,00 2007 680,0 0,8 1,3 4,8 42,1 2008 694,6 1,5 1,4 8 45,7 2009 689,7 0,9 2,1 14 37,8 2010 687,2 1,2 4,5 10,4 34,8 2011 678,0 1,0 3,1 9,5 35,4 2012 690,8 0,7 3,1 8,7 51,8 2013 670,4 0,9 4,3 6,7 52,00 2014 635,5 1,1 6,5 5,5 57,6 2015 620,3 1,5 7,5 9,6 57,9 Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Energy balances)

These trends are associated not only with warmer winters of recent years, but also with several other factors: increased energy efficiency (both due to the installation of more efficient heating and food production technologies and reduction of heat demand in buildings); spread of more convenient energy use forms; reduction of the number of residents living in rural areas (it should be noted that the majority of solid biofuels is used in households of rural areas in particular); the consumption of biofuels is mostly dependent on the amount of biofuels added in transport fuel, which is governed by legal acts (which has been quite stable in recent years). Even though biomass-based power plants or boiler houses require much higher investments than respective fossil fuel-fired facilities, the price difference between biomass and natural gas or fuel oil makes this type of energy appealing to business. The district heating system of Kaunas, when the creation of possibilities for private investors to take part in the heat production market alone gave the first impetus for the development of biofuel in this system, illustrates this very well. Thus in certain cases, the creation of favourite conditions and refusal of excess regulation alone rather than special support or incentives is enough for the development of bioenergy (and bioeconomy in general). Another important factor was the EU support allocated for investments in the production of bioenergy and support for energy produced from renewable energy sources in 2007–2013. More than EUR 87.5 million was allocated for bioenergy under the measures VP3-3.4-ŪM-02- K “The Use of Renewable Energy Sources in Energy Production” and VP3-3.4-ŪM-06-V “The Use of Renewable Energy Sources in Energy Production-2”, namely, for modernizing boiler houses supplying heat to heating systems and replacing the fuel used with biomass, also for modernizing combined heat and power plants supplying heat to heating systems and replacing the fuel used with biomass; for building new renewable energy sources-fired boiler houses and connecting to heating systems (the heating system also includes heat consumption system); for

32 building new efficient combined heat and power plants using renewable energy sources, except for landfill gas (biogas, which forms naturally through self-decomposition of organic materials contained in waste) and connecting to the heating systems. It is also very important that the technologic industry already developed in the country, which allows efficiently renovating the existing technology and installing new bioenergy technology, has a highly positive impact on the development of biomass energy. Prospects of final consumption of bioenergy (in household first of all) will be determined by a set of factors consisting of technology development trends, general demographic trends, consumer preferences (with the improving level of livelihood, trends to choose “more convenient” heating methods have been observed, thus the traditional firewood heating has been gradually replaced by such modern biomass technology as fully automated pellet-fired boilers also competing with even more comfortable natural gas boilers and heat pumps) state policy measures not only fur the use of bioenergy resources directly, but also for restrictions or taxation of fossil fuel.

Biotechnology sector trends According to the definition of OECD (see subsection 2.1), biotechnology is the application of research and technology to acquire knowledge, to produce goods and to provide services. R&D and production are attributable to core biotechnology economic activities. The a- nalysis of trends of the development of the biotechnology sector, the production part whereof is attributable to bioeconomy, in Lithuania in 2005–2015 was conducted according to the statistics of business structure indicators: 1) aggregate statistical data of 29 companies operating in the biotechnology sector of Lithuania35; 2) data on biotechnology in R&D business sector by NACE REV. 2 activity type “Bio- technology Research and Development” (code M7211).

Trends of activities of companies operating in the biotechnology sector Trends of development of business in the Lithuanian biotechnology sector are examined in this Study according to aggregate statistical data of 29 biotechnology companies included in the research (Figure 10) in 2005–2015. The total turnover of these companies was EUR 448.9 million in 2015, which accounted for 0.64 percent of all turnover of non-financial companies in Lithuania. The annual business structure indicators illustrated in the Figure show a rapid development of this sector in the past decade. The following was the average annual growth in 2010–2015:  turnover increased by an average of 23 percent per year. The value added at factor cost increased even faster – 33.1 percent per year;  the number of employees grew 7.8 percent per year;  labour productivity increased by 23.5 percent per year.

35 The list of 32 biotechnology companies used in the study is based on the list of the largest biotech companies in Lithuania compiled by UAB Creditinfo Lietuva (https://infogram.com/320a33cd-085b-497f-89e9-4c689b2096ee), upon checking whether or biotechnology methods and practices are applied in these firms, and also on the list supploed by the Lithuanian Biotechnology Association. The data on 29 out of the 32 companies were included in the 2015 annual structural business statistics. 33

Figure 10. Enterprise performance of Lithuanian biotechnology sector

Turnover (EUR mill.) Number of enterprises Value added at factor cost* (EUR mill.) 35 600 29 490 30 25 500 25 380 19 20 400 340 20 16 14 14 300 229 15 12 13 13 206 212 10 200 174 10 134 136 123 103 82 97 100 53 66 47 51 55 5 14 21 24 28 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of employees Labour productivity** (value added per employee, EUR thou.) 1800 1634 140 129.8 1538 1600 1466 120 1308 1400 1198 1157 1145 1122 100 1200 1053 80.1 937 1000 838 80 63.0 65.8 800 60 44.6 45.2 45.6 600 40 24.1 400 17.3 22.1 20.9 200 20 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

* value added at factor cost; ** the labour productivity is calculated as the ratio of the value added at factor cost and the number of persons employed. Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Business structure and finance data aggregated from 29 companies in the biotechnology sector)

Research and experimental development on biotechnology in the business sector As previously mentioned in subsector 2.1, research and experimental development (R&D) is one of the core biotechnology activities according to the definition of OECD. Figure 11 illustrates statistical indicators of biotechnology R&D activities of the business sector only, because there are no respective data in higher education and governmental sectors. Data presented in the Figure show that biotechnology R&D has been rapidly developing in business sector in Lithuania, which creates conditions for the development of bio-innovation and the implementation thereof in the industrial production (of pharmaceutical products and bio-chemicals) and healthcare. According to the data of the Lithuanian Biotechnology Association, medical biotechnology is rapidly developing in Lithuania at this time, and very fast development of industrial biotechnology may also be expected in the future. According to the Associa- tion, so far agricultural biotechnology is in its initial development stage, because there still are no strong industrial companies in these fields. According to the statistics of OECD36, medical biotechnology R&D developed by business is also most developed in the majority of OECD countries. It should also be added that according to this statistics, Lithuania ranks 42 in terms of the percentage share of registered biotechnology patents (0.06 percent in 2010–2013) in the world; the share of the entire EU (28) accounted for 28.1 percent.

36 OECD. 2016. Key Biotechnology Indicators ://www.oecd.org/sti/inno/keybiotechnologyindicators.htm 34

Figure 11. Biotechnology R&D statistical indicators in the business sector

Number of enterprises Number of employees 241 30 250 25 209 25 200 181 20 20 141 141 150 15 108 11 11 12 10 100 10 8 70 51 42 4 5 33 36 5 3 3 50

0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Turnover (EUR mill.) Labour productivity** (value added per full-time Value added at factor cost* (EUR mill.) equivalent employee, EUR thou.) 20 50 46.4 17.0 40 15 32.7 29.8 28.1 30 10 8.3 7.4 6.8 20 15.4 4.9 4.8 4.6 10.7 11.1 10.6 5 3.3 8.2 9.9 2.5 10 5.1 0.9 1.6 1.4 0.5 0.6 0.6 0.7 0.6 0.8 0.3 0.4 0.4 0 0.1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

* value added at factor cost; ** the labour productivity is calculated as the ratio of the value added at factor cost and the full- time equivalent employees. Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Business structure and finance data by Biotechnology R&D (NACE Rev. 2 codes M7211)

The analysis of the statistics of the Lithuanian biotechnology R&D in the business sector (Figure 11) allowed determining that business activity in biotechnology R&D has significantly increased – this sector has been among the growth leaders in the last decade (2005–2015):  A number of business enterprises involved in biotechnology R&D activities increased significantly, from 3 to 25, while their share in the total number of companies engaged in R&D activities increased from 2.9 to 4.9 percent;  Turnover of business enterprises in biotechnology R&D activities increased significantly – by as many as 32.6 times to 16.9 million (in 2015), while its share in the overall R&D turnover increased from 3.3 to 32 percent; moreover the value added created by these activities increased 56 times;  The number of employees working in biotechnology R&D increased 7.3 times, i.e. to 241 (in 2015), which accounted for 16.7 percent of all R&D employees in the business sector. It should be noted that labour productivity of R&D employees increased nine times and has become almost a third higher compared to the average in all R&D activities of the business sector. Industrial biological processes are recognised in the European Commission’s “European Industrial Renovation” policy as one of the major most advanced technology areas and one of

35 six priority areas for promoting investment in innovation and new technology37. As per subsection 4.1, funding under “Horizon 2020” programme was allocated for promoting new bio- innovation in 2014–2020 programming period. The programme plans for the support for bio- manufacturing (a total of one billion euros for all countries).

Biological waste treatment condition According to statistical data, in 2014 in Lithuania38:  10 million tonnes of waste were generated in agriculture, with straw and manure accounting for the major share thereof (38 and 39 percent, respectively) and slurry (17 percent). More than three fourths of this waste was managed using it in production, a mere 1 percent was handed over to waste managers and the remaining part was managed by other means (disposing thereof in farms or transferring to other users) or remained untreated (about 4 percent);  wood waste amounted to 44 thousand tonnes. Most wood waste in Lithuania are used as solid biofuel, i.e. as a raw material for burning;  mixed municipal waste – 187 thousand tonnes. Municipal biodegradable waste accounts for 46 percent of the entire amount of municipal waste, where green waste makes up more than 6 percent, paper and cardboard, including packaging waste, – about 6 percent, textile waste – about 7 percent and food waste – about 14 percent39;  food waste totalled 18 thousand tonnes. In recent years, more than 90 percent of food waste was treated in production, transferring about 5 percent thereof to waste managers and treating the remaining part by other means. Even though the country has one of the most modern biological waste treatment infrastructure in the EU40, Lithuania is among the EU states, where most primitive waste treatment method – landfilling – dominates41. Since this is the cheapest waste treatment method, waste is treated disregarding the sequence of waste prevention and treatment priorities, while sorted collection, processing or reuse of biodegradable waste is not economically appealing42. In the context of other EU states, Lithuania is still at the end of the list in terms of the progress made implementing requirements of the EU waste directives, especially those related to municipal waste treatment43. In order to reduce methane emissions, which intensify climate change, terminating disposal of biodegradable waste in landfills without any undue delay is very important. Anaerobic digestion plants, which combine energy recovery and the processing of materials, are an attractive waste treatment method in this case44. One tonne of biodegradable waste treated by

37 European Commission. 2014. For a European Industrial Renaissance. Communication from the Commission to the Euro- pean Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions for a Euro- pean industrial renaissance /COM/2014/014 final/. 38 Lithuanian Official Statistics Portal: Waste generation and management in agriculture, forestry and fisheries 39 Aplinkos apsaugos agentūra. 2017. Mišrių komunalinių atliekų sudėties tyrimai ir biologiškai skaidžių atliekų vertinimas. 40 Komunalinių atliekų tvarkymas Lietuvoje. 2015. https://www.slideshare.net/LRATCA/komunalini-atliek-tvarkymas-lietuvoje-2015-metais. 41 ESTEP. 2014. ES paramos atliekų tvarkymui Lietuvoje efektyvumo vertinimas ir 2014–2020 metų finansavimo prioritetų nustatymas. Galutinė ataskaita. 42 LR Vyriausybės 2014 m. balandžio 16 d. nutarimas Nr. 366 ,,Dėl Lietuvos Respublikos vyriausybės 2002 m. balandžio 12 d. nutarimo Nr. 519 „Dėl valstybinio strateginio atliekų tvarkymo plano patvirtinimo“ pakeitimo. 43 ESTEP. 2014. ES paramos atliekų tvarkymui Lietuvoje efektyvumo vertinimas ir 2014–2020 metų finansavimo prioritetų nustatymas. Galutinė ataskaita. 44 European Commission. 2017. The role of waste-to-energy in the circular economy.Communication from The Commission to the European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions Brussels, 26.1.2017 COM(2017) 34 final 36 way of aerobic digestion, recovering therefrom biogas and fertilisers, the amount of non-emit- 45 ted greenhouse gasses may reach 2 tonnes of CO2 equivalent . According to the Landfill Di- rective,46 the aim is to ensure separate collection of bio-degradable waste, which should lead to increased amount of biogas generated from waste, which can be used in cogeneration, injected in the gas network, used as vehicle fuel or for the production of fertilisers by way of anaerobic digestion. In case of choosing to produce energy from waste, the use of the most effective methods thereof must be ensured, thus contributing to the implementation of the EU climate and energy goals. Calculations have been made that where efficient methods and additional measures are implemented properly, 29 percent more energy could be recovered from the same amount of waste, i.e. 872 PJ per year, which illustrates the extent of the potential for increasing energy recovery efficiency47. Processes for energy recovery from waste may have a certain value in the transition to circular economy, but the EU waste treatment hierarchy should be followed when choosing them, without interfering with efforts to avoid waste generation, reuse and recycle the greatest possible amounts thereof. Bio-degradable waste treatment infrastructure was created in the country’s municipalities and regional waste treatment centres (RATC): in 2015, total bio-degradable waste treatment capacities were 588.5 thousand tonnes, of which 384 thousand tonnes were from mechanical- biological treatment and 204.5 thousand tonnes – from green waste composting sites; 438.5 thousand tonnes thereof may be processed and 150 thousand tonnes – prepared for use (energy production)48. It should be noted that even though economic entities show interest in investing their own funds in the equipment necessary for the use of biodegradable waste in the production of biogas and other necessary equipment without using the EU support, the fact that there is no efficient biodegradable waste sorting collection system created so far stops the investments49.

Analysis of business environment factors that have or will have an impact on the development of bioeconomy in Lithuania

Analysis of business environment factors by way of survey of business entities operating in the bioeconomy sector The assessment of the impact of factors of the external environment (political, economic, social, technological, natural and legal) on business operating in bioeconomy was conducted by way of a survey of business entities, using the PESTEL method used to monitor macro-environmental factors. The survey is described in Annex 3.

45 Bernstad A., la Cour Jansen J. 2012. Review of comparative LCAs of food waste management systems – Current status and potential improvements, Volume 32, Issue 12. 46 Article 6, paragraph (a) of the Council Directive 1999/31/EC of 26 April 1999 OL L 182, 1999 7 16. 47 European Commission. 2017. The role of waste-to-energy in the circular economy. Communication from The Commission to the European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions Brussels, 26.1.2017 COM(2017) 34 final 48 Komunalinių atliekų tvarkymas Lietuvoje. 2015. https://www.slideshare.net/LRATCA/komunalini-atliek-tvarkymas-lietuvoje-2015-metais. 49 ESTEP. 2014. ES paramos atliekų tvarkymui Lietuvoje efektyvumo vertinimas ir 2014–2020 metų finansavimo prioritetų nustatymas. Galutinė ataskaita. 37

The impact of factors of the external environment on the development of Lithuanian bioeconomy is assessed based on the opportunities created thereby and the posed threats to business. A five-point scale is used in the assessment, with 1 point being a very small opportunity or threat and 5 – a significant opportunity or threat. Factors that do not or will not have any importance to business receive 0 points. In both cases, external environment business factors are assessed in two periods:  according to their manifestation in the previous period – 2012–2016; and  their potential manifestation in the nearest future – 2017–2021. Comparison of results of both periods illustrates the direction of changes and reflects potential opportunities created by the external environment or posed potential threats to business. A description of the assessment results of the external environment factors of bioeconomy separately by PESTEL analysis factor groups is presented below.

Results of the assessment of favourability of factors of the political environment 7 generalised factors covering the levels of geo-policy, national policy and regional (municipal) policy were distinguished for the assessment of the political environment. Fi- gure 12 presents a summarised assessment of the favourability of the political environment on the development of bioeconomy business.

Figure 12. Significance of factors of the political environment (in points)

Political factors in 2017-2021m. Threats Opportunities

Extremism and terrorism 1.4 0.1 Changes in the geopolitical arena 1.7 0.5 Change of government in Lithuania 1.9 0.8 Investment environment in Lithuania 0.8 1.5 Deployment of NATO military units in Lithuania 0.3 1.5 Lithuania’s appeal to foreign investment 0.7 1.6 EU, national and municipal support for business 0.5 1.9 5 4 3 2 1 0 1 2 3 4 5

Political factors in 2012-2016 Threats Opportunities

Extremism and terrorism 1.0 0.1 Changes in the geopolitical arena 1.8 0.3 Change of government in Lithuania 1.4 0.9 Deployment of NATO military units in Lithuania 0.2 1.4 Investment environment in Lithuania 0.8 1.4 Lithuania’s appeal to foreign investment 0.6 1.6 EU, national and municipal support for business 0.3 2.4 5 4 3 2 1 0 1 2 3 4 5 Note: 1 point – very slight opportunity or threat, 5 points – very high opportunity or threat, 0 points – insignificant

It should be noted that respondents did not note any particular opportunities or threats for the development of bioeconomy in the political environment. Summarised scores of all factors as opportunities were below 2.5 points and as threats – 2.0 points out of 5 both in the

38 previous and the upcoming period. Representatives of bioeconomy business believe that the implementation of decisions of the EU and the national government and municipalities on support for bioeconomy sectors provided the most opportunities for the development of their business in 2012-2016. The average score of this opportunity was 2.4 points, and it may be associated with intense financial, educational and information support for certain sectors of bioeconomy at all levels of public government in 2014–2020 programme period. Of course, this opportunity received a lower score in 2017–2021 period (giving an average of 1.9 points therefor), and this trend observed by the respondents may be associated with a shortage of funds at the end of the programme period and planned fund reduction in the future programme period of 2021–2028. In the political environment, respondents saw a greater threat in geopolitical changes (weighted average in the previous period was 1.8 points and future period – 1.7 points). Such opinion of the respondents can be associated with possible changes in business conditions due to economic sanctions imposed on Russia, development in Ukraine and the United Kingdom, and increased political instability in the EU. The bioeconomy business representatives were slightly worried about the change of government in Lithuania. The average score of this factor as a threat increased from 1.4 points in the previous period to 1.9 points in the future period. In the summarised opinion of the respondents, other political environment factors, including the investment environment and Lithua- nia’s appeal to foreign investment, did not and will not have much significance.

Results of the assessment of the favourability of factors of the economic environment 11 generalised factors were distinguished for the assessment of the economic environment; Figure 13 presents the scoring thereof. Bioeconomy business representatives usually face economic environment factors, and their average scores are more indicative than those of political factors. Economic factors are assessed more like threats rather than opportunities. Not a single economic environment factor, which would be more indicative as an opportunity rather than threat, was observed in 2012–2016 and the nearest future.

Figure 13. Significance of factors of economic environment (in points)

Economic factors in 2017–2021 Threats Opportunities

Tax burden 3.2 0.0 Increasing price of labour force 2.9 0.1 Increasing price of other sources of production 2.7 0.2 Labour market disparities 2.7 0.2 Economic shadow in Lithuania 2.3 0.1 Unsustainable economic (GDP) growth 2.2 0.3 Inflation 2.1 0.1 Slow or negative EU market growth 2.0 0.3 Internal market demand trends 1.7 0.9 Change in the EUR / USD exchange rate 1.5 0.3 *Shift of the global economic power centres to rapidly… 1.3 0.7 5 4 3 2 1 0 1 2 3 4 5

Economic factors in 2012–2016 Threats Opportunities Tax burden 2.7 0.1 Labour market disparities 2.4 0.2 Increasing price of labour force 2.3 0.2 Increasing price of other sources of production 2.3 0.2 Economic shadow in Lithuania 2.1 0.2 Inflation 1.9 0.1 Unsustainable economic (GDP) growth 1.8 0.3 Slow or negative EU market growth 1.8 0.3 Internal market demand trends 1.4 0.8 Change in the EUR / USD exchange rate 1.2 0.4 *Shift of the global economic power centres to rapidly… 1.1 0.6 5 4 3 2 1 0 1 2 3 4 5

Note: 1 point – very slight opportunity or threat, 5 points – very high opportunity or threat, 0 points – insignificant; * Shift of the global economic power centres to rapidly growing regions Results of the assessment of the favourability of social environment factors 5 generalised factors were distinguished for the assessment of the social environment; Figure 14 presents their scoring. Bioeconomy business representatives distinguished factors related to the country’s demographic issues as the greatest threats in social environment. These factors, just like threats in 2012–2016, received an average score of 3.0 and 2.6 points. These are among the highest average scores of threats not only among social but also among business environment factors of other groups. Respondents believe that the manifestation of the impact of demographic factors as threats to bioeconomy business will increase significantly in 2017– 2021. For example, the average score of population emigration from Lithuania in 2017–2021 was 0.5 point greater than in 2012–2020. Figure 14. Significance of social environment factors (in points)

Social factors in 2017–2021 Threats Opportunities Population emigration from Lithuania 3.5 0.0

Aging population 3.2 0.1

Trends of change of income of residents of Lithuania 1.7 0.8 Trends of vocational training and post-secondary and higher 1.2 1.0 education system Trends of change of consumer needs and behaviour 1.2 1.1

5 4 3 2 1 0 1 2 3 4 5

Social factors in 2012–2016 Threats Opportunities

Population emigration from Lithuania 3.0 0.1

Aging population 2.6 0.2

Trends of change of income of residents of Lithuania 1.5 0.7 Trends of vocational training and post-secondary and higher 1.0 0.9 education system Trends of change of consumer needs and behaviour 1.0 0.8

5 4 3 2 1 0 1 2 3 4 5

Note: 1 point – very slight opportunity or threat, 5 points – very high opportunity or threat, 0 points – insignificant 40

Scores of other social factors are not indicative. They reflect not only threats, but opportunities as well. Even though education, especially vocational training and higher education-related issues, have lately been emphasised, representatives of bioeconomy business emphasised neither any significant opportunities nor threats not only in the past 2012–2016 peri-od, but also in the future period of 2017–2021. Average scores of this factor did not exceed the limits of 1 point.

Results of the assessment of the favourability of technologic environment factors 7 generalised factors were distinguished to assess technologic environment; Figure 15 presents their scoring. The scores that bioeconomy business representatives gave for technologic environment factors were quite polarising. Some of them raised increasingly growing threats and others – increasingly improving opportunities. The greatest threat having strongly manifested in the past 2012–2016 period, which will be even more important in the future 2017–2021 period, is obsolete production equipment and technologies. Another rapidly growing threat is insufficient security of information/ cyber security. Information technologies are integrated in all sectors of bioeconomy, and the assurance of their security in the context of cyber-attacks of different nature has become increasingly relevant. The average score of this threat in the future 2017–2021 period is 0.5 structural point greater than of the previous period.

Figure 15. Significance of technologic environment factors (in points)

Technological factors in 2017–2021 Threats Opportunities Obsolete production equipment and technologies 2.9 0.2 Informational / cyber security level 2.1 0.4 Fast change of technologies 0.6 2.2 Training of biotechnology specialists in Lithuania 0.3 2.2 Support for innovation 0.4 2.3 *Dissemination and availability of technologies and other… 0.2 2.7 State of biotechnology science in Lithuania 0.1 3.1 5 4 3 2 1 0 1 2 3 4 5

Technological factors in 2012–2016 Threats Opportunities Obsolete production equipment and technologies 2.4 0.2 Informational / cyber security level 1.6 0.3 Fast change of technologies 0.5 1.8 Training of biotechnology specialists in Lithuania 0.3 1.9 Support for innovation 0.5 2.0 *Dissemination and availability of technologies and other… 0.3 2.2 State of biotechnology science in Lithuania 0.1 2.7 5 4 3 2 1 0 1 2 3 4 5 Note: 1 point – very slight opportunity or threat, 5 points – very high opportunity or threat, 0 points – insignificant; *Dissemination and availability of technologies and other innovations

Other factors of technologic environment are assessed as consistently increasing opportunities of average importance. Opportunities arising from the improving condition of biotechnology science and dissemination of technologic, technical and other innovations, which have been opening up increasingly wider, received the highest scores. Their respective average scores in the past 2012–2016 period were 2.7 and 2.2 points, and will be 3.1 and 2.7 points in the future 2017–2021 period. These increasingly opening up opportunities may be important in reducing or eliminating the threat of obsolete equipment and technologies.

Results of the assessment of the favourability of natural environment 8 generalised factors were distinguished to assess natural environment; Figure 15 presents their scoring. Bioeconomy is closely and directly related to natural environment and ecological requirements related to its quality, thus representatives of this sector saw both opportunities and threats in the natural – ecologic environment.

Figure 16. Significance of factors of natural environment (in points)

Natural environmental factors in 2017–2021

Threats Opportunities

Climate changes 2.2 0.3 Limited natural resources 2.1 0.5 Energy taxes 2.0 0.5 Other environment-related taxes 2.0 0.5 Requirements for emissions reduction 1.4 1.0 Requirements for waste management and disposal 1.3 1.1 EU Energy Efficiency Policy 0.3 2.0 Support for sustainable use of resources 0.2 2.1

5 4 3 2 1 0 1 2 3 4 5

Natural environmental factors in 2012–2016

Threats Opportunities

Climate changes 2.0 0.3 Limited natural resources 1.7 0.4 Energy taxes 0.6 0.5 Other environment-related taxes 0.5 0.5 Requirements for emissions reduction 1.1 0.8 Requirements for waste management and disposal 1.1 0.9 EU Energy Efficiency Policy 0.2 1.8 Support for sustainable use of resources 0.1 1.8

5 4 3 2 1 0 1 2 3 4 5

Note: 1 point – very slight opportunity or threat, 5 points – very high opportunity or threat, 0 points – insignificant Bioeconomy business representatives saw threats for climate change, limited natural resources, energy and other environmental taxes, which now are slight but will increase in the future period. The average score of all these factors as threats varied from 1.1 to 2.0 points in the past 2012–2016 period, and it increased by 0.2 – 0.4 point in the future 2017–2021 period.

More significant opportunities (average score – 1.8 points) were observed in the EU Energy Efficiency Policy and for support allocated for sustainable use of resources. These opportunities remain slightly more important in the future 2017–2021 period.

Results of the assessment of the favourability of legal environment factors 7 generalised factors were distinguished to assess legal environment; Figure 17 presents their scoring. As usual, more threats than opportunities were distinguished in legal environment, which is determined by the regulatory nature of these factors. Administrative burden and bribery and corruption were treated as threats of medium significance (2.4 and 2.3 points, respectively in the past 2012–2016 period). Bioeconomy business representatives did not see any signs of these threats being at least somewhat reduced in the future 2017–2021 period. The respondents assessed other legal environment factors as slight opportunities or threats (with average scores of the previous 2012–2016 period ranging from 0.7 to 1.5), and did not have any expectations as to essential change of the legal environment.

Figure 17. Significance of legal environment factors (in points)

Legal factors in 2017–2021 Threats Opportunities

Administrative burden 2.6 0.2 Bribery and corruption 2.3 0.1 Regulation of employment relations and salary 1.6 1.0 Clarity of legislation and long-term impact 1.6 1.0 Legal regulation of business 1.4 0.9 System for the protection of fair competition 1.1 1.5 Protection of intellectual property 0.9 1.1

5 4 3 2 1 0 1 2 3 4 5

Legal factors in 2012–2016 Threats Opportunities

Administrative burden 2.4 0.2 Bribery and corruption 2.3 0.1 Clarity of legislation and long-term impact 1.5 1.0 Legal regulation of business 1.4 0.7 Regulation of employment relations and salary 1.4 1.0 System for the protection of fair competition 0.9 1.3 Protection of intellectual property 0.9 1.1

5 4 3 2 1 0 1 2 3 4 5 Note: 1 point – very slight opportunity or threat, 5 points – very high opportunity or threat, 0 points – insignificant

Summary of the assessment of the favourability of external bioeconomy business environment according to the results of the survey of business representatives of this area:  external bioeconomy business environment is assessed as changing slowly and moderately; no significant favourable opportunities just like no significant threats were observed therein;

 there were more threats of slight and moderate significance than opportunities of such significance observed in the external bioeconomy business environment. The main emphasis was placed on more significant threats appearing in economic, social and legal environment. Greater opportunities were observed in technologic environment only (especially in biotechnology science and dissemination of innovation) and measures of support for business and sustainable use of resources;  bioeconomy business representatives focus more on the insights of threats rather than opportunities. This could mean that entrepreneurs operating in bioeconomy and managers and specialists whom they hire lack entrepreneurial characteristics, leading to defensive rather than offensive business strategies used in this field more frequently, which may mean slow growth rates of the sector;  in pursuit of a more rapid bioeconomy development, government institutions must focus on the promotion of the expression of entrepreneurship and improvement of favourability of economic and legal environment partnering with research, organisations representing business entities and non-governmental organisations.

International assessment of business environment factors in Lithuania International ratings of the World Bank’s research “Doing Business” reflect the favourability of environmental factors to business in Lithuania (including in bioeconomy). Accor- ding to the latest research50 data, Lithuania ranks 21st among 190 countries and 10th among the EU member states. Compared to 2016, the business conditions index fell by one point. Table 8 presents Lithuanian rating positions by different business conditions. Over the decade (from 2007 to 2017), the greatest breakthrough was achieved in the area of contractual obli- gations, where Lithuania rose by as many as 26 positions, and its rating increased by 19 positions during the period under consideration in terms of the conditions for starting a business. The worst results in the country were observed in the assessment of bankruptcy cases, where Lithuania dropped from 33rd to 66th place, and assessment of international trade, where Lithua- nia’s rating fell 15 places down.

Table 8. Changes in components of Lithuania’s business conditions index in the international “Doing business” rating

Change (±): 2017 com- Indicator set 2007 2016 2017 pared to 2007 Starting a business 48 8 29 19 Dealing with construction permits 23 18 16 7 Labour market regulation 119 x x x Getting electricity x 54 55 x Registering property 3 2 2 1 Getting credit 33 28 32 1 Protecting minority investors 60 47 51 9 Paying taxes 40 49 27 13 Enforcing contracts 32 3 6 26 Trading across borders 4 19 19 -15 Resolving insolvency 30 70 66 -33 Data source: Authors elaboration on information in „Doing Business“ reports for 2007 and 2017

50 World Bank. 2017. Doing Business 2017: Equal Opportunity for All. Washington, DC: World Bank, also using data from reports for 2008 and 2016. 44

In the area of property registration, Lithuania ended up in the second place among all the assessed countries in 2017, and it rose from the 32nd place in 2007 to the 6th place in terms of the performance of contracts. Lithuania is among the most advanced countries that have the top quality real estate administration system, because the procedure of property registration and transfer from one company to another is relatively simple, fast and cheap in Lithuania. Also, Lithuania experienced a major breakthrough in the tax payment area, where it rose from the 49th to the 27th place (2016). Lithuania ranked higher in the areas of construction permits (rising from the 23rd to the 16th place) and start of business (from the 48th to the 29th place). Lithuania’s position also improved in the area of protection of minor investors. The assessment of progress that countries made according to ten indicators, Lithuania was declared to have implemented five constructive reforms in three areas: start of business, connection to electricity networks (2 reforms) and protection of minor investors (2 reforms). The fundamental reform in the area of starting a business was made in the registration of a new company with the Register of Legal Entities.

Statistical data-based analysis of environmental factors

Trends in Lithuanian population Having assessed business environment by way of survey, representatives of bioeconomy business emphasised factors related to the country’s demographic problems as the greatest threats, including emigration of the population from Lithuania and the aging of the population. Figure 18 presents graphs drawn up according to OECD and FAO population pro- jections51, which show long-term trends of declining population in Lithuania. According to forecasts, Lithuania will have 2.38 million residents in 2050, which means that the population of the country will decrease by a fourth compared to 2015. This will lead to shrunken demand in the domestic market and suspended growth of Lithuanian bioeconomy, especially of manufacturers, whose produce is mainly targeted at consumers of the country (the analysis of the dynamics of sales structure in the past decade is presented below).

Figure 18. Population projections in Lithuania

Total population projections (million) Lithuanian population decline index 2015=100 Low variant Medium variant High variant Low variant Medium variant High variant 110 3,0 100 2,8 2,6 2.64 90 91.7 2,4 2.38 82.5 80 2,2 2.12 73.7

2,0 70

2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2015 Data source: authors elaboration on information in United Nations World Population Prospects, the 2015 Revision: Total Population – Both Sexes

Trends of declining population of working age in Lithuania presented in Figure 19 are even less favourable for the development of bioeconomy. According to forecasts, there will be 1.1 million working age residents 15-64 years of age in Lithuania in 2050, however, given the

51 OECD-FAO Agricultural Outlook 2016–2025. 04 July 2016. 45 fact that people usually are employed in the country after they complete secondary education, the number of working age residents (20-64 years) will be 1 million. Compared to 2015, it will decrease by almost a half, which is a twice greater decrease compared to the previously mentioned decline of Lithuania’s population. Thus the issue of the lack of employees will further increase and pose threat to the development of the bioeconomy business.

Figure 19. Projections of the working age population in Lithuania

Working-age population (million) Working-age population change index Aged 15-64 Aged 20-64 (2015 = 100) 1,9 110 Aged 15-64 Aged 20-64 1,7 90 1,5 1,3 70 1,1 55

0,9 50

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2015

Data source: authors elaboration on information in EUROSTAT (Population projections 2015 at national level) Trends of production and demand of agriculture and food products The Food and Agriculture Organisation of the United Nations (FAO) forecasts that in order to meet food and biofuel demand, agriculture will have to produce almost 50 percent more food, feed and raw materials for biofuel in 2050 compared to the scope of production in 201252. Forecasts for the production and consumption of agriculture, fisheries and food products made by OECD and FAO and population projections presented in Figure 20 show certain trends. 1. Manufacture of agricultural, fisheries and food products will increase over the decade (2015–2025). According to forecasts, the production of wheat will increase by 9 percent, maize – by 15 percent, other oilseeds – by 13 percent and vegetable oils – by as many as 23 percent. The forecasted scope of production of livestock farming products is even greater: pork production should increase by more than 11 percent, beef and veal – by about 15 percent, poultry – by 16 percent and lamb – by 22 percent; the scope of production of dairy products should increase by a fifth. In 2025, fish catch will stay at almost the same level as in 2015, however, the scope of aquaculture production will increase by a third. 2. Consumption of most products per capita will increase in the world. Consumption of beef and veal will increase by about 4 percent, poultry – by 5 percent, fish – by 7 percent, lamb and vegetable oil – by 10 percent, fresh dairy products – by 13 percent; in 2025, consumption of wheat and pork will stay at the same level as in 2015. 3. The world’s population will rapidly increase, and will reach 9.7 billion in 2050. Com- pared to 2015, the population will increase by almost a third in 2050. Increasing consumption of agriculture, fisheries and food products as well as growing population will further increase the demand for agriculture, aquaculture and food products and the need for increasing scopes of production.

52 FAO. 2017. The future of food and agriculture – Trends and challenges. Rome. 46

Figure 20. Projections of the world’s population and production and consumption of agriculture, fisheries and food products and

Production index (2015 = 100) Consumption per capita index (2015 = 100) Wheat Maize Wheat Vegetable oils Other oilseeds Vegetable oils Beef and veal Pigmeat Beef and veal Pigmeat Poultry meat Sheepmeat Poultry meat Sheepmeat Fresh dairy products Fish 135 115 125 110 115 105 105 100 95 95 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Projections of the world’s population (million) World's population growth index 2015=100

Low variant Medium variant High variant Low variant Medium variant High variant

12000 150 147 10801 132 10000 9725 130 8710 119 8000 110

6000 90

2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 2039 2041 2043 2045 2047 2049 2015 Data source: authors elaboration on information in OECD-FAO Agricultural Outlook 2016–2025. 04 July 2016 and United Nations World Population Prospects, the 2015 Revision: Total Population – Both Sexes Thus, the continuously increasing demand for food products in the world can be stated to encourage the development of agriculture, aquaculture and manufacturing food production in Lithuania.

Trends of the structure of bioeconomy markets As previously mentioned, the decline in Lithuania’s population leads to decreasing future demand in the domestic market. This will stop the growth of bioeconomy’s manufacturing production subsectors, the share of sales in the domestic market of which will remain high. The analysis of the structure of manufacturing industry sales in the domestic and foreign markets by aggregate data of economic activities was conducted using the statistics of sales of industrial products according to 8-digit PRODCOM commodity code and their economic activity types – according to NACE rev. 2 two-digit industry codes. Graphs on the product sales structure presented in Figure 21 revealed the following trends:  Sales of three product groups – food, beverages and paper – in the domestic market account for a greater share of sales, 56.2, 87 and 52,3 percent, respectively (2015). However, in recent years, the share of the domestic market of food and beverages has gradually decreased, with manufacturers increasingly shifting to export markets. So- lely the share of the sales of paper and its products in the internal market has increased.  Export of bio-based chemicals, medicines and pharmaceuticals accounts for the major share of sales – 81 and 94 percent, respectively. Moreover, the share of export of medicines and pharmaceuticals doubled over the past six years, while scopes of export increased a few times. This is the key factor of rapid growth of this sector of bioeconomy.

Figure 21. Structure of the sales of Lithuanian manufacturing industry products by markets

Food products Beverages In domestic market In abroad market In domestic market In abroad market

100% 100%

8.5

8.6

9.4

11.5

11.7

16.0

20.4

21.0

22.0 25.0

80% 80% 25.2

51.2

54.3

55.3

57.3

58.2

58.5

58.9

59.2

59.7 62.1

60% 65.3 60%

91.5

91.4

90.6 88.5 40% 88.3

40% 84.0

79.6

79.0

78.0

75.0 74.8 20%

20% 48.8

45.7

44.7

42.7

41.8

41.5

41.1

40.8

40.3

37.9 34.7 0% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bio-based textiles, apparel and leather Wood and wood products In domestic market In abroad market In domestic market In abroad market 100% 100%

80% 80%

51.2

54.3

55.3

57.3

58.2

58.5

58.9

59.2 59.7

60% 62.1

74.8

74.9

75.1

75.9

76.0 65.3

76.3 76.5

76.8 60%

84.8

85.1 85.8 40% 40% 20%

20% 48.8

45.7

44.7

42.7

41.8

41.5

41.1

40.8

40.3

37.9

34.7

25.2

25.1

24.9

24.0 24.1

23.7

23.5

23.2

15.2 14.9 0% 14.2 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Paper and paper products Bio-based furniture In domestic market In abroad market In domestic market In abroad market 100% 100%

80% 80%

47.6

47.7

48.7

49.5 49.5

50.0

51.0

53.9

55.3

56.4

58.1

58.2

58.3

58.4

61.4

65.2

65.4

65.8 66.5 60% 60% 67.6

40% 40%

52.4 52.3

51.3

50.5 50.5

50.0

50.0 49.0

20% 46.1 20%

44.7

43.6

41.9

41.8

41.7

41.6

38.6 38.6

34.8

34.6

34.2

33.5 32.4 0% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Bio-based chemicals Bio-based pharmaceuticals In domestic market In abroad market In domestic market In abroad market 100% 100%

80% 80%

40.7

42.5

48.2

48.9

52.2

64.6

64.9

65.0

71.3 72.1

60% 72.8 60%

74.6

74.7

75.1

75.8

77.3

78.0

79.3

82.6

85.2 90.6

40% 40% 94.3

59.3

57.5

51.8 51.1

20% 47.8 20%

35.4

35.1

35.0

28.7

27.9

27.2

25.4

25.3 14.8

24.9

24.2

22.7

22.0

9.4

5.7 20.7 0% 0% 17.4 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Data source: authors elaboration on information in Lithuanian Official Statistics Portal (Commodities sold)

 Proportion of export of wood, its products and furniture increased in recent years; in 2015, the export of furniture accounted for 70 percent, while the export of wood and its products – for almost two thirds of sales.  Textile, apparel and leather products have mainly been sold in foreign markets (about three quarters in recent years). However, the share of export has gradually decreased over the past decade.  The share of export of products wholly or partly derived from material of biological origin in sales was determined to be greater in the partly bio-based manufacturing production sector compared to that of other products, which shows that bio-based products are more marketable than those made of fossil resources.

Effects of climate change The impact of climate change on the bioeconomy business will continue increasing due to the past developments and current greenhouse gas (GHG) emissions. Lithuania has underta- ken under the United Nations Framework Convention on Climate Change and the Kyoto Pro- tocol to reduce GHG emissions by 20 percent in 2013–2020 compared to 1990. According to

48 the Paris Agreement on Climate Change (12 December 2015), in 2015, Lithuania along with other EU member states set the goal to reduce GHG emissions in the economy by at least 40 percent by 2030 compared to 199053. According to the data of the national greenhouse gas inventory report, GHG emissions decreased in Lithuania by more than a half compared to 1990, i.e. from 48 to 20 million t of CO2 equivalent. The highest GHG emissions in Lithuania were in the energy sector, where they accounted for 55 percent (11.1 mln. t of CO2 equivalent) of the total greenhouse gas emissions; GHG emissions in agriculture totalled 23 percent (4.6 mln. t of CO2 equivalent), 17 percent – in the industrial and industrial product use sectors (3.4 mln. t of CO2 equivalent) and 5 percent – in the waste sector (1 mln. t of CO2 equivalent) in 2015. The analysis made by sectors and types of economic activities attributed to bioeconomy (Figure 22) revealed that more than a half of GHG emissions (51 percent) were in the biomass production sector, 4 percent – in the wholly bio-based manufacturing production sector and 45 percent – in partly bio-based manufacturing production sector (without eliminating the production from fossil feedstock) in 2014. In terms of the assessment by separate types of economic activity, agriculture emits the most GHG – 50.4 percent (in 2014); emissions in the chemicals industry account for 30.1 percent (with main pollutants being producers of chemical fertilisers) and 14.5 percent – in the waste sector.

Figure 22. Greenhouse gas emissions by Lithuanian bioeconomy sectors

CO2 equivalent (thou. ttonnes; %) Manufacture of pharmaceuticals* CO2 equivalent Fishing and aquaculture (thou. tonnes) Manufacture of textiles, apparel and leather* Fully bio-based Manufacture of furniture and other manufacture* manufacturing sectors; 330; Forestry and logging 4% Manufacture of wood products Manufacture of food, beverages and tobacco Biomass Waste collection, treatment 12 000 production Manufacture of chemicals* sectors; 10 000 Agriculture 4028; 51% 1474 8 000 Partly bio-based 1304 1277 manufacturing 1205 1151 6 000 4850 1434 1395 sectors; 3577; 3134 2916 1914 1788 2174 2388 45% 4 000

2 000 3844 3881 3886 3846 3881 3860 3998 0 2008 2009 2010 2011 2012 2013 2014

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Data source: authors elaboration on information in Eurostat (Air emissions accounts by NACE Rev. 2 activity)

According to the National Greenhouse Gas Inventory Report, the main sources of GHG emissions in the energy sector were the combustion of fuels for energy production and leakage of volatile pollutants. In order to adapt to climate change, the plan is to install various engineering network solutions and switch to alternative less polluting energy source, including biofuels. The decline in GHG emissions in the waste sector is associated with declining population

53 Environmental Protection Agency. 2017. Lithuania’s National Inventory Report 2017: Greenhouse Gas Emissions 1990- 2015. 49 and changing waste management system. Main measures aimed at the reduction of GHG e- missions are related to the aim to avoid waste generation, also to the application of waste prevention measures, while inevitable waste must be prepared for reuse, recycling or other use54. The reduction of GHG emissions in agriculture is associated with the reduction of the number of animals, especially livestock, and improving manure management. However, the intensity of GHG emissions in Lithuania’s agricultural sector remains much higher than the EU average. Main reasons leading to recent increase of GHG emissions in the crop production sector are more intensive soil fertilization using chemical fertilisers and decreasing areas of meadows, pastures and perennial grasses as well as their proportion in the used agricultural land. Intensively cultivated fields under traditional agricultural conditions are potential sources of GHG (organic material is intensively mineralised and biogenic elements are removed with the yield); these processes are offset by fertilization with organic fertilisers or plant residues, which are obtained in abundance from perennial grasses55.

Forecasts for the development of Lithuanian bioeconomy till 2030

Almost all long-term economic forecasts should be treated as certain projections, which help seek goals of the formation of analytical or political measures, rather than attempts to predict the future. The implementation of these projections is very much dependent on the consistency of the development of the indicator being examined, because such sudden changes as economic crises or the establishment of a major factory capable of increasing the value added created in certain branch of economy a few times in ten years are very hard to predict. Three methods were used to prepare Lithuanian bioeconomy development projects: econometric time series analysis, general equilibrium modelling and analysis of its results, and survey of economic entities operating in bioeconomy reflecting bioeconomy business expectations. In the examination of historical data on GVA, the number of employees and export data, the correspondence of their historical distribution to the regression equation was checked. The equation which has the least deviations compared to historical data and satisfies logical criteria was used as the basis for one of projections. Another basis for projections is results of EnEkonLT general economic equilibrium model. Although this model is not aimed at forecasting, it gives a rather good opportunity for analysing inter-sectorial relationships and providing the realistic representation of the development of the national economy. This Study uses the results from the Social and Macroeconomic Impact Assessment of Energy Development Scenarios Proposed by the National Energy Stra- tegy of the Republic of Lithuania as a basis; they are aimed at the IntegracijosAb scenario, which has most of baseline energy development scenario attributes56. In order to adapt the E- nEkonLT model for bioeconomy development projections, certain modifications thereof have

54 Ibidem 55 Žemės ūkio, maisto ūkio ir žuvininkystės sričių išorės ir vidaus rizikos veiksniai, grėsmės ir krizės bei jų galimas poveikis. Mokslinio tyrimo ir taikomosios veiklos projekto (sutartis Nr. MT-15-38) 2016 metų baigiamoji ataskaita. 56 Lekavičius, V. ir kt. (2015). Nacionalinės energetikos strategijos siūlomų energetikos raidos scenarijų socialinio ir makroe- konominio poveikio Lietuvos Respublikoje vertinimas. Lietuvos energetikos institutas, Kaunas. 50 been made. Since the classification of economic activities used by EnEkonLT is more aggregated than the available statistical data on bioenergy development, coefficients reflecting the content of bioeconomy in economic activities modelled by EnEkonLT were set first of all according to the analysis results of the development of Lithuanian bioeconomy (Annex No 2). Since EnEkonLT operates real values only, recalculation system has been prepared using the GDP deflator. Historical data on GDP deflator values were used till 2016, its values according to the economic development scenario prepared by the Ministry of Finance of the Republic of Lithu- ania will be used in 2016–202057, while in later periods, the GDP deflator will be equated to the last value forecasted by the Ministry of Finance of 1.6. The same GDP deflator values are also used to recalculate GDP projections in prices of the current year in the PRIMES model. In order to ensure that projections reflect bioeconomy business expectations, a survey of economic entities was conducted (see question 7 of the survey questionnaire available in Annex No 3). Since economic entities engaged in different activities took part in the survey, averages according to the classification of bioeconomy sectors (biomass production, fully and party bio-based manufacturing) were calculated before calculating the summarised bioeconomy indicators. In forecasts of the GVA created by bioeconomy, its growth is associated with business expectations for the growth of turnover, while their growth averages till 2020, 2025 and 2030 determined by way of survey were used to forecast the number of employees and export volumes. Indicators of the remaining interim years were obtained by way of linear interpolation. Figure 23 illustrates GVA projections in bioeconomy till 2030 according to the methods used and their overall average.

Figure 23. Projections of bioeconomy gross value added in Lithuania

EUR billion 10 Observed 9 Time series EnEkonLT (recalculated to nominal values) 8 According to bio-business expectations (related to the sales) 7 Average projection 6 5 4 3 2 1

2007 2025 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2026 2027 2028 2029 2030

Data source: Authors elaboration

Projections of GVA of bioeconomy prepared in application of all methods are similar and amount to EUR 7.8 – EUR 9.1 billion in 2030, which is 68–95 percent more than in 2014. It should be noted that the applied assumptions on the GDP deflator value affect the forecasts of GVA in nominal expression in EnEkonLT model – the higher the value thereof, the higher will be the value of forecasted value added created in bioeconomy. Figure 24 presents two alternatives of bioeconomy contribution to the country’s GDP development till 2030, which were prepared using the average data of projections of GVA of

57 LR finansų ministerija. 2017. Lietuvos ūkio 2017–2020 metų perspektyvos. Kovas. 51 bioeconomy according to three methods (represented by the solid green curve in Figure 23) and twofold GDP projections of the country according to EnEkonLT model, and the latest data of PRIMES model projections58, which are often used to prepare studies ordered by the European Commission.

Figure 24. Projection of bioeconomy share of GDP in Lithuania

Observed Percent of GDP According to EnEkonLT GDP projection According to PRIMES GDP projection 16 14 12 10 8 6 4 2

2014 2028 2005 2006 2007 2008 2009 2010 2011 2012 2013 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2029 2030

Data source: Authors elaboration

The difference in some GDP projections of bioeconomy GVA is determined by the fact that a very slow growth of Lithuanian economy after 2020 is forecasted according to the PRI- MES model, which is a mere 0.7 percent of the annual growth of the actual GDP compared to 3.3 percent according to the EnEkonLT model (of GDP value in nominal expression, which corresponds to the growth of 2.5 and 5 percent). Compared to the GDP projections according to the PRIMES model, a larger share of bioeconomy in GDP (14.3 percent in 2030) was determined compared to GDP projection according to EnEkonLT model (10.9 percent that same year), as per Figure 24, which means that in the second case, the remaining part of economy will increase faster than the bioeconomy sector. It should be noted that with service economy prevailing in Lithuania just like in other developed countries, the contribution of services to GDP has been continuously increasing and that of production decreasing. The share of the service sector (including trade) in GDP increased from 56.6 to 64.1 percent in 2005–2016, but remained slightly lower than throughout the EU (65.9 percent in 2016). The share of production (excluding construction) in GDP decreased from 26.9 to 22.8 percent in the same period, but remained higher than throughout the EU (18.6 percent in 2016)59. According to the analysis of GVA of bioeconomy, its share in GDP fell slightly in the past decade (see Table 3 of Annex No 2). Projections of employment in bioeconomy have been known by much greater dispersion as per Figure 25. Two projections according to the EnEkonLT model are presented in this case, which were prepared considering the fact that a slightly different consideration of employment than that presented in employment statistics of Statistics Lithuania was used in the model. Thus the EnEkonLT model plans for a lower employment level than the officially published level of

58 Europen Commission. 2016. EU Reference Scenario 2016: energy, transport and GHG emissions Trends to 2050. Europen Commission, July 59 The share attributed to the services sector was calculated according to EVRK2 G-U; the share of manufacturing – according to A and B-E economic activity classifier. 52 employment in agriculture in the baseline period considering the fact that the majority of persons employed in agriculture work part-time60. Data of the baseline period in the EnEkonLT adjusted projection are adjusted to meet the official statistics, while further development thereof is proportionately reflected in the modelling of trends.

Figure 25. Projections employment in bioeconomy in Lithuania

Persons employed (thousands) Observed Logartithmic regression EnEkonLT (with corrections) 400 EnEkonLT (without corrections) 350 Survey 300 250 200 150 100 50

2007 2026 2005 2006 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2027 2028 2029 2030

Data source: Authors elaboration

Projections of persons employed in bioeconomy have some contradictions. On one hand, the projection based on business expectations having participated in the survey shows a certain increase in the number of employees to 305 thousand. The survey of business entities revealed the expectations of growing development of bioeconomy business and respectively increasing number of employees in companies (see Figure 27), while business representatives having taken part in the survey on economy identified emigration and aging population of Lithuania as the biggest threats to business. In their opinion, the threat of these factors posed to the bioeconomy business will increase (see Figure 14). On the other hand, projections based on other methods (i.e. dynamic modelling of general equilibrium and econometric time series analysis) forecast a consistent decrease of the number of people working in bioeconomy. According to the projections, the number of people working in bioeconomy may be 153–209 thousand in 2030 compared to 234.4 thousand in 2015. These projections are first of all associated with the general demographic projections in Lithuania, i.e. significant decrease of working-age population during the same period61 and increasing labour productivity in bioeconomy (see Figure 3). Figure 26 presents the projections of bioeconomy products export. The projection of exports prepared on the basis of bioeconomy business expectations (see Figure 27) is more conservative than the results of the linear regression and EnEkonLT model. In presence of a longer forecasting period, business representatives having taken part in the survey tended to assess the growth of exports associated with greater uncertainly more conservatively than the growth of sales in the domestic market. All projections show a consistent growth of exports of

60 Statistics Lithuanian. 2015. Results of the Farm Structure Survey 2013 in Lithuania. Vilnius. 61 According to the Eurostat population forecast, the working population (20-64 years of age) in Lithuania will decrease by 26.7 percent or by 27 percent in the 15-64 age group. According to the Eurostat population forecast, the working population (20-64 years of age) in Lithuania will decrease by 26.7 percent over the years 2016-2030, while the general population decline forecast stands at 16.5 percent. It should be noted that the population forecast encompasses both the natural population dynamic and emigration and immigration. 53 the bioeconomy sector till 2030: it will grow to EUR 13.9 billion according to business expectations, and to EUR 18.1 and 21.1 billion according to EnEkonLT model and linear regression results compared to the export value of EUR 9.9 billion in 2016.

Figure 26. Projections of bioeconomy products export in Lithuania

EUR billion Observed Linear regression 25 EnEkonLT According to bio-business expectations (related to the sales) 20

2017 2030 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2005 Data source: Authors elaboration

Projections of macro-economic indicators drawn up in this survey in three different methods show that the growth of the Lithuanian bioeconomy is likely in the long term:  the GVA may increase to EUR 7.8 – 9.1 billion by 2030, which is 68–95 percent more than in 2014 (EUR 4.7 billion);  the contribution of bioeconomy to Lithuanian GDP in the future may depend on the expected growth rates of the national economy (including types of economic activities that are not attributable to bioeconomy, especially the service sector. According to forecasts, the share of bioeconomy value added in Lithuanian GDP may be 10.9– 14.3 percent in 2030 compared to 12.8 percent in 2014;  projections of employment in bioeconomy have some contradictions, i.e. according to expectations of the bioeconomy business, the number of employees may increase to 30 thousand in 2030, while according to projections drafted according to the dynamic general equilibrium modelling and econometric time series analysis, it may decrease to 153–209 thousand compared to 234.4 thousand in 2015;  forecasts of the development of exports of the bioeconomy sector have shown a consistent growth of exports from EUR 13.9 to 21.1 billion in 2030 compared to EUR 9.9 billion in 2016.

Identification of Lithuanian economic activities attributable to bioeconomy that have the greatest potential

The assessment of the potential of the Lithuanian bioeconomy subsectors perceived as an opportunity or a degree of capacity is based on the following main criteria:  the current level of bioeconomy subsectors and growth trends under the current market conditions. Indicators as the turnover and its growth, labour productivity level

and its growth, and growth of exports and the number of employees are used in the assessment (Table 2 in Annex No 2 presents aggregate results);  trends of growth of bioeconomy sectors based on business expectations till 2030. Indicators of activities of companies engaged in bioeconomy business and farms having taken part in the survey, such as sales in domestic and foreign markets, tangible investments, the number of employees and expenditure on R&D, aggregated by sectors of bioeconomy were used (data are presented in Figure 27);  global forecasts for the food sector (agriculture, fisheries and food products) and biofuel production (data are presented in Table 2 of Annex No 2) and other trends;  policy priorities and provisions laid down in subsectors 3.1 and 5.1.

Potential of bioeconomy subsectors under the current market conditions Manufacture of food, beverages and tobacco is a large fully bio-based manufacturing sector of medium productivity level growing at an average rate. This is the largest bioeconomy sub-sector in Lithuania with the average level of growth of turnover, labour productivity and exports, the largest share in turnover (5.6 percent) and GDP (3.5 percent). Biotechnology techniques and processes are used in certain industries of food production. Turnover: EUR 4575.8 mill. (2015) Average annual turnover growth: +5.6% (2010-2015) Average annual export growth: +6.4% (2010-2016) Average labour productivity growth: +5% (2010-2014) Average annual employee growth: +0.5% (2010-2015) Export share in sales of products: 44% (2016)

Agriculture is a large biomass production sector of very low productivity growing at an average rate. This is the second largest subsector of Lithuanian bioeconomy with an average growth of turnover and labour productivity but low export growth. Agriculture is the second largest subsector in terms of the share in GDP (3.1 percent). Lithuania has about 450 thousand ha (about 14 percent) of abandoned agricultural land. Slow global growth of the production of agricultural products compared to much more rapid growth of demand of food products and increasing competition due to the increasing demand of biomass for food, feed production, bioenergy and industrial purposes has been forecasted. Turnover: EUR 2664.1 mill. (2015) Average annual turnover growth: +7.3% (2010-2015) Average annual export growth: +3.9% (2010-2016) Average annual labour productivity growth: +8.9% (2010-2014) Average annual employee growth: +1.1% (2010-2015) Export share in sales of products: n.d. (2016)

Manufacture of furniture is a medium-sized rapidly growing partly bio-based manufacturing subsector of medium-high productivity level. This is the third largest subsector of Lithu- anian bioeconomy with a rapidly growing turnover and labour productivity, gradually increasing share of export and appeal to foreign investors. It can be distinguished for an average increase of the number of employees, and takes up a small part in turnover (1.5 percent) and GDP (1.4 percent). Turnover: EUR 112.3 mill. (2015) Average annual turnover growth: +11.6% (2010-2015) Average annual export growth: +8.6% (2010-2016) Average annual labour productivity growth: +11.8% (2010-2014) Average annual employee growth: +4.1% (2010-2015) 55

Export share in sales of products: 68% (2016)

Manufacture of wood and its products is a medium-sized fully bio-based manufacturing sub-sector of low productivity. This is the fourth largest subsector of Lithuanian bioeconomy with an average growth of turnover, but rapid increase of labour productivity and exports, and a gradually increasing share of exports, which is appealing to foreign investors. It accounts for a small share in turnover and GDP (1.4 percent in each). Turnover: EUR 1081.5 mill. (2015) Average annual turnover growth: +8.4% (2010-2015) Average annual export growth: +11% (2010-2016) Average annual labour productivity growth: +10.4% (2010-2014) Average annual employee growth: -1.8% (2010-2015) Export share in sales of products: 62% (2016)

Bio-based manufacture of textile, apparel and leather products is a medium-sized, slowly growing party bio-based manufacturing sector of low productivity. This is the fifth largest subsector of Lithuanian bioeconomy, which is essentially targeted at the foreign market. It accounts for a small share in turnover and GDP (1.1 percent in each). It can be characterised by a slow growth of turnover and export, low labour productivity, gradually increasing share of exports; it remains appealing to foreign investors due to the advantage provided by its relatively low cost of labour force, which has been decreasing with the growing cost of labour in Lithua- nia. Turnover: EUR 815.2 mill. (2015) Average annual turnover growth: +4.5% (2010-2015) Average annual export growth: +2.6% (2010-2016) Average annual labour productivity growth: +13.9% (2010-2014) Average annual employee growth: -5% (2010-2015) Export share in sales of products: 74% (2016)

Manufacture of paper and paper products is a small fully bio-based subsector growing at an average rate, with medium-high productivity. This is the sixth largest subsector of Lithu- anian bioeconomy, which is essentially targeted at the domestic market. It can be characterised by an average increase of turnover and productivity. More than a half of produce of the subsector is used in the domestic market. It accounts for a very small share in turnover and GDP (0.5 percent in each). Turnover: EUR 412.5 mill. (2015) Average annual turnover growth: +11.7% (2010-2015) Average annual export growth: +0.3% (2010-2016) Average annual labour productivity growth: +5.8% (2010-2014) Average annual employee growth: +7.1% (2010-2015) Export share in sales of products: 48% (2016) Forestry and logging is a small low-productivity biomass production sector growing at an average rate. This is the seventh largest subsector of Lithuanian bioeconomy, which can be distinguished for low labour productivity and its decreasing rate over the past mid-term period. It accounts for a very small share in turnover and GDP (0.5 percent in each). Forest biomass (firewood and wood waste) in the Lithuanian bioenergy is the main resource the majority of which is burnt. Turnover: EUR 400.2 mill. (2015) Average annual turnover growth: +10.2% (2010-2015) Average annual export growth: -2.1% (2010-2016) Average annual labour productivity growth: -4.5% (2010-2014) Average annual employee growth: +11.6% (2010-2015) 56

Export share in sales of products: n.d. (2016)

Manufacture of bio-based pharmaceuticals is a very small, very rapidly developing, highly productive, knowledge-intensive partly bio-based manufacturing subsector. This is the eighth largest subsector of Lithuanian bioeconomy distinguished for its high labour productivity and a very rapid increase of exports. It is the Lithuanian bioeconomy subsector which is targeted at the foreign market the most. This is a high technology area using industrial biotechnology and creating high value added. On the other hand, this subsector accounts for a very small share in turnover (0.3 percent) and GDP (0.4 percent), thus its rapid development will have no significant impact on the development of Lithuanian bioeconomy. Turnover: EUR 217.4 mill. (2015) Average annual turnover growth: +24.2% (2010-2015) Average annual export growth: +21.5% (2010-2016) Average annual labour productivity growth: +14.7% (2010-2014) Average annual employee growth: -12.9% (2010-2015) Export share in sales of products: 94% (2016)

Manufacture of bio-based chemicals is a very small high productivity level party bio- based subsector experiencing negative growth. This is the ninth subsector of Lithuanian bioeconomy in terms of size, and it accounts for a very small share in turnover (0.2 percent) and GDP (0.3 percent). This is a medium-high technology bioeconomy subsector using industrial biotechnology and creating high value added. It has been known for decreasing turnover and export in the last mid-term period as well as static labour productivity, which came as a result of decreased production of bio-diesel and bioethanol since 2014 for the changed EU biofuel production policy. However, the production and sales of enzymes has increased very rapidly. Turnover: EUR 200.4 mill. (2015) Average annual turnover growth: -4% (2010-2015) Average annual export growth: -2.5% (2010-2016) Average annual labour productivity growth: +0.5% (2010-2014) Average annual employee growth: -7.5% (2010-2015) Export share in sales of products: 83% (2016)

Fishing and aquaculture is a very small biomass production subsector with an average growth rate and average productivity. This is the smallest subsector of Lithuanian bioeconomy. It accounts for a minor share in turnover and GDP (a mere 0.1 percent in each). This is the subsector of Lithuanian bioeconomy, which has lately been distinguished for its very rapid increase of labour productivity and average growth of turnover and export. There is no commercial fishing is inland waters. Almost 90 percent of aquaculture production is raised in open aquaculture systems – ponds, pools and canals –, and the remaining small share – in closed aquaculture systems (CAS). Turnover: EUR 71.5 mill. (2015) Average annual turnover growth: +7.6% (2010-2015) Average annual export growth: +7.9% (2010-2016) Average annual labour productivity growth: +24.1% (2010-2014) Average annual employee growth: -4.6% (2010-2015) Export share in sales of products: n.d. (2016)

The share of bioenergy sector in the primary energy production of Lithuania has lately accounted for almost three fourths, 64 percent of which is wood waste designated for firewood

57 and fuel, about 5 percent – for biodiesel, almost 2 percent – for biogas and less than a percent – for the remaining types of biofuel. Production of biodiesel and bioethanol has been decreasing since 2014 due to the changed EU biofuels production policy, but the production of biogas from agricultural waste and sewage sludge has rapidly decreased, and the use of biodegradable landfill waste in the production of biogas has experienced a slow growth. Biotechnology sector is a very small very rapidly growing knowledge and R&D intensive sector with high productivity. According to the analysis of aggregated statistical data of companies included in the survey, the development of this sector has been very rapid in the past decade. Moreover, active involvement of business in biotechnology R&D has increased significantly over this period and has become one of the growth leaders in the past decade. The number of business companies involved in biotechnology R&D activities has increased 8 times. Turnover of these companies increased 32.6 times, while its share in the overall business R&D turnover grew to 32 percent. The number of biotechnology R&D employees increased 7.3 times. It should be noted that labour productivity of biotechnology R&D employees increased nine times and is higher by almost a third compared to the average in the overall business sector R&D activities, which shows that the potential for the development and implementation of new bio-innovations has increased.

Trends of development of bioeconomy business based on business expectations Data presented in Figure 27 aggregated by sectors of bioeconomy and types of activities reveal the trends of the development of bioeconomy based on business expectations till 2030. The data were collected by way of a quantitative survey of business entities answering question seven of the questionnaire (description of the survey is available in Annex 3 to the Study). The respondents were asked to make strategic assessments of the change of performance indicators of the company in the short, medium and long term (till 2020, 2025 and 2030, respectively) compared to the current situation according to performance results of 2016. The survey results showed likely trends of growth of sectors of bioeconomy. The greatest growth potential according to all performance indicators of companies included in the forecast was determined in the bio-based subsector of chemicals and pharmaceuticals till 2030. The likely increase of tangible investments, sales, the number of employees and expenditure in R&D in this subsector is a few times greater than in other subsectors of bioeconomy. Moreover, the fastest growth in productivity of the sector is also associated with much higher expectations for investments in R&D and attraction of qualified employees. It should be noted that the trends determined on the basis of statistical data show the greatest growth potential in the pharmaceuticals industry. Much lower expectations for business growth till 2030 were found in other analysed manufacturing bioeconomy subsectors. Compared to the subsector of the manufacture of chemicals and pharmaceuticals, expectations for the growth of tangible investments in the food sector and manufacture of textiles, apparel and leather are up to 3 times lower, investment in R&D – up to 4 times lower and the number of employees – up to 2 times lower. In terms of those same indicators, the lowest business growth expectations were observed in the forest biomass-based sector, i.e. forestry, production of wood, furniture and paper. Very low expectations for the growth of tangible investments and the number of employees have been observed in these sectors.

Figure 27. Trends of firm performance indicators according to bio-business expectation in short, medium and log run

Food sector: change (±%) 10 Number of qualified employees 7 2016–2030 Number of employees 13 2016–2025 8 2016–2020 14 R&D expenses 6 28 Matirials investments 24 32 Sales in abroad market 17 27 Sales in domestic market 9 0 20 40 60 80 100 120 140 Forestry and manufacture of wood, paper and bio-based furniture: change (±%) 2 Number of qualified employees 9 2016–2030 1 2016–2025 Number of employees 29 6 2016–2020 R&D expenses 1 3 Matirials investments -2 23 Sales in abroad market 19 31 Sales in domestic market 31 -20 0 20 40 60 80 100 120 140 Manufacture of bio-based textiles and apparel, and leather: change (±%) 7 Number of qualified employees 6 2016–2030 13 Number of employees 8 2016–2025 10 2016–2020 R&D expenses 4 34 Matirials investments 14 26 Sales in abroad market 10 23 Sales in domestic market 8 0 20 40 60 80 100 120 140 Manufacture of bio-based chemicals pharmaceuticals: change (±%) 26 Number of qualified employees 30 2016–2030 24 Number of employees 30 2016–2025 44 2016–2020 R&D expenses 32 90 Matirials investments 45 10 Sales in abroad market 14 129 Sales in domestic market 47 0 20 40 60 80 100 120 140 Biowaste treatment: change (±%) 9 Number of qualified employees 5 2016–2030 4 Number of employees 5 2016–2025 8 R&D expenses 5 2016–2020 21 Matirials investments 16 4 Sales in abroad market 1 16 Sales in domestic market 11 0 20 40 60 80 100 120 140 Source: data of the survey of business enterprises (n=102)

Companies engaged in biowaste management were also included in the survey. Accor- ding to all corporate indicators included in the forecast, growth expectations in the waste sector are much lower than in the chemicals and pharmaceuticals subsector; they also fall behind those in subsectors of manufacture of textiles, apparel and leather products. Solely the expectations for the growth in the demand for skilled employees in the biowaste management business are greater than in the manufacture of textiles, apparel and leather products. The trends of growth of bioeconomy sectors determined on the basis of business expectations can be said to reflect the said trends identified on the basis of statistical data. In both cases, the fastest growth potential was determined in bio-based pharmaceuticals industry.

The greatest potential for the development of sectors of bioeconomy

Food sector The food sector is the largest share of Lithuanian bioeconomy, just like in the majority of other EU member states. Food industry (including manufacture of beverages) and agriculture are the largest subsectors of Lithuanian bioeconomy, which can be characterised by average growth rate over the past mid-term period. Fishing and aquaculture is a very small part of the food sector, also developing at an average rate. The strategic principle of bioeconomy of the priority of supply with food ensures the priority of the food sector in bioeconomy. The priority of agriculture and fisheries is also determined by the principle of combination of the supply with food with sustainable use of renewable energy sources for industrial (including energy) purposes and assurance of environmental protection. The development of the Lithuanian food sector has also been encouraged by rapidly increasing food demand in the world as a result of rapid growth of population and their purchasing power. As previously mentioned, food demand has been forecasted to increase by about 50 percent by 2050, and the total demand for food and feed – to 70 percent. The following are the forecasts of FAO and OECD for the growth of production of agricultural and food products till 2025 compared to 2015: wheat – 9.4 percent, corn – 15 percent, oilseed crops – 23.3 percent, raw milk – 20 percent, fresh dairy products – 24.6 percent, butter – 19.1 percent, cheese – 15 percent, whole milk powder – 24.9 percent, sheep meat – 21.6 percent, poultry – 16.2 percent, beef – 14.7 percent and pork – 11.3 percent. Two opportunities increase the potential of the production of biomass in agriculture, namely, suitable abandoned agricultural land should be included in production, and agricultural production should be sustainably intensified in order to increase the productivity of agriculture. On the other hand, the increasing problem of soil degradation, especially in territories of productive land, must be solved (see subsection 2.2.3). The forecasted62 rapid increase of demand for fish and other aquatic products in the world increased the potential of the development of aquaculture in Lithuania; aquaculture will help meet this demand, because by 2025, fish catch will decrease, while the production of aquaculture products will increase by 34.2 percent compared to 2015. Moreover, controlling the quality of fish resources in open water has become increasingly difficult. The development of aquaculture in Lithuania is associated with the increase of quantities of valuable species of fish in ponds and the farming of fish in closed systems, which has been rapidly developed in the world and is much simpler compared to pond aquaculture.

Forest bio-based sector The forest bio-based sector (forestry and logging, production of wood, paper and furniture) is the second largest sector of Lithuanian bioeconomy. In the utilization of forests, wood resources are used first of all. The priority of the forestry subsector is determined by the principle of combining the supply with food with sustainable use of renewable energy sources for industrial (including energy) purposes and the assurance of environmental protection. The total volume of wood has constantly increased in Lithuania. About 80 percent of all biomass are found in forests. In 2016, the forest area covered 2186.7 thousand ha and accounted for 33.5 percent of the territory of the country. Since 2003 this area has increased by 141.5 thousand ha. Farmed forests make up 71.4 percent. The use of forest biomass is limited by

62 FAO. 2016.The State of World Fisheries and Aquaculture 2016. Contributing to food security and nutrition for all. Rome. 60 environmental goals prohibiting or limiting economic activities: preserved forests make up 12 percent, special purpose forests – 12.2 percent and protective forests – 15.2 percent of the forest area. Since the need for wood biomass has increased, the forest area has a potential for expansion by afforestation of abandoned agricultural land and other land unsuitable for agriculture. Forests perform many ecosystem functions: they help protect the soil, form a part of the water cycle, regulate climate and are important in the implementation of the EU climate goals first of all by accumulating coal. Since forests are habitats of many species, they also protect biodiversity. Non-wood products, such as food, cork, gum and oil, are also derived from forests. Forests are also a source of various services (such as hunting, tourism and others), which increases the significance of forestry in the Lithuanian bioeconomy. The majority of wood resources in Lithuania are used traditionally, i.e. in manufacture of wood, its products and furniture, also as biofuel in energy. Bio-based manufacture of furniture is the third medium-sized subsector of bioeconomy characterised by a rapid growth of turnover and labour productivity, gradually increasing the share of exports and appeal to foreign investors. Manufacture of wood and its products is the fourth largest subsector of bioeconomy, which is of medium size but low productivity. The contribution of wood waste for firewood and fuel to the production of primary energy of Lithuania accounted for almost two thirds in recent years, however, low value added chips intended for the domestic market with a low growth potential have been produced for the most part. In order to increase the contribution of forest bio-based sector to Lithuanian bioeconomy and enhance its competitiveness, promoting sustainable use of forest biomass (including logging and wood industry biowaste) and producing higher value added industrial products, bio-chemicals (including second and third generation biofuels) and bioplastics, bio-based textile products, etc. is necessary.

Bioenergy sector The potential of the development of the bioenergy sector has been increased by the EU provision that bioenergy will remain the main renewable energy source in the pursuit of climate and energy goals of 2020–2030. Bioenergy is a very flexible low carbon dioxide content and renewable energy form, because it can be used in the production of electricity and heat and in transport. Bioenergy provides significant benefit in the areas of energy security, growth and creation of jobs, especially in rural areas, technologic innovation, environmental and climate protection. On the other hand, despite its many positive aspects, the risk of sustainability associated with its production and use raises concern. The European Commission has done a comprehensive analytical work on issues of availability of biomass, carbon dioxide efficiency and competitiveness for biomass resources63. In order to reduce adverse effect of the production of traditional biofuels on the balance of food products and greenhouse gas emissions, the proposal has been made to limit the production of first generation biofuels from rape and cereal grain, replacing a part of them with advanced biofuels made of agricultural and wood waste, and algae. Due to its attractive price sufficient amount of local resources and low GHG emissions, bioenergy resources should remain the principal fuel in Lithuanian district heating systems. This has a potential for increase, even though it is limited. More than 64 percent of heat was produced in the Lithuanian DH sector in 2016, when in 2014 natural gas was the principal fuel in the heat production structure of district heating.

63 10 Newsletter Bioeconomy Stakeholders Panel. Brussels, June 2016. 61

The changed EU biofuel production policy led to decreased production of biodiesel and bioethanol in Lithuania since 2015. In order to reduce adverse impact of the production of first generation biofuels (made of rape and cereal) on the balance of food products and greenhouse gas emissions, the transition to the production of advanced second generation biofuels from agricultural and wood waste, and algae is necessary. The potential of the production of biogas from agricultural and food industry waste and biodegradable municipal waste has been poorly exploited in Lithuania, even though lately the production of biogas from agricultural waste and sewage sludge has increased. Poor use of agricultural and food industry waste, biodegradable municipal and food waste in the production of biogas increases the potential of biogas production from such waste. In the future the development of bioenergy will continue to be dependent not only on such objective actions as mutual competition of energy technologies, but also legislative requirements reflecting political will and the planned scopes of support. For example, the adoption of a strategic provision for achieving a rapid increase of the share of energy derived from renewable energy sources in the total final energy consumption and acting in observance therewith; this would affect not only heat production from biomass, which has already been developed sufficiently well, but would also speed up changes in the transport sector. On the other hand, requirements related to GHG emissions or development of renewable sources affect not only the bioenergy, but also other types of renewable sources, – solar or wind energy.

Sector of manufacture of bio-based chemicals and bio-based pharmaceutical products Currently, the contribution of manufacture of bio-based chemicals and bio-based pharmaceutical products using bio resources and biotechnology into the Lithuanian bioeconomy is poor. It creates almost 4 percent of the GVA of bioeconomy, while its contribution to the country’s GDP is a mere half percent. However, the projections of the development of bioeconomy business based on business expectations till 2030 show the greatest potential of growth of this subsector. Here the likely increase of tangible investments, sales, the number of employees and R&D expenditure is a few times greater than in other sectors of bioeconomy. More- over, most rapid increase of productivity of this subsector is associated with much greater expectations for attracting investments in R&D and qualified employees. It should be noted that rapid growth trends since 2010 determined by way of a statistical analysis also show the greatest growth potential in the pharmaceuticals industry. The rapidly growing biotechnology sector is one of the main driving forces of this potential of manufacture of pharmaceutical products and chemicals. The biotechnology sector rapidly developing in Lithuania covers the areas of research and applied activities, health diagnostics, production of pharmaceutical preparations, biochemical and food industry. According to the European Commission’s policy on industrial revival, biotechnology as one of the main most advanced areas of technology, and bioproducts derived in application thereof are two of six priority axes for promoting investment in innovation and new technology. Biotechnology is one of the most promising new pollution prevention, resource preservation and cost reduction methods. OECD analysed the cases of application of industrial biotechnology in sectors of manufacture of chemicals and plastics, food processing, textiles, pulp and paper, and the energy sector. Research has shown that biotechnology may reduce not only cost, but also adverse environmental effects. In certain cases, costs of capital and operations decreased by 10-50 percent, while consumption of energy and water decreased by 10 – 80 percent, and

62 the use of petrochemical solvents – by 90 percent, or was eliminated altogether. Industrial biotechnology allowed creating new products, the properties, price and environmental efficiency whereof cannot be achieved using usual chemical processes or fossil raw materials64. Thus its application in various sectors of bioeconomy could become the cornerstone driving force of the development of Lithuanian bioeconomy – it would increase productivity, reduce adverse environmental effects and allow for a more sustainable use of renewable energy sources, especially in light of the fact that Lithuania has sufficient resources necessary for the development of the biotechnology sector – a sufficient number of highly qualified specialists-biotechnologies is trained in Lithuania each year, also producing large amounts of biomass65. The transition of PET production companies operating in Lithuania to the production of bioplastics from renewable raw materials (bioPET) could be another driving force of increasing potential of bio-based chemicals industry. These companies produce about 550 thousand tonnes of primary PET plastics, which accounts for almost 20 percent of the entire amount in the EU. Access to local biomass resources at a stable and acceptable price must be ensured in Lithuania for the production of bioplastics to stay competitive with countries that have more favourable conditions for business development, for example, Asia, which plans to produce more than 45 percent of all bioplastics in the world in 2021. According to forecasts of key industrial areas of Lithuania of Euromonitor International66, the chemicals industry will remain one of the most promising areas of production in 2017–2025, while the production of plastics will remain the largest chemical industry in Lithuania. The increasing popularity of plastic packaging and plastic components in main industries, such as food industry, cars, furniture or transport, will have a positive effect on the production of plastics, while demand should increase in both local and export markets.

64 Primer, S. A. 2001. The application of biotechnology to industrial sustainability–a primer. OECD. 65 Interview of representatives of business associations 66 http://blog.euromonitor.com/2017/01/kurios-lietuvos-pramones-ir-paslaugu-sritys-bus-svarbiausios-2025-metais.html

3. Analysis of the impact of legal environment on the development of bioeconomy in Lithuania

3.1. Legal regulation of bioeconomy in Lithuania

In order to determine the impact of the legal environment on the development of bioe-conomy in Lithuania, 20 legal acts of the Republic of Lithuania controlling and regulating the area of bioeconomy were analysed, also conducting their content analysis. The content a- naly-sis was performed in application of the principle of the formation of a matrix, when types of economic activities attributable to bioeconomy were identified according to the legal acts, in-cluding: agriculture, forestry, fisheries, food production, manufacture of wood, pulp and paper products, also bio-based manufacture of textiles, apparel and leather products, chemicals and pharmaceuticals, manufacture of furniture, waste management and recycling, areas of biotechnology and energy. These are vertical matrix elements. Bioeconomy-related structural el-ements, such as strategic goals and tasks, priority measures and directions, the action plan, innovations, factors and opportunities presented in documents were systemised horizontally. Detailed results of the analysis of the content of legal acts are available in Annex 8, while the document context matrix by types of economic activities and structural content elements is presented in Table 9. The document analysis revealed that legal acts of the Republic of Lithuania focus the most on forestry and energy associated with the use of as solid fuel. The following is planned in the forestry industry:  to assure sustainable development of competitive forestry activities;  to increase forest coverage in Lithuania, increasing the productivity of forests and afforesting unused lands or lands that are not suitable for agriculture;  to assure rational use of forest resources and to supply industry of the country with raw materials;  to use forests of state importance to the extent this is necessary for local wood industry and to pursue that the export of unprocessed raw materials was fully replaced with export of processed raw materials and products creating higher value added and jobs in Lithuania. Forestry industry is closely related to energy industry, because legal acts plan for expanding the extent of the use of logging waste in biofuel production. The production of biofuels in the energy industry is closely related to both forestry and agriculture. Legal acts of the Republic of Lithuania provide for the following:  expanding the use of biofuels in energy and transport, allowing reducing the use of fossil fuels, air pollution directly related thereto and greenhouse gas emissions;  promoting sustainable production and use of biofuels of 2nd and 3rd generation;  limiting the amount of greenhouse gas emissions and promoting the use of biogas and other forms of energy produced from waste. Gas, biomass, biogas, biowaste containing energy value and peat are the main energy sources, which may be used to produce heat and supply it to consumers;

Table 9. Legal acts of the Republic of Lithuania, structural elements and actions related to bioeconomy

Structural elements of the content of Lithuanian legal acts by areas of economic activities attributable to bioeconomy No. Legal acts Strategic goals Priority measures Bioeconomy Action plan Innovation Opportunities and tasks and directions factors Forestry Forestry Law on Agriculture, Food Industry and Rural Development of the Republic Agriculture Agriculture 1. of Lithuania. 01-07-2008, No 81-3174. Consolidated version, 01 01 2017 Manufacture of Manufacture of Vilnius food products food products Law on Forests of the Republic of Lithuania. 25 04 2001. No. 35-1161. Con- 2. Forestry solidated version, 27 04 2017. Vilnius Biotechnology Biotechnology Biotechnology National Progress Strategy “Lithuania’s Progress Strategy Lithuania 2030” Agriculture Agriculture Agriculture 3. approved by Resolution No XI-2015 of the Seimas of the Republic of Lithu- Forestry Forestry Forestry ania of 15 May 2012 Fisheries Fisheries Fisheries Forestry Resolution of the Seimas of the Republic of Lithuania “On the Approval of Forestry Forestry Energy 4. the National Strategy for Climate Change Management Policy” No XI-2375 Energy Energy Waste manage- of 6 November 2012, Vilnius Waste treatment Waste treatment ment Resolution of the Seimas of the Republic of Lithuania “On the Approval of Biotechnology 5. the Lithuanian Innovation Development Programme 2014-2020” No. 1281

of 18 December 2013, Vilnius Biotechnology; Biotechnology; Biotechnology; Resolution of the Seimas of the Republic of Lithuania “On the Approval of Manufacture of Manufacture of Manufacture of the Programme on the Implementation of the Priority Areas of Research and chemicals; Ma- chemicals; Ma- chemicals; Ma- 6. Experimental (Socio-cultural) Development and Innovation (Smart Specia- nufacture of food nufacture of food nufacture of food lization)” No 411 of 30 April 2014, Vilnius products; Energy; products; Energy; products; Energy; Waste treatment Waste treatment Waste treatment Biotechnology; Biotechnology; Biotechnology; Resolution of the Government of the Republic of Lithuania “On the Lithua- Manufacture of Manufacture of Manufacture of 7. nian Convergence Programme for 2011 and the National Reforms Agenda” chemicals; Agri- chemicals; Agri- chemicals; Agri- No 491 of 27 April 2011, Vilnius culture; Energy; culture; Energy culture; Energy; Use of waste Use of waste Use of waste Resolution of the Government of the Republic of Lithuania “On the Appro- 8. val of the National Progress Programme 2014–2020” No 1482 of 28 Novem- Energy Energy Energy ber 2012, Vilnius Resolution of the Government of the Republic of Lithuania “On the Appro- val of the Programme for the Development of State Studies, Research and Sustainable deve- Sustainable deve- 9. Experimental (Socio-cultural) Development 2013–2020” No 1494 of 5 De- lopment lopment cember 2012, Vilnius Resolution of the Government of the Republic of Lithuania “On the Ap- Energy Energy 10. proval and Implementation of the National Sustainable Development Strat- Energy Waste treatment Waste treatment egy” No 1160 of 11 September 2003, Vilnius. Waste treatment

Resolution of the Government of the Republic of Lithuania “On the Ap- 11. proval of the National Forestry Development Programme 2012–2020” No Forestry 569 of 23 May 2012, Vilnius Resolution of the Government of the Republic of Lithuania “On the Ap- Waste treatment Waste treatment 12. proval of the National Waste Management Plan 2014–2020” No 519 of 13 Manufacture of Manufacture of April 2002, Vilnius food products food products Resolution of the Government of the Republic of Lithuania “On the Ap- Energy Energy Energy 13. proval of the Programme for Promoting Investment and Industrial Develop- Biotechnology Biotechnology Biotechnology ment 2014–2020” No. 986 of 17 September 2014, Vilnius Waste processing Waste processing Waste processing Manufacture of wood; Energy; Resolution of the Seimas of the Republic of Lithuania “On the Programme Agriculture; 14. of Government of the Republic of Lithuania” No. XIII-82 of 13 December Manufacture of 2016, Vilnius food products; Circular economy; Waste treatment Order of the Ministry of Education and Science of the Republic of Lithuania Biotechnology Biotechnology and Ministry of Economy of the Republic of Lithuania “On the Approval of Manufacture of Manufacture of 15. Priority Action Plans for the Direction “Health Technologies and Biotechno- chemicals chemicals logy” of Research, Experimental (Socio-cultural) Development and Innova-

tion (Smart Specialization)” No V-422/4-293 of 30 April 2015,Vilnius Law on Heat Sector of the Republic of Lithuania No IX-1565 of 20 May Energy Energy 16. 2003, Vilnius Use of waste Use of waste Resolution of the Government of the Republic of Lithuania “On the Ap- Energy Energy Energy 17. proval of the National Heat Sector Development Programme 2015–2021” Use of waste Use of waste Use of waste No. 284 of 18 March 2015, Vilnius Programme for the Development of Renewable Energy Sources in District Energy Energy 18. Heating Systems of Lithuania, June 2010, Vilnius Use of waste Use of waste Law on Fisheries of the Republic of Lithuania No VIII-1756 of 27 June 2000, 19. Fisheries Vilnius Resolution of the Government of the Republic of Lithuania “On the Appro- Circular eco- 20. val of the Implementation Plan of the Programme of the Government of the nomy Republic of Lithuania”, No 167 of 13 March 2017, Vilnius Waste treatment Law on Energy from Renewable Sources of the Republic of Lithuania. 12 Energy Energy 21. May 2011, No XI-1375, Vilnius. Use of waste Use of waste Order of the Ministry of Economy of the Republic of Lithuania “On Gui- All bioeconomy 22. dance for Public Authorities on Public Procurement of Innovation appro- sectors val“, No 4-938 of 29 December 2014, Vilnius Decree No 709 of the Government of the Republic of Lithuania of 1 July All bioeconomy 23. 2015 on the Approval of the Procedures for Pre-commercial Procurement sectors Resolution of the Government of the Republic of Lithuania “On the Natio- All bioeconomy 24. nal Green Procurement implementation programme approval”, No 804 of 8 sectors August 2007, Vilnius

 substantiating the expedience of the development of biofuel cogeneration not only with financial goals of companies, but also with environmental protection, because its use in replacement of fossil fuel is the most efficient CO2 pollution mitigation measure;  promoting the use of biologic fuel and production of electricity and heat in combined heat and power plants by giving economic incentives therefor, and setting pollution norms for facilities using biofuels;  giving priority to renewable energy sources, applying biofuel tax exemptions, com- pensatory tariffs for the purchase of electricity and heat and allowances for balancing electricity. Agriculture and food industries receive less attention, while fragmented attention is devoted to the industries of fisheries, wood, pulp and paper, and chemical products. Agricultural industry is closely related to food production. Legal acts of the Republic of Lithuania provide for the following:  creating conditions for competitive and efficient agriculture and food sectors, development of export, thus increasing revenues from agriculture and alternative activities, and ensuring improving standard of living of rural residents;  supporting sustainable and balanced farming and the development of fully fledged food production considering environmental, health requirements and the improvement of quality of life in rural areas;  aiming to preserve soil fertility, promoting the implementation of sustainable agricultural practice by implementing advanced agricultural systems;  complying with strict policy of giving up (prohibiting) the use of genetically modi- fied organisms in Lithuania;  taking active and ambitious measures to reduce food waste, help municipalities ar- range food waste collection system and install measures allowing reducing the generation of food waste. The Law on Fisheries of the Republic of Lithuania provides for ensuring fishing conserving fish stocks, their preservation and restoration considering ecological conditions, interests of fishermen, fish breeders, processors and consumers. The wood, pulp and paper industry focuses on investment in the modernization of the Lithuanian wood industry. Lately legal acts of the Republic of Lithuania have considerably focused on waste management, use and processing. The concept of circular economy has been used fragmentedly (see documents 14 and 20 in Annex 8). The concept of circular economy in these documents is associated solely with biomass energy, food waste and its composting. However, it is much broader and convers the use of technologies of smaller waste and wasteless production, the use of biowaste and recycling to new products, the optimization of the food chain, step-by-step use of biomass, etc. (for more information, see the analysis of the EU and OECD strategic documents related to the development of bioeconomy). According to NACE2, biotechnology is not characterised as a type of economic activity. In the examined documents, biotechnology is closely related to research and innovation as well as the application thereof in those industries, which use , process and produce bioproducts. The examined documents emphasise that:

 the lack of resources will function as a catalyst for a breakthrough of science-based radical technological innovations, including biotechnology innovations;  high-impact technologies, which include biotechnology, are to be considered an important source of innovation;  one of the planned priority action areas is the implementation of joint medicine and biotechnology research programmes;  unique competitive advantages in the areas of biotechnology and bio-pharmacy of the industry of the country, which the neighbouring countries do not have, should be used in the promotion of the development of this business area; a cooperation and synergy between biotechnology, bio-pharmacy and bioinformatics companies is possible;  investments in the modern Lithuanian medicine and biotechnology industry should be promoted. Lithuanian legal acts mainly focus on strategic goals and tasks of bioeconomy-related areas or sectors of economic activities, priority areas and measures (Table 9). Action plans, innovations, factors and opportunities receive less attention. It should be noted that the strategy, goals, tasks, priority areas and measures are formulated in different examined legal acts according to all types of bioeconomic activities, except for the wood industry. A significant share of information overlaps or is repeated in different legal acts. The Law on Renewable Energy Sources of the LR provides an institutional framework – regulating and controlling authorities or renewable energy sectors. Lithuanian legal acts provide for targeted values by certain indicators of the scope of and bioproducts in different periods:  biofuels should account for at least 10 percent of fuels used in transport by 2020 (document 18 in Annex 8);  to promote efficient development of the production of biofuel and to achieve that 15 percent of fuel used in transport was replaced with biofuel in 2020 (document 10 in Annex 8);  to commit to achieving that renewable energy used in all types of transport accounted for 10 percent of final energy consumption in the transport sector in 2020 (document 18 in Annex 8);  the strategy includes a task to increase the share of biofuel in the mixture with solid fuel to 20 percent by 2020 (document 4 in Annex 8);  the plan is to install 240 MW biofuel cogeneration power plants in 2020, excluding municipal waste incineration plants (document 18 in Annex 8);  biofuel consumption will increase, and reasonable local potential in Lithuania may be up to 1.8 mln. toe by 2020 (document 17 in Annex 8);  the aim is to increase the forested areas in Lithuania by 3 percent by 2020, to expand areas of other natural multi-annual vegetation, to reduce uneven territorial distribution of forests, with a particular focus on increasing forest areas in least forested regions (document 10 in Annex 8);  the main type of fuel in the production of district heating should be biofuel; heat produced thereof should account for about 60 percent in 2017 and 70 percent – in 2021 (document 17 in Annex 8);

 the plan is to increase the share of biologic fuel by 60 percent in 2020 compared to the total energy consumption (document 8 in Annex 8);  the share of districtly supplied heat made of municipal waste should reach 7 percent in 2021, while the production of heat of biogas should approach 4 percent (document 17 in Annex 8);  to ensure that landfilled municipal biodegradable waste generated in 2000 accounted for no more than 35 percent by 2020; at least 65 percent of municipal waste shall be recycled, reused or used otherwise (for example for energy recovery) by 2020 (document 12 in Annex 8). In summary, the development of bioeconomy in Lithuania can be stated to be mainly regulated and promoted via certain sectoral policies to this day, including policies of agriculture, forestry, fisheries, energy, environment (including waste management), development of research, innovation and biotechnology, etc. On the other hand, document analysis revealed the existing relations between sectoral policies, such as forestry and energy, agriculture and food industry, agriculture and energy, forestry and wood industry, etc. Cross-sectoral relations in bioeconomy will inevitably strengthen in the future for the need to reduce the amount of waste and switch to circular economy. Institutional framework and coordinating policy is important for ensuring these relations.

3.2. Evaluation of Expedience of the Lithuanian Bioeconomy strategy

The expedience of the Lithuanian bioeconomy strategy is based on:  The experience of the EU and advanced European countries in addressing the strategic bioeconomy development questions;  The strategic bioeconomy development experience of countries of the Baltic Sea region;  Lithuanian experience of regulating bioeconomy with different sectoral politics and a growing need for consistent bioeconomy policy, based on inter-sectoral complementarity and interaction;  The opinion expressed by representatives of business, government and scientific institutions that the bioeconomy strategy is important for Lithuania.

Justification of the expedience of the Lithuanian bioeconomy strategy from the point of view of the EU and advanced European countries, following an analysis of the objectives and substantiation of bioeconomy strategies The European Commission communication “Innovating for Sustainable Growth: A Bioeconomy for Europe” underlines that Europe is facing unprecedented, unsustainable use of its natural resources, significant and probably irreversible climate change and continuing loss of its biodiversity which is posing a threat to the living systems. The need for a bioeconomy strategy is based on the fact that „In order to cope with an increasing global population, rapid depletion of many resources, increasing environmental pressures and climate change, Europe

69 needs to radically change its approach to production, consumption, processing, storage, recycling and disposal of biological resources“. By nature, the bioeconomy encompasses many sectors and therefore offers an unique opportunity to achieve sustainable economic growth and to fully address interdependent societal challenges such as food security, lack of natural resources, dependence on fossil resources and climate change. In cross-sectoral policies, complex task interconnections can lead to disagreements, for example, on alternative uses of biomass. In other sectors, the rising demand for biological resources may interfere with food security, as well as raise environmental concerns. Priority is given to the consistency of the political framework and it is emphasised that only a strategic and comprehensive approach covering a wide range of policy areas is appropriate for multi-dimensional issues. The importance of better communication with the public is also emphasised. The bioeconomy strategy will contribute to the development of low GHG production systems, together with the implementation of the EU commitment under the 2016 Paris Agree- ment to reduce the GHG emissions in all sectors of the economy by at least 40 percent, compared to the level of the 1990, by 2030. The Finnish Bioeconomy Strategy emphasises that the decline in natural resources, the loss of biodiversity and the climate change challenges are determining the need to develop a bioeconomy based on renewable natural resources. The objectives of the Finish bioeconomy strategy are the competitive environment of the bioeconomy, the creation of new businesses, a strong base of bioeconomy competencies and the availability and sustainability of biomass. The Flemish Bioeconomy Strategy is based on the needs of society, business and politicians. First of all, bioeconomy is necessary because of the societal challenges (climate change due to the use of fossil resources, the importance of food security for the growing population). In the future energy system based on renewable resources, biomass will be required for heating and other areas such as aviation and shipping. The starting point is the use of primary biomass and biowaste, ensuring the food and feed security and the raw material demand for the industry and the energy system. The EU Bioeconomy Strategy and its Action Plan provided the basis for the vision and strategy of the Flemish Government. The Action Plan is based on three pillars: the development of new technologies and processes, the strengthening of markets and competitiveness of the bioeconomy sectors and the promotion of closer inter-sectoral cooperation a- mong all stakeholders. The German National Strategy for Bioeconomy Policy identifies the following key strategic objectives: security of supply, increasing competitiveness, environmental protection and structural change. Bioeconomy is treated as the opportunity of the 21st century. Climate change, rising population, depleted fossil fuel resources and growing demand for raw materials are challenges opening up new economic development opportunities. In order to take advantage of these opportunities, it is important that a structural shift is made from fossil fuel-based economy to a biomass-based economy, new life and technological science knowledge, new products and processes are created. The value created in bioeconomy depends on the sustainable and efficient use of biomass based on non-waste production and a tiered approach. Close cooperation among all stakeholders – politicians, business people, scientists and the public – is important in the development of the bioeconomy. Regional and decentralised initiatives make it possible to plan the use of biomass for localised scale. The Italian Bioeconomy Strategy indicates the need for the definition of a common framework for various defined and emerging policy areas, technologies and market demands, so that it were possible to share the challenges and the experiences at global, European, national 70 and regional levels. Agriculture, food, marine, forestry and bio-based industries have two additional and horizontal components. One is based on renewable raw materials and the other on the reuse and recycling of biowaste. In both cases, it is important to develop the bioeconomy taking into account the local resources and equipment, the interconnection and integration of related industries and public and private interests. The main objective of the Spanish Bioeconomy Strategy is to create a bioeconomy as an essential part of the country’s economical activity characterised by technological innovations, based on closer public-private cooperation and interaction between the Spanish and the international science and technology systems. The Norway’s Bioeconomy Strategy will strive to become the most innovative country of bioeconomy. It is emphasised that a full shift to bioeconomy will require significant changes in the use of resources. The strategy emphasises new needs for R&D and innovation, declares the intention to support large-scale interdisciplinary research in the field of bioeconomy, prioritise projects involving partners from various scientific fields and sectors and encourages the development of sustainable bioeconomy-driven industry. The Government of Norway will seek to promote the creation of greater value and employment, the reduction of the GHG emissions and more sustainable and efficient use of renewable. The strategy emphasises the new needs for state-funded scientific research and an innovation system and its users. A goal is declared to support large-scale interdisciplinary research, to prioritise projects involving partners from various scientific fields and sectors and sustainable, bioeconomy-oriented industrial development is promoted. In summary, it is possible to state that expedience of a bioeconomy strategy in Lithuania is justified by the following needs:  The transition from the fossil resource-based economy to a more innovative, more resource-efficient, less polluting and more competitive economy based on bioresources;  Strengthening the basis for biomass availability and sustainability, ensuring food security, sustainable use of renewable resources for industrial purposes, environmental protection coherence;  Increasing the added value of bioeconomy through the application of tiered biomass and biowaste recycling approach in various sectors of bioeconomy;  The reuse and recycling of biowaste in various bioeconomy sectors, transitioning to a circular economy;  The improvement of the knowledge basis of life, biotechnology and other sciences and creation of new innovations in order to increase the productivity of the bioeconomy, to ensure the sustainable use of renewable resources and to protect the environment;  The increasing of the consistency and integration of sectoral bioeconomic policies and their synergy with other policy areas;  Enhancing the public dialogue by combining public and private interests by involving all bioeconomy stakeholders (government, business, science and society) into cooperation;  The implementation of the EU Bioeconomy Strategy and Action Plan.

Justification of the expedience of the Lithuanian bioeconomy strategy following an analysis of strategic bioeconomy development experience of countries of the Baltic Sea region 71

An analysis of bioeconomy strategies and policies in the Baltic Sea region countries67 shows bioeconomy accelerated the sustainable growth and development of the Baltic Sea region. Some countries in the Baltic Sea region have already developed a holistic bioeconomy policy and prepared their strategies (Germany, Finland and Norway), some are preparing the policy right now (Latvia) or are planning to prepare (Estonia). In addition to its bioeconomy strategy, Germany has also prepared a “National Research Strategy – Bioeconomy 2030” (2011) and Sweden – a Research and Innovation Strategy for a Bio-based Economy (2012). In 2013, Denmark established a National Bioeconomy Advisory Council, but so far does not have a bioeconomy strategy. The need for strategic development of the joint Baltic Sea region and the EU Member States is linked to the value added of cooperation in fisheries and aquaculture, increasing the knowledge of sustainable forest management, involvement of the business community, sustainable development of bioeconomy in the Baltic Sea region and its contribution to the development of the European bioeconomy through the best practices of the Baltic Sea region. This justifies the need for development of strategically oriented bioeconomy in Lithua- nia.

Justification of the expedience of the Lithuanian bioeconomy strategy following the analysis of legal regulation in the field of bioeconomy in Lithuania In the previous section it was concluded that to date the bioeconomy development in Lithuania has been regulated and promoted through certain sectoral politics – agriculture, forestry, fisheries, energy, environment (including waste management), scientific research, innovation and biotechnology development, etc. It was established that interfaces exist only between certain sectoral policies – forestry and energy, agriculture and food industry, forestry and wood industry and so on. Moreover, the analysis of Lithuanian legal acts revealed that certain documents contain different, i.e. uncoordinated developmental targets for the same sectors. On the other hand, most of the targets are planned for 2020 or the years that follow. In the future, the cross-sectoral links and interactions in the Lithuanian bioeconomy will increase for a number of reasons:  The need for bio-materials is increasing not only in the traditional fields of manufacturing (food, feed, wood, furniture, paper, textiles, clothing and leather) and bioenergy, but the use of bio-materials will also increase in chemical, pharmaceutical and plastic manufacturing industries, construction or the like. This may lead to disagreements on alternative uses of biomass;  To increase the value added of bioeconomy, it will be necessary to apply a tiered biomass recycling principle, i.e. to increase the production of higher value added biological products consuming less raw biomass materials. This may lead to disagreements on alternative uses of biomass;  During the transition to circular economy, biomass and biowaste will be reused and recycled in various sectors of the economy. Then, the waste from the biomass production or processing waste from one sector will become bio-raw material in another sector;

67 Nordic Council of Ministers. 2016. State of Play. Bioeconomy strategies and policies in the Baltic Sea Region countries. Working Paper No. 1 – The Baltic Sea Regional Bioeconomy Council. Paper drafted by Thomas Winther, Innogate ApS, for Nordic Council of Ministers, February. 72

 The development and implementation of new innovations (technologies and bioproducts) in the bioeconomy will require the promotion of R&D by increasing multidisciplinary and cross-sectoral research in this area and by fostering business and science collaboration involving partners from various scientific fields and sectors. As a result, on the one hand, the development of Lithuanian bioeconomy requires a consistent cross-sectoral complimentarity-based approach in various policy areas and strengthening of their interactions. As highlighted in the European Commission communication “Innovating for Sustainable Growth: A Bioeconomy for Europe”, such multidimensional issues can only be addressed by a strategic and complrehensive approach covering a wide range of policy areas. On the other hand, bioeconomy encompasses many interconnected sectors, which means that the stakeholders at all levels are participating in bioeconomy for a variety of purposes. For both of these reasons, there will be a need for closer interaction between the stakeholders (business, science, politics and society) and policy coordination at both public and private interest levels, as food security will have to be prioritised and combined with sustainable use of renewable resources for industrial purposes and energy as well as environmental protection. An important institutional framework and a coordinating policy are important to ensure this interaction. As the experience of the EU and other European countries shows, these issues should also be addressed politically in Lithuania, ensuring a strategically oriented development of the bioeconomy and the inter-institutional interaction of all stakeholders in tackling the strategic bioeconomy development issues, i.e. creating the Lithuanian bioeconomy strategy and establishing the National Bioeconomy Council.

Justification of the expedience of the Lithuanian bioeconomy strategy based on the assessment of business entities, government and scientific institutions Representatives of business enterprises, farms, business associations, government and scientific institutions were interviewed on the question of expedience of developing a Lithuanian bioeconomy strategy (see Annexes 3–5). Their attitudes towards the importance of the Lithu- anian bioeconomy strategy are presented in Figure 28. The respondents were asked to rate the importance of developing this strategy (from 1 – very little importance to 5 – very important). Respondents from scientific institutions and business associations rated it as very important (equally, 4.8 points on average), government authorities – as important (an average of 4.1 points). Business representatives rated the importance of the bioeconomy strategy for Lithuania at an average of 3.7 points, as moderately important and important.

Figure 28. Assessment of need for the Lithuanian bioeconomy strategy through a survey of business, science and government representatives

Average scores when 1 point is low importance and 5 points – very importante

Research institutions 4.8 Business associations 1 Government authorities 4.1 Business entities 3.7

Business entities (biomass production) 3.6 Business entities (partly bio-based transformation) 3.7 Business entities (fully bio-based transformation) 3.9

Source: data of the survey of business entities (N = 102) business associations (N = 14), government authorities (N = 8) and research institutions (N = 11)

Business enterprises and farmers were asked to express their opinion on the need for such strategy and to assess its importance in scoring: 0 – not important, i.e. there is no need for it, or from 1 – very little importance to 5 – very important. The average score was 3.7, i.e. the Lithuanian bioeconomy strategy was important for the the business representatives who participated in the survey. The differences in the average values according to the bioeconomy sectors that the respondents represented (as indicated in Figure 27) were minor. The importance of developing the strategy was rated an average of 3.9 by the representatives of partially bio- based enterprises and the lowest score (an average of 3.6) by the representatives of enterprises and farms engaged in biomass production. Only less than 5 percent of the respondents did not see the need for such a strategy.

3.3. Feasibility analysis of efficient cooperation between Lithuanian business, science and state authorities in bioeconomy

In order to identify opportunities of efficient cooperation of Lithuanian science, business entities and state authorities on the development of bioeconomy, a survey of business associations, governmental and science authorities was conducted in June 2017. Questionnaires were posted online. 23 business associations, 11 state authorities and 13 science institutions were invited to take part in the survey by phone. Questionnaires were completed by 14, 8 and 11 representatives, respectively (Annexes 4-6). Questions about directions and methods of potential cooperation between business and government, business and science, science and government, and their significance were asked. The latter was assessed in application of a five-point scale with 1 point being of very little importance and 5 – very important. Figure 29 presents the results of the assessment of potential areas and methods of efficient cooperation of business and government by way of surveying business associations and government authorities (average mutual scores). Representatives of business associations consider the strengthening of appeal of investment environment (4.1 out of 5), improvement of accessibility of the EU funding to business (4.1 points), training of skilled labour force, especially highly qualified specialists (4.1 points), creating favourable conditions for investments of business companies in R&D (4 points) and attracting foreign investments (3.9 points) to be the most important areas of efficient cooperation of business and government. Results of the survey of government representatives show that the government finds mutual cooperation with business in the creation of attractive investment environment to be important just like the business does. Both parties gave the same score for the importance of such cooperation – an average of 4.1 points. Business representatives viewed mutual cooperation in pursuit of facilitating the accessibility of the EU funds to business (average score of 3.5 points), training of highly qualified specialists (3.6 points) or creating more favourable conditions for investments of business companies in R&D (3.4 points) less important than representatives of business associations. They consider expert activities (4.0 points) and improvement of knowledge and dissemination of technology (4.0 points) more important for efficient mutual cooperation, while business representatives view both these areas of cooperation as less significant (giving 3.4 points for each of them).

Opinions of business and government representatives differed the most in respect of mutual cooperation ensuring the security of information. Business representatives assessed common efforts in increasing information security to be of average importance (3.4 points), while business representatives considered them to be least important (2.5 points). Also, according to business representatives, the holding of business contact fairs was not very efficient means of mutual cooperation (with average score being 2.6 points). Business representatives viewed such form of cooperation to be of average importance (3.2 points).

Figure 29. Methods and importance of efficient cooperation of business and government in bioeconomy

Average scores when 1 point is low importance and 5 points – very important

Representatives of government Representatives of business associations

Expert activities 4.0 3.4 Improvement of dissemination of knowledge and 4.0 3.4 technology

Knowledge Holding trainings, seminars and conferences 3.0 3.4

Making public procurement procedures more transparent 3.4 4.0

Initiation of business-related R&D 3.6 3.7

Search for new markets 3.1 3.6 Creating favourable conditions for the formation of 3.3 3.5 clusters

Ensuring information security 2.5 3.4 Organization Search for potential business partners 3.0 3.3

Holding business contact fairs 2.6 3.2 Creating favourable conditions for cooperation of science, 3.3 3.1 education and business sectors Creating favourable conditions for establishing innovation 3.0 3.0 centres and technology platforms

Training of highly-qualified specialists 3.6 4.1

Training of skilled labour force 3.8 4.0

Labour force Labour Attracting the missing highly-qualified specialists to 3.3 3.3 Lithuania

Facilitating availability of EU funds to business 3.5 4.1

Creating an attractive investment environment 4.1 4.1 Creating favourable conditions for investments of 3.4 4.0 business enterprises in R&D

Investments Attracting foreign investments 3.5 3.9 Programmes for promoting cooperation between science 3.4 3.5 and business Implementation of national research programmes and 3.4 3.4 other high-level R&D projects 5 4 3 2 1 0 1 2 3 4 5

Source: data of the survey of business associations (N = 14) and government authorities (N = 8)

Figure 30 illustrates the results of the assessment of potential areas and methods of efficient cooperation of business and science by way of survey of business associations and science institutions (average mutual scores). Science representatives were determined to consider potential methods of mutual cooperation more important than business representatives. Science representatives assessed all of them as important and very important, while business representatives distinguished only some of them as very important, and considered others as non-important, i.e. inefficient.

Figure 30. Methods and importance of efficient cooperation of business and science in bioeconomy

Average scores when 1 point is low importance and 5 points – very important Science representatives

Preparation of training programmes, trainings, seminars and 4.2 3.8 conferences

Other dissemination of knowledge and technologies 3.7 2.9 Knowledge

Development of common science and business 3.5 3.1 infrastructure Creation and development of business and science 3.7 2.9 technology platforms Organization Establishment of business enterprises/ divisions in science 3.6 2.9 and technology parks

Concentration of intellectual potential in science-intensive 3.8 4.2 business sectors Concentration of intellectual potential in science-intensive

Qualification 4.2 3.3 business sectors

Creation of common science and business projects 4.5 4.0

Implementation of innovation in business 4.1 4.0

Creation of innovative productss 4.5 3.6 R&D Initiating R&D in the private sector 3.5 3.5

Development of innovative technologies 4.5 3.5

Business involvement in EU research programmes 4.1 3.3

5 4 3 2 1 0 1 2 3 4 5 Source: data of the survey of business associations (N = 14) and science institutions (N = 11) Science representatives engaged in bioeconomy-related research consider the development of common science and business projects and innovative products for business (average scores of 4.5 points for each of them), holding of joint trainings and seminars (4.2 points) and implementation of innovation in business (4.1 points) to be the most important methods of cooperation with business. They also considered cooperation with business accruing intellectual capital in science-intensive business sectors (4.2 points) to be important, while business representatives considered the latter method of cooperation to be less important. Opinion of science and business representatives differed the most in respect of cooperation in the development of innovation (both innovative technologies and new products). Business representatives viewed

76 such cooperation as being of more than average importance (3.5 points), while business representatives considered this to be the most important area of mutual cooperation (average score of 4 points). Representatives of business associations consider the training of specialists of top qualification (4.2 points) to be the most efficient area of cooperation with science. Mutual cooperation in the implementation of innovation and creation of common science and business projects (4.0 points each) are also important for them. Business representatives are least interested in the cooperation in establishing companies or their divisions in science and technology parks, setting up business and science technology platforms, and cooperation in the dissemination of knowledge or technology (2.9 points each). Figure 31 illustrates the results of potential areas and methods of efficient cooperation of government and science by way of survey of government and science institutions (average mutual scores).

Figure 31. Methods and importance of efficient cooperation of government and research institutions in bioeconomy

Average scores when 1 point is low importance and 5 points – very important Government representatives Science representatives Improvement of dissemination of knowledge and 4.0 4.2 technology

Holding trainings, seminars and conferences 3.3 3.8 Knowledge

Ensuring information security 2.9 4.6 Creation of favourable conditions for the cooperation of 3.6 4.3 science, educational and business sectors Organization Creation of favourable conditions for innovation centres 3.4 3.5 and technology platforms

Creation and implementation of national science 3.6 4.7

programmes and other high level R&D projects research

Scientific Creation and implementation of research programmes 3.9 4.4 ordered by central and regional government

Expert activities 4.4 4.0 Expert assessment of consequences and problems of the 4.0 3.7 development of bioeconomy Creation and implementation of bioeconomy development Scientificservices 3.9 3.6 monitoring system

Attracting the missing highly-qualified scientists to 3.8 4.5 Lithuania

Qualification Training highly-qualified scientists and researchers 3.8 4.5

Initiation of programmes for promoting cooperation 3.5 4.1 between science and business

R&Din the Initiation and implementation of R&D relevant for business 3.4 3.7 businesssector

5 4 3 2 1 0 1 2 3 4 5

Source: data of survey of research (N = 11) and government (N = 8) institutions

Scientists engaged in bioeconomy-related research see the greatest opportunities of e- fficient cooperation with government institutions in the area of creation and implementation of scientific research programmes and projects, i.e. the national research programmes and high level R&D projects (average score of 4.7 points) and research programmes ordered by the government (4.5 points). Government representatives also consider cooperation in the area of ordered scientific research to be important (3.9 points), but they view mutual cooperation in the creation and implementation of national research programmes and high level R&D projects as much less important (average score of 3.6 points). Government representatives also view the promotion of cooperation between science and business via the initiation of special programmes to be less important. Representatives of research and government institutions also have inadequate opinion of the cooperation in training highly-qualified scientists and researchers or making joint efforts to attract them to Lithuania. Representatives of research institutions view this as a very important area of joint actions (4.5 points), while in the opinion of government representatives this is much less important (3.8 points) When it comes to the dissemination of knowledge and technology, science and government representatives have the same opinion about joint efforts in the aim to improve this process. Both sides consider cooperation in holding trainings, seminars and conferences to be less important. Unlike scientists, government representatives see a greater need for cooperation with research institutions in the area of services provided by scientists in serving the process of monitoring and assessment of the bioeconomy sector. On the other hand, both average scores are not that different. Opinions of science and government representatives differed the most in respect of mutual cooperation in the area of ensuring information security. Scientists gave the score of 4.6 for joint efforts in enhancing information security, while government representatives scored it giving a mere 2.9 points.

Scheme of institutional cooperation and coordination of activities Bioeconomy as an integrated multi-sectoral part of national economy covers a number of business, research, government institutions and the civil society (in other words – non-governmental sector) that have not only general, but also specific interests in the area of bioeconomy. Having analysed Norwegian experience in the preparation of the national bioeconomy strategy, four parties interested in cooperation were distinguished as illustrated in Figure 32. 1. Business enterprises and their associations that belong to the bioeconomy sector. Activities directly relating to bioeconomy usually comprise the main profile of these enterprises. Even though the majority of enterprises operate in the same or similar markets, they have many common interests, especially regarding the increase of favourability of remote and immediate business environment. The majority of these enterprises express their common interests via business associations representing them. Organisations of business entities are united in umbrella organisations in certain very broad sectors of bioeconomy (such as agriculture). For example, the Chamber of Agriculture of the Republic of Lithuania as an umbrella organisation brings together 70 agricultural and similar business associations. 2. Research and educational institutions, whose mission is related to the development of bioeconomy education, dissemination of new knowledge and training of specialists. Such institutions include universities, colleges, vocational training centres and research institutes and 78

Figure 32. Framework scheme of institutional cooperation of Lithuanian government, business, research institutions and the civil society in bioeconomy

INSTITUTIONAL BIOECONOMY FRAMEWORK

Research and educational institu- Government institutions Associations of business entities Non-governmental organisations tions

Central government institutions: Aleksandras Stulginskis University Vil- Agriculture Information and Support Centre of Non-Governmental Organisations Seimas nius Gediminas Technical University Forestry and logging Professional associations, fellowships Office of the Government Kaunas University of Technology Fishing and aquaculture Local action groups Ministry of Economy Vilnius University Manufacture of food products University of Health Sciences Manufacture of beverages .... Ministry of Agriculture Ministry of Energy Klaipėda University Manufacture of textile, apparel and Ministry of Environment Lithuanian Energy Institute leather products Ministry of Health Lithuanian Research Centre for Agri- Manufacture of wood and furniture

Ministry of Education and Science culture and Forestry Manufacture of paper and its products ... Manufacture of chemicals Ministry of Finance Ministry of Transport Manufacture of pharmaceuticals Ministry of Foreign Affairs Bioenergy Ministry of the Interior Biotechnology Waste management

...

Municipal authorities Association of Lithuanian municipalities

The scheme was compiled according to the interests of cooperation of the surveyed business associations, research and government institutions in bioeconomy

centres. The Study reveals that research and educational institutions have a mutual need for cooperation. On one hand, they are interested in the development of research and education in bioeconomy-related research and educational areas depending on needs of business entities, and on the other hand, they want to cooperate with other institutional groups operating in the field of bioeconomy in the improvement of research and educational infrastructure and assurance of the quality of research and education. Research and educational institutions can represent their interests directly or via associations established by them. 3. Public government institutions responsible for the development of bioeconomy and its effective integration in the economic development of the country and its regions. According to the principles of public management, public authorities must consult business entities, research and educational institutions and non-governmental organisations of the respective sector, involve them in projects in preparation and consideration of documents important for the sector and cooperate by other means ensuring transparency. 4. Non-governmental organisations, which are in one or another way related to the bioeconomy sector and interested in interinstitutional cooperation. This non-governmental sector is broad and includes various associations related to the knowledge, use and fostering of natural resources (associations of hunters, fishermen, ornithologists, etc.), also non-political green movements and trade unions operating in the bioeconomy sector, local action groups and, finally, consumer institutions. Figure 32 illustrates the framework of cooperation interests of Lithuanian government, research, business and public institutions in bioeconomy drawn up according to the results of the survey of government, research and business associations. This is not a finite list of institutions comprising the framework; it may be constantly supplemented or otherwise adjusted. Central public government and self-government institutions responsible for the development of bioeconomy and partnerships with business entities and non-government sector can be distinguished. The Ministry of Environment, Ministry of Energy, Ministry of Economy and Ministry of Agriculture can be distinguished among central government institutions, because they are directly responsible for the development of bioeconomy areas and sustainable use of natural resources. Other ministries and public government institutions must also be interested in cooperation according to bioeconomy development-related tasks attributed thereto. Munici- palities, which express common interests, including in the field of bioeconomy, and represent them via the Association of Lithuanian Municipalities are the main regional government institutions. Figure 32 reveals that the cooperation in the fields of bioeconomy covers many institutions of different nature. The circle of subject matters of cooperation and coordinated interests may also be very wide. Assessing from the perspective of public management, efficient equal partnership-based coordination of cooperation is necessary in such a case. According to experience of Norway and other European countries, a proposal has been made to form the National Bioeconomy Council on the basis of an equitable four-party partnership in order to ensure institutional cooperation of Lithuanian research, business, government and non-governmental sector in bioeconomy. Figure 33 illustrates the principal scheme thereof.

Figure 33. Principal scheme of the coordination of institutional cooperation of Lithuanian government, business, research institutions and the public in bioeconomy

The National Bioeconomy Council must consist of representatives of all the institutional groups distinguished in Figures 32 and 33. In the coordination of mutual actions and agreements, it must solve key bioeconomy development problems, seek for a rapid and at the same time sustainable development of this part of economy. National Bioeconomy Council activities are governed by its regulations. Key operating principles must include equality of the parties, regularity of activities and a consensus in decision-making. Principles of formation of National Bioeconomy Council:  National Bioeconomy Council must cover all 4 groups of bioeconomy institutions in equal shares;  In pursuit of National Bioeconomy Council work efficiency, its rational size should not exceed 24–28 members;  Each bioeconomy institution group must delegate 6-7 members to National Bioeco- nomy Council. Business associations, research and educational institutions and non- governmental organisations delegate members to National Bioeconomy Council by their own agreement. The Government of the Republic of Lithuania delegates members of the central public government at its own discretion. The Association of Lithuanian Municipalities delegates at least one member by a decision of its board. Regarding the government institution coordinating the Lithuanian bioeconomy policy Government and research institutions as well as business associations were surveyed regarding the leadership of government institutions in the coordination of the bioeconomy policy in Lithuania during their surveys conducted in June 2017 (for more information thereon, please refer to Annexes 4-6). Figure 34 presents the survey results.

Figure 34. Regarding the leadership of government institutions in the coordination of the bioeconomy policy in Lithuania

Others; 2; 3% Minister of Energy; 4; 6%

Minister of Education and Minister of Science; 5; 7% Economy; 26; 37%

Office of the Government; 8; 11%

Minister of Environment; 11; Minister of 15% Agriculture; 15; 21%

Source: data of survey of government and research institutions and business associations (number of answers N = 69)

As per Figure 34, the Ministry of Economy received more than two thirds of votes, the Ministry of Agriculture – slightly more than a fifth of votes and the Ministry of Environment – one sixth of votes. The Ministry of Economy is believed to have the least narrow sectoral interest, thus it would be most suitable for the role of the coordinator of the bioeconomy policy as cross-sectoral policy68.

68 Interview of representatives of government institutions and business associations. 82

4. Analysis of Economic Environment Impact on the Development of Bioeconomy in Lithuania

4.1. Impact of Tax and Business Environment on the Development of Bioeco- nomy in Lithuania

An analysis of the impact of business environment factors on the development of bioeconomy through a survey of businesses revealed that tax burden is seen as the factor of the external economic environment that is the most threatening to the business. On the contrary, in the EU, national and municipal support is seen as a factor in the political environment that has already provided and will be able to provide the greatest potential for business development in the future (for more information about the assessment of benefits of these and other external environmental factors to the development of the bioeconomy businesses, see Section 2.2.3). This section analyzes the issues of tax incentives and public support for bioeconomy businesses. The analysis of their impact on the development of bioeconomy is limited by the lack of systemised data on both the taxes paid by the legal entities and natural persons involved in the bioeconomic businesses and the support provided for them.

Tax System Bioeconomy businesses in Lithuania are subject to the general tax system, therefore the impact on the development of bioeconomy can only be considered in the context of overall impact of taxation on business development in Lithuania. The tax-to-GDP ratio in Lithuania is one of the lowest in the EU, with indirect taxes prevailing. In Lithuania, the tax environment remains one of the most restrictive areas for the creation or development of business69, and the effectiveness of the country’s tax system, given the global competitiveness ratings, is considered one of the worst. As the Global Competitiveness Report 2016–201770 shows, Lithuania, according to the total tax rate, is only No. 90, according to the impact of taxes on investment incentives – No. 68, according to the impact of taxation environment on the incentives for joining the labour market – No. 121 out of 140 countries. The general tax rate in Lithuania also remains higher than the EU averages. According to the OECD data71, a one percent reduction in the general tax rate would be likely to increase the investment potential by up to five percent. High labour taxation in Lithuania is one of the major shortcomings of the tax system. Tax rates are similar to those in Sweden and higher than in the United Kingdom and other old EU countries, which limits the ability of the employers to pay competitive wages and increases the shadow economy. Given that the wages in Lithuania are 4 – 5 lower than in Western Europe, the current level labour taxation has a significant impact on potential employees in deciding whether to participate in the labour market. The smart tax administration system72 is likely to reduce the administrative burden on the taxpayers, to increase the taxpayer income accounting, tax collection and operational efficiency of the tax administration by introducing smart electronic services and transferring the collection, processing, management and provision of data of the taxpayer transactions to the digital space.

69 Invest in Lithuania. 2016. Investment Environment: Priorities and Necessary Changes Invest Lithuania, March 70 The Global Competitiveness Report 2016-2017. http://reports.weforum.org/global-competitiveness-index/ 71 OECD Tax Statistics: http://www.oecd-ilibrary.org/taxation/data/oecd-tax-statistics_tax-data-en 72 VMI: apie i.MA Shttps://imas.vmi.lt/isaf/ 83

Table 10. Tax Incentives Relevant for Bioeconomic Enterprises

Taxes Incentive Corporate / Personal Income Excise Taxes Environmental Pollution Tax Land Tax Real Estate Tax Tax Tax Re- 1) Corporate tax relief (re- The taxable value of duction duction of taxable profit) for le- agricultural land other gal entities performing invest- than abandoned land is ment projects (A, C, D, E); its average market va- 2) Corporate tax relief allowing lue or value as estab- the legal entities to increase the lished by an individual allowable deductions (A, C, D, land evaluation mul- E) for the research and experi- tiplied by a factor of mental development work costs. 0.35 (A01). Exemption 1) The income of farmers and The following are exempt from excise tax: The following are exempted from the environmental Land acquired for the The following are other persons engaged in agri- 1) Ethyl alcohol that is a component of phar- polution tax: establishment of a far- exempted from cultural activities, other than maceutical products, veterinary medi-cines 1) Natural or legal persons implementing envi- mer’s farm is exem- the real estate tax: VAT payers, is income tax-free (C21.10; C21.20); ronmental measures that reduce the emission of into pted from land tax for 1) real estate (or (A01); 2) Ethyl alcohol used for the purposes of per- the environment from stationary pollution sources three tax periods from part thereof), used 2) Direct payments to maintain sonal and public healthcare, veterinary phar- by at least 5% from the established maximum al- the acquisition of the by a natural or le- income levels are tax-free (A01). macy, veterinary practice or for imple-men- lowable emission standard (A, C, D, E); property rights. Such gal person for tation of functions of state pharma-ceutical, 2) Natural and legal persons contaminating from type of relief, inclu- income from agri- food and veterinary control autho-rities vehicles equipped with operating exhaust gas neut- ding the one applied cultural activities (C21.10; C21.20); ralization systems (A, C, D, E); before the entry into (A01); 3) Ethyl alcohol used for production of cer- 3) Natural and legal persons contaminating from force of this law, can 2) real estate of tain food products and non-alcoholic be-ve- vehicles used for agricultural activities, if their be applied to the same the enterprises in rages (C10; C11); income from such activities constitutes more than person only once (A01). the free economic 4) Dehydrated ethyl alcohol intended for 50% of all income (A01); zones (A, C, D, E). production of biocombustibles and/ or their 4) Natural persons who are self-employed and use components and/ or biofuel in accordance private vehicles in their activities (A, C, D, E); with the procedure established by the Law 5) Natural and legal persons contaminating from on Renewable Energy of the Republic of vehicles that use biofuels complying with established Lithuania (D35.21); standards and that have submitted the documents 5) Electricity produced from renewable e- confirming the use of biofuels (A, C, D, E); nergy sources (D35.21). 6) Natural and legal persons who have submitted the documents confirming the consumption of biofuels for the amount of pollutant emissions generated by the use of biofuels established in the permit for integrated pollution prevention and control of the pollu- tions permit (A, C, D, E); 7) Natural and legal persons who, either themselves of through third parties, export taxable products or products in taxable packaging from the territory of

the Republic of Lithuania are exempted from the environmental pollution tax for the production or packaging waste for such amount of taxable products or packaging that has been exported from the territory of the Republic of Lithuania during the tax period (A, C, D, E); 8) manufacturers and importers are exempted from the environmental pollution tax on products and/ or packaging waste for the quantity of products and/ or packaging that is proportional to the part of the use and/ or recycling of product and/ or packaging waste established by the Government (A, C, D, E); 9) manufacturers and importers who, within a tax period, are supplying to the domestic market of the Re- public of Lithuania no more than 0,5 t of packaging and are keeping records of packaging and packaging waste (A, C, D, E). Reduced Ta- 1) Reduced 5% corporate tax 1) Reduced excise tax is applicable to e- riff rate for legal entities engaged in nergy products from materials of biological agricultural activities (when the origin or with their additives (rate reduced income from agricultural active- by portion proportionate to the percentage of ties represents 50% or more of biological impurities in the mixture of bio- all income) (A01); fuels and fuels) (A, C, D, E); 2) Reduced 5% corporate tax 2) Gas oils intended for use by subjects ma- rate for self-employed natural nufacturing agricultural products in agricul- persons engaged in manufactu- tural activities, including aquaculture or in- ring-trading activities, including farm inland fishing activities, are subject to natural persons engaged in agri- a reduced excise tax of EUR 21 per 1000 lit- cultural activities, VAT payers res of product, not exceeding the quantities (A, C, D, E). of gas oils established by the Government for the period of one year (A01). Note: the letters are indicating the economic activities according to the NACE2 coding, which are subject to tax incentives. Source:1) Republic of Lithuania Law on Excise Duties. https://www.e-tar.lt/portal/lt/legalAct/TAR.B9E1D301256F/RfqOvvkwHl 2) Republic of Lithuania law on income tax of individuals. https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.210886?jfwid=zm7w3r9oa 3) Republic of Lithuania law on pollution tax. https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.286378?jfwid=fhhu5mgyp 4) Republic of Lithuania law on immovable property tax. https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.409446?jfwid=rivwzvpvg 5) Republic of Lithuania law on corporate income tax. https://e-seimas.lrs.lt/portal/legalAct/lt/TAD/TAIS.273770?jfwid=ck9gyaymo 6) Republic of Lithuania law amending the law on land tax. https://www.e-tar.lt/portal/lt/legalAct/TAR.59681865CD01/dSFaMPluoL

Tax Incentives Relevant to Entities Operating in the Bioeconomy Bioeconomy businesses in Lithuania are subject to the general tax system. They are paying direct taxes (corporate, profit and environment) and state social and health insurance contributions, indirect taxes (excise taxes, value added taxes, etc.). Table 10 represents the tax incentives promoting the development of bioeconomic businesses. The greatest influence on the development of the bioeconomy is the reduction of the corporate income tax for companies engaged in investment projects and participating in R&D activities, as well as special tax incentives for agricultural enterprises and farmers – exemption from real estate tax, reduction of excise task for gas oils for agricultural activities, exemption from environmental pollution taxes. Having assessed the current Lithuanian tax system, the main tax system measures that have a positive impact on the development of bioeconomy in Lithuania have been identified73:  Special exemptions for small and medium-sized agricultural business entities (exemption of farmers non VAT-payers from personal income tax, reduced personal income tax for farmers VAT-payers, reduced corporate tax for legal entities engaged in business agricultural activities, exemption of agricultural business entities from real estate tax, reduction of excise tax on gas oils for agricultural activities, exemption from environmental pollution taxes) reduce the tax burden which leads to increased viability of the farms;  Incentives for investment in research and experimental development (allowing the enterprises three times deductible expenses for R&D activities, as well as for purchasing of R&D in the designated foreign countries; it is permitted to write off the cost of acquisition of fixed assets used in R&D activities in a shorter period of time – two years; it is permitted to deduct three times the expenses for R&D activities, as well as for purchasing of R&D in the designated foreign countries);  Incentives for investments in technological renewal (profit tax relief allowing up to 50 percent reduction of taxable profit for enterprises investing in essential technological renewal). Although tax incentives for R&D have been in place for quite some time, a large proportion of investors are not aware of such tax reliefs74. In order to encourage bioeconomic businesses investing in technological renewal and commercialization of inventions, it is necessary to provide more information about them. Due to lack of information, businesses often have questions about practical feasibility of tax incentives, including the scope of the incentives, the expected benefits and the management of potential risks. Also the need to simplify as much as possible the administrative, project documentation preparation burden, as well as project selection criteria and requirements for appli- cants is emphasised, so that more businesses would decide to make use of the R&D and investment project tax incentives75. The new deduction provision that came into force under the Law on Forests of the Republic of Lithuania on January 1, 2015 and according to which all forest managers, (natural and legal persons) must calculate and pay mandatory 5 percent deductions to the state budget from the income received for the sale of raw wood prepared in their forests and for the sale of uncut forest can have a negative impact on the development of bioeconomy. State forest managers (legal entities) must calculate and pay mandatory 10 percent deductions to the state budget from the income received for the

73 Miceikienė A., Čiulevičienė V. Ūkininkų ir kitų žemės ūkio veikla užsiimančių gyventojų apmokestinimo sistemos tobulinimas 2016 m. Galutinė ataskaita. Akademija, 2016. 74 Interview of representatives of business associations. 75 Interview of representatives of business associations; Verslininkų nevilioja moksliniai tyrimai ir eksperimentinė plėtra. Lietuvos rizikos ir privataus kapitalo asociacija: Naujienos 2016-04-11. 86 sale of raw wood prepared by them in the forest under their control and for the sale of uncut forest under their control. This tax increases the tax burden on forest managers. The changes included in the Tax and Social System Improvement Project announced by the Government of the Republic of Lithuania in June, 2017 would have an impact on the development of bioeconomy. A significant positive impact should occur in the following taxation areas:  Commercialization of inventions – a 5 percent profit tax rate is planned instead of the current 15 percent;  Investment in technological renewal – a 100 percent profit tax exemption is planned, instead of the current 50 percent;  Foreign investment – application of SODRA contribution “ceiling” of 120 average salaries per year, in order to attract these investments;  For self-employed persons starting their activity for the first time – a one year income tax “vacation” for starting a small business and a one year SODRA contribution “vacation”.

Public Support The analysis of public support for the development of the bioeconomy sector was based on non-systemic data, mostly collected from reports on the implementation of various support programs, in individual cases, from the programs and other documents. The analysis provided allows us to form a certain picture on the extent of support in individual program periods according to the sources of support identified in Figure 35. In all of the program periods indicated in the Figure, most of the public support for was allocated for agriculture and rural development (including support for forestry under the EU rural development regulation). Part of the state aid for agriculture was dedicated to co- financing support for forestry measures. Public support under the EU Common Agricultural Policy and Fisheries Funds is described according to the bioeconomy sub-sectors below.

Figure 35. Public expenditure on Lithuanian bioeconomy sectors according to financing Fund

EUR millions on average per annum 1000

900 9 40 800 10 43 European Regional Development Fund 79 700 93 EFF / FIFG /EMFFfor fisheries 600 90 230 Cohesion Fund 500 41 EFSI (Junker's Plan) 400 6 252 75 State aid for agriculture 300 41 457 EAGF Guidance Section / EAFRD 200 262 256 EAGF Guarantee Section / EAGGF 100

0 2004–2006 2007–2013 2014–2020

Data source: Authors elaboration on information in finansines ataskaitas apie EŽŪOG, EŽŪGF ir EŽŪFKP, BPD ir kt. ataskaitas

In 2004–2006, the European Regional Development Fund (ERDF) funded the SPD measures related to bioeconomy: “Ensuring of energy supply stability, accessibility and increased efficiency”

87 and “Improvement of environmental quality and prevention of environmental damage”. These measures received EUR 123 million in aid, which represented 9.3 percent of the total fund. The first measure was aimed at ensuring the stability of energy supply, including the stability of availability of supply of bio-energy to household and corporate customers, as well as increasing energy efficiency, providing the basis for a more stable development of the Lithuanian economy. The second measure was aimed at reducing the water, air and soil pollution and to ensure that the negative effects of farming and other activities on the environment were avoided while maintaining the sustainable use of natural resources. A total of EUR 123 million of public support was allocated to these measures. In 2007–2013, cohesion funds (CF) financed support for such priorities related to bioeconomy as environment and sustainable development, renovation and development of water supply and wastewater management systems, creation of a modern waste management system, improvement of air quality, energy production and consumption efficiency and increasing of consumption of renewable energy resources. A total of EUR 654 million or 29 percent of CF funds was allocated to these measures. To promote the development of Lithuanian bioeconomy in 2014–2020, various financial instruments can be used. The most important sources of public support are the European Agricultural Guarantee Fund (EAGF), European Structural and Investment funds, European Fund for Strategic Investments (EFSI) (or Juncker Plan), the EU Research and Innovation Programme Horizon 2020 and state aid funds. Support for bioeconomy sectors from these sources can reach over EUR 6.1 billion (excluding the Horizon 2020 funds) or an average of EUR 877 million per year, as shown in Figure 35. Of these, around EUR 3196 million from the EAGF, EUR 1613 million from the EAFRD, EUR 553 million through state aid for agriculture, EUR 281 million from the CF and EUR 63 million from the European Maritime and Fisheries Fund (EMFF) (2 percent). According to the Juncker Plan, renewable energy, waste and water management sectors are expected to be allocated EUR 430 million by 2023, which could be used to develop the bioeconomy sectors. Support for bio-innovations is funded through the Horizon 2020 programme.

Support for Bio-innovations In the current program period for 2014–2020, new bio-innovations are funded under the Ho- rizon 2020 programme, which provides for support for bio-based manufacturing, with a total of EUR 1 billion (27 percent) for all countries76. According the program, by the end of 2016, Lithuania had received about EUR 10 million for R&D&I related projects77. In addition to that, public support for the promotion of biotechnology innovations was financed also under the national Lithuanian Indust- rial Biotechnology Development Program. Since 2007, the program was financed by the Lithuanian state budget funds for two periods, i.e. in 2007–2010 and in 2011–201378. Both programs were aimed at promoting the development of new biotechnology methods and processes and biological products for the chemical, plastics and pharmaceutical industries, agriculture and health. The support of EUR

76 European Commission. 2013. Public-private partnerships in Horizon 2020: a powerful tool to deliver on innovation and growth in Europe. Communication from the Commission to the European Parliament, the Council, the European Economic and Social Co- mmittee and the Committee of the Regions. Brussels, 10.7.2013 COM(2013) 494 final 77 MOSTA, 2017. Smart Specialization Progress: First Report. 78 The Program for the Development of Industrial Biotechnology in Lithuania for 2007–2010 approved by the Resolution No. 1050 of the Government of the Republic of Lithuania on October 24, 2006 and the Program for the Development of Industrial Biotech- nology in Lithuania for 2011–2013 approved by the Order No. 4-118 of the minister of Economy of the Republic of Lithuania on March 3, 2011. 88

23.2 million was foreseen for the implementation of these programs (EUR 8.7 million for the first one and EUR 14.5 million for the second). Until 2020, the support for the development and commercialization of innovative technologies, products, processes and methods is provided through the realisation of the Smart Specialisation programme for implementation of the priority areas of research and development and innovation (R&D&I)79. According to the two priority areas of this program directly linked to the bioeconomy sectors – Health Technology and Biotechnology and Agro-Innovation and Food Technology, an estimated EUR 130 million is planned to be allocated.

Support for Fisheries At the initial stage (2004–2006), public support was aimed at creating a market-oriented, modern, competitive and balanced fisheries system meeting the EU health and safety requirements. In- vestment support was primarily aimed at eliminating negative social consequences of the restructuring of the fisheries sector. In the subsequent programming periods (2007–2013 and 2014–2020), the support was provided for the promotion of sustainable and competitive fishing and aquaculture with a view to ensure long-term economic, environmental and social sustainability, fish stock preservation and restoration. During the 2004–2006 and 2007–2013 program periods, respectively, EUR 17.5 million and EUR 71,3 million (or on average EUR 5.8 million and EUR 10.1 million were allocated (Figure 36). It accounted for 39,1 percent and 53 percent, respectively, of GVA by the fisheries (or respectively, 0.028 percent and 0.033 percent of the national GDP) during the same periods. Accor- ding to this proportion, it can be said that public support had a significant contribution to the development of Lithuanian fisheries. In 2014–2020, EUR 63 million have been planned to be allocated.

Support for Agriculture Agriculture is the most supported area of bioeconomy. It accumulates a large amount of public support, not only through the abovementioned tax incentives, but also through subsidies. On the other hand, in comparison with other sectors of bioeconomy, it is characterised by higher risks of the production and market which leads to high instability in the farming income. The First Pillar of the Common Agricultural Policy aims at stabilising the farming income and implementing various market organisation measures, as a counterbalance to the increased market risks. The measures of the Rural Development Programme are aimed at strengthening the agricultural competitiveness, encouraging farms to provide agro-environmental services for preserving and improving the agro-ecosystems, and reducing the impact of agriculture on global warming. Data on public expenditure on support for Lithuanian agriculture and rural development is presented in Figure 35, according to the sources of financing, i.e. national aid, otherwise known as state aid80, and the financing funds of the First and the Second Pillars of the Common Agricultural Policy (CAP)81. The subsidies for the Lithuanian agriculture and rural development under the national aid and EU CAP measures have increased significantly since the beginning of Lithuania’s membership in the EU, as seen in Figure 36. Between 2004 and 2014, all public expenditure on supporting agriculture and rural development increased by 2.8 times. According to preliminary data, it fell by 35 percent in 2015. In 2004–2015, EUR 6.5 billion were allocated to support the Lithuanian agriculture and rural

79 Program for the Implementation of Priority Research and Experimental (Social, Cultural) Development and Innovation (Smart Specialization) Directions and their Priorities. Approved by the Resolution No. 411 of the Government of the Republic of Lithua- nia on April 30, 2014. 80 According to the scope of Article 107 of the TFEU (Treaty on the Functioning of the European Union). 81 Until 2004-2006 – the up by Regulation No 25 of 1962 on the European Agricultural Guidance and Guarantee Fund (EAGGF) and, from 2007, – the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD)). 89 areas, most of them (more than EUR 5.5 billion) came from the EU CAP funds and almost EUR 1 billion – from the national budget. Over the entire period, the subsidies from the EU funds for the Lithuanian agriculture and rural areas increased 3.4 times (from EUR 179.9 million in 2004 to EUR 616.5 million in 2014), while the share of the EU support increased from 70 to 86 percent.

Figure 36. Public expenditures of national and the EU support for agriculture in Lithuania

State aid for agriculture expenditures EUR millions EAGGF Guidance section / EAFRD expenditures EAGGF Guarantee Section / EAGF expenditures 1000 % of total expenditures of GDP 2,5 2,0 2,1 2,0 2,0 1,9 1,9 2,0 2,0 2,0 800 1,6 2,0 1,4 92 93 103 75 86 1,2 600 80 1,5 72 120 88 11 250 254 232 400 77 254 248 38 1,0 49 250 0,5 75 42 261 249 200 384 414 0,5 32 291 346 268 280 330 357 76 148 168 174 218 0 0,0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: authors elaboration on information in the European Commission financial statements for EAFRD, EAGF, EAGGF and state aid and Eurostat (Economic accounts for agriculture)

In assessing the intensity of Lithuanian agricultural and rural development subsidies under the CAP and national aid measures, the percentage of these subsidies of GDP has increased from an average of 0.5 percent in 2001–2003 to an average of 1.9 percent in 2004–2006. In the subsequent period, the level of support intensity remained almost unchanged and accounted for 1.98 percent in 2014. It is more than 4 times higher than across the EU (0.45 percent on average). According to the data of Economic Accounts for Agriculture82, in the period of 2004–2013, the majority of direct support subsidies (86 percent) were allocated to the crop production sector. As seen in Fig. 37, during this period, the subsidies for crop production increased 13.9 times, dropped significantly for livestock farming from 2007 onwards.

Figure 37. Trend of direct support subsidies and agriculturas output in Lithuania

Index 2003 =100 Index 2003 =100 Crop: Subsidies on products Crop: Output Livestock: Subsidies on products 250 Livestock: Output 1600 1386 1361 1413 212 191 191 1400 1195 1225 183 1118 200 176 1200 979 1022 996 150 147 895 882 921 141 1000 150 120 127 127 754 108 800 100 100 489 100 126 600 119 116 121 122 122 337 111 115 107 111 111 111 111 400 100 194 177 177 50 100 94 98 58 58 102 200 49 1 1 0 0

Data source: Authors elaboration on information in Eurostat (Economic accounts for agriculture – indices: volume, price, values)

Such disproportion of support had an impact on the changes in the structure of agriculture: crop production increased several times more than livestock production (see Figure). According to

82 Eurostat data: Economic accounts for agriculture – values at current prices (aact_eaa01) 90 the agricultural statistics, during this period the dairy cows experienced a significant decrease in herds (29.5 and 28.6 percent, respectively), only the bird flock and sheep herds increased (21 percent and 4.9 times, respectively). The share of cereal crops in the utilised agricultural land has increased (from 34.1 to 43.6 percent), but the share of the green areas, i.e. meadows, pastures and perennial grasslands has decreased (from 44.8 to 38.6 percent). The intensification of crop production (especially fertilization with chemical fertilisers) and the turning up of grasslands and pastures did not just increase the GHG emissions (see Section 2.2.4), but augmented the ecological threat to the environment and the human health. It has been established that the imbalance in the structure of agricultural crops caused the threats of deterioration of soil structure and other soil degradation processes, the decline of soil biological resistance, the nutrient leaching and pollution of groundwater and surface water and the loss of biodiversity. The ecological risk in Lithuania is increasing, especially in those territories where the soils of very good and good economic value (42.1–52.0 yield points) are predominant83. It was determined that the investment support under the EU RDP farm modernization measures encouraged the investments and had a positive impact on the process of modernization and the growth of labour productivity in the Lithuanian farms that received the support84. However, this impact was not significant at the agricultural level of the country as a result of the relatively low coverage of the supported farms: less than 0.3 percent of the country’s farms were supported under the Investments in Agriculture Holdings measure (RDP 2004–2006) and about 6 percent were supported under the Modernization of Agricultural Holdings measure (RDP 2007–2013). Investment support for farm restructuring and modernization is particularly important for semi-subsistence farms, which make up almost two-thirds of the Lithuanian farms. Under the special Support for Semi-subsistence Farms (RDP 2004–2006) and Semi-subsistence Farming (RDP 2007–2013) mesures, 5821 semi-subsistence farms were supported during both periods. An analysis of the share of subsidies for investments in general farm investments85 showed that since the launch of the EU rural development programs in Lithuania, the contribution of these investments to increasing the farm investment opportunities is the largest in small farms. A more detailed analysis of the economic size classes of farms has shown that the larger the farms were, the lower was the significance of the investment support, i.e. the need for support for investments was much higher in the small and medium-sized farms than in the large ones. In the long run, the investment behaviour of large farms is more influenced by their ability to compete successfully in the market in order to earn enough money for investment and survi- val of the farm in a competitive environment, rather than public support subsidies. It is likely that after 2020, the EU support for agriculture will be significantly reduced. Therefore, in order to achieve sustainable development support, the future agricultural support schemes should be changed.

Support for Forestry In 2004–2006, support under the SPD Forestry measure was promoted for developing the economic, ecological and social functions of forests, improving the infrastructure of privately-held forests, increasing their productivity, improving the quality of the environment and biodiversity. Under the RDP 2007–2013 measures for Lithuania, support was allocated for forestry modernization,

83 Žemės ūkio, maisto ūkio ir žuvininkystės sričių išorės ir vidaus rizikos veiksniai, grėsmės ir krizės bei jų galimas poveikis. Moksli- nio tyrimo ir taikomosios veiklos projekto (sutartis Nr. MT-15-38) 2016 metų baigiamoji ataskaita. Akademija, 2016. 84 ESTEP. 2008. Galutinė Ūkio ministerijos 2004 – 2006 m. programavimo laikotarpiu administruotos ES struktūrinės paramos pa- naudojimo vertinimo ataskaita; BGI Consulting, 2016. Lietuvos kaimo plėtros 2007–2013 metų programos galutinis (ex-post) vertinimas. Galutinė ataskaita. 85 Vitusnskienė V.; Jazepčikas D. 2016. Investicinės ir tiesioginės paramos priemonių reikšmingumas ūkių investicijoms Lietuvoje. Apskaitos ir finansų mokslas ir studijos: problemos ir perspektyvos, Nr. 1 (10), p. 200–214. 91 innovative technologies, improvement of forest infrastructure, promotion of forest environmental services and increasing of forest area, afforestation of abandoned agricultural and other land areas. Du- ring the RDP 2014–2020 program period, support is aimed at promoting the use of renewable energy sources such as logging waste for the purposes of bioeconomy. During the SPD implementation period, almost EUR 5,5 million were paid, and during the implementation period of RDP 2007–2013 for Lithuania – almost EUR 204 million in support, representing respectively 1,9 and 20,3 percent of GVA by forestry (or respectively, 0.09 and 0.09 percent of the national GDP) during the same periods. The Lithuanian Rural Development Program for 2014–2020 allocated almost EUR 131.5 million. These funds are one of the most important sources of funding for the National Forestry Sector Deve- lopment Program for 2012–2020 other sources include other EU financial support funds, Lithuanian budget and other resources.

4.2. Research and experimental development potential in Lithuanian bioeconomy

Lithuanian research and experimental development (hereinafter – R&D) potential in bioeconomy was assessed using data of Statistics Lithuania, the education management information system, survey of universities and research institutions and MOSTA’s insights about the condition of science and education in Lithuania. R&D personnel are divided into researchers with a scientific degree, researchers without a scientific degree, technicians and equivalent staff, and other R&D personnel. R&D researchers, just like other R&D personnel, can work part-time. In order to determine the number of R&D personnel working full-time, they are recalculated as a full-time equivalent employees. According to the data of Statistics Lithuania, 10.5 thousand full-time equivalent employees were engaged in R&D activities in Lithuania in 2015, of which 2.6 thousand (or 25 percent) worked in the business sector. Researchers account for more than three quarters of R&D personnel. Here researchers who do not hold a degree in science dominate (accounting for 54 percent). Only 11.4 percent of R&D researchers working in the business sector had a degree in science. Thus the number of highly qualified R&D researchers is relatively low in business. Figure 38 presents the data on R&D researchers (in full-time equivalent) in higher education and government sectors by all field of science and field of agricultural sciences and biomedical (natural) sciences that are 100 percent attributable to bioeconomy. There were only 13.3 percent, or 838 R&D researchers (in full-time equivalent) working in the latter fields of science (in 2015). A very small part of them were engaged in agricultural sciences (4.1 percent, or 260 relative researchers). A certain share of researchers (in full-time equivalent) conducting research in the field of bioeconomy were engaged in technology and physical sciences, which cover such fields of science as biochemistry, biophysics and environmental engineering, and thus the number of researchers researchers in the fields of science attributable to bioeconomy can account for about 15–18 percent. The total number of researchers (in full-time equivalent) decreased in the country by 9.3 percent in 2015 compared to 2005, while in the area of agriculture and other biomedicine sciences it decreased by 25.9 and 0.3 percent, respectively.

Figure 38. R&D researchers in Lithuanian higher education and government sectors

R&D researchers (in full-time equivalent)) Humanities sciences Social sciences Technological sciences Physical sciences Agricultural sciences Biomedical sciences 10 000 Medical sciences Other biomedical (natural) sciences 9 000 540 611 569 552 567 8 000 580 973 1009 785 483 814 826 953 587 463 565 527 7 000 551 555 534 578 1525 1549 1352 1070 500 1394 1437 1522 1014 1120 1061 6 000 330 270 1078 351 338 381 343 334 274 274 276 5 000 1348 1323 260 1264 1278 1298 1299 1306 1325 1342 1337 4 000 1232 1383 1386 1399 1300 3 000 1296 1335 1453 1465 1384 1356 1284 1431 1611 1635 2 000 1270 1330 1208 1280 1670 1602 1503 1392 1 000 1346 1385 1300 1353 1380 1330 1324 1039 1156 1108 1033 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: authors elaboration on information in Lithuanian Official Statistics Portal (R&D personnel)

In 2008–2015, number of R&D personnel (in full-time equivalent) increased from 229 to 316, or by 38 percent, in bioeconomy business sector, and at the end of the period accounted for 12 percent of the total number in the entire business sector. A number of R&D personnel (in full-time equivalent) by separate bioeconomic activities presented in Figure 39 shows that most of them were employed in the production of chemicals (160 in 2015), where their number increased. Much fewer R&D personnel (in full-time equivalent) worked in the production of furniture (45), food, beverages and tobacco (42), and pharmaceuticals (34). A few relative R&D employees were engaged in such bioeconomic activities as manufacture of textiles, apparel and leather products (18), paper (9) and wood (21 in 2014 and only 2 – in 2015). There were the least R&D personnel (in full-time equivalent) working in agriculture, forestry and fisheries, and here these employees worked only in certain years of the period under examination, for example, 6 – in 2015. Low number of R&D personnel (in full-time equivalent) in these bioeconomic activities may first of all be explained by a relatively low domina- tion of small enterprises, which normally are rarely engaged in R&D.

Figure 39. R&D personnel in bioeconomy business enterprise sector in Lithuania

R&D personnel (in full-time equivalent) 2008 2009 2010 2011 2012 2013 2014 2015 200

150

100

0 Agriculture, Manufacture of Manufacture of Manufacture of Manufacture of Manufacture of Manufacture of Manufacture of forestry and food, beverages textiles, apparel wood products paper chemicals* pharmaceuticals* furniture and fishing and tobacco and leather* other manufacture*

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Data source: authors elaboration on information in Lithuanian Official Statistics Portal (R&D personnel)

The Lithuanian R&D potential in bioeconomy is also illustrated by the number of doctoral students. Bioeconomy doctoral students accounted for 16-18 percent of the total number of doctoral

93 students in the study years 2013/2014–2016/2017. The number of doctoral students also allows indirectly determining the share of researchers working in the field of bioeconomy. Data presented in Figure 40 show that the majority of doctoral students study biomedicine and agricultural sciences (with 42 and 25 percent, respectively, studying in 2016/2017). 22 percent of all bioeconomy doctoral students studied physical sciences, which include biochemistry and biophysics, and 11 percent studied technological sciences, which cover environmental engineering. The number of bioeconomy doctoral students changed slightly in the past four study years (increased by about 16 percent), but the total number of doctoral students increased by a mere 2 percent.

Figure 40. Number of doctoral students by field of science attributable to bioeconomy in Lithuania

Number of doctoral students by field of science Zootechnics; Pharmacy; T 000 Technological Sciences 21; 4% 12; 3% Veterinary Zoology; 1; P 000 Physical Sciences medicine; 24; 0% B 000 Biomedical sciences 5% 600 A 000 Agricultural Sciences Forest Biology; 500 science; 29; 117; 23% 43 56 6% 32 33 400 101 110 84 93 Biophysics; 300 36; 7% Ecology and 215 212 200 193 207 Agronomy; Environment 49; 10% al; 82; 16% 100 123 118 123 123 Biochemistry; Environmental 74; 15% 0 Engineering; 56; 11% 2013-2014 2014-2015 2015-2016 2016-2017

Data source: authors elaboration on information in Education management information system

The development of scientific potential and commercialization of the created products depends on R&D funding. In 2015, total Lithuania’s R&D expenditure accounted for 1.04 percent of GDP. The ratio of R&D expenditure to GDP in higher education and government sectors was 0.76 percent, and in the business sector it was 0.28 percent. State budget funds accounted for the main share of R&D expenditure, i.e. 35.6 percent, in terms of the sources of financing, foreign funds – 34.6 percent, funds of business enterprises – 28 percent and funds of higher education and non-profit institutions accounted for 1.8 percent. R&D financing from the funds of the government increased by 10.6 percent per year, but business financing decreased by 12 percent. Business enterprises allocated only about EUR 74 million for R&D activities in 201686. In terms of business expenditure on R&D, Lithuania is one of the most lagging EU states – it ranks 25th in terms of the share of such expenditure in GDP and per capita. In 2015, business expenditure on R&D accounted for 0.28 percent of GDP in Lithuania, while the EU’s average was 1.3 percent and in the leading countries (Sweden and Australia) it accounted for more than 2 percent. In that same year, business expenditure on R&D was EUR 35.6 per capita compared to the EU average of EUR 37687.

86 Statistics Lithuania. 2016. Research and Development Activities in Lithuania in 2015. Vilnius. 87 Data source – Eurostat business enterprise R&D expenditure (BERD) by economic activity (NACE Rev. 2) data 94

In 2017, Lithuania ranked only 16th out of 28 countries on the European Innovation Score- board. The assessment of the global competitiveness according to the innovation and business intel- ligence sub-index revealed that Lithuania ranked 43rd in 2016, and stepped 6 positions down compared to 201588. In 2011, R&D expenditure in the research and governmental sectors increased and totalled more than EUR 280 million in 2015 (Figure 41). The R&D expenditure increased the fastest in biomedical sciences, accounting for 30 percent of the overall expenditure in this field in 2015, while expenditure on other biomedicine sciences totalled 17 percent. More than a third of R&D expenditure in the period under examination was intended for fundamental research and slightly less than 2/3 – for applied research and experimental development.

Figure 41. R&D expenditure in higher education and government sectors by field of science

R&D expenditure (million. Eur)

400 Humanities sciences Social sciences Technological sciences Physical sciences

Agricultural sciences Biomedical sciences 48,3 Medical sciences Other biomedical (natural) sciences 36,0 300 30,2 37,5 32,8 33,1 25,3 20,9 85,8 21,5 22,8 68,7 25,1 63,3 23,7 200 17,8 15,5 48,0 14,5 46,0 18,6 19,7 17,1 45,2 22,0 15,6 20,6 14,2 12,0 18,4 12,0 17,8 34,9 16,0 37,5 50,3 54,7 56,9 17,9 35,1 12,8 13,5 42,6 43,3 32,0 32,8 10,2 30,0 29,2 28,6 100 10,7 26,6 50,4 50,4 9,1 48,9 43,4 59,0 20,2 24,4 48,9 42,8 37,4 36,8 30,8 32,5 38,7 36,0 38,9 40,2 36,1 26,9 30,0 32,5 25,8 20,8 21,1 23,7 23,1 26,0 29,5 27,8 25,5 0 14,1 16,7 19,7 19,4 20,5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Data source: authors elaboration on information in Lithuanian Official Statistics Portal (R&D expenditure)

Six universities are engaged in scientific research in the field of bioeconomy (namely, Alek- sandras Stulginskis University, Kaunas University of Technology, Klaipėda University, Lithuanian University of Health Sciences, Vytautas Magnus University and Vilnius University) and 9 research institutes (Nature Research Centre, Centre for Physical and Technological Sciences, Centre for Inno- vative Medicine, Lithuanian Research Centre for Agriculture and Forestry, Lithuanian Energy Insti- tute, Biomedical Engineering Institute, Life Sciences Centre, Institute of Animal Science and Food Institute). By way of a questionnaire survey (see Annex 7), having assessed 236 research projects being implemented by the universities and research institutes in 2014 – 2017, it was found that almost a quarter of funds was allocated for agriculture, about a fifth of funds – for biowaste recycling and manufacture of food products, and one sixth – for fisheries and aquaculture. Manufacture of bio- based pharmaceuticals, forestry and logging, bioenergy, bio-based construction, manufacture of bio- based chemicals as well as for water treatment and sewerage accounted for about 5 to 7 percent of the total funding (Figure 42).

88 Valstybės investicijos į mokslinius tyrimus ir eksperimentinę plėtrą siekiant inovacijų augimo. Valstybinio audito ataskaita. Vals- tybės kontrolė. 2017 m. balandžio 10 d. Nr. Nr. VA-P-50-1-7. 95

Figure 42. Research project by bioeconomy sectors considering project estimates

Manufacture of wood Value in mill. EUR; % Manufacture of bio-based products; 86; 0.6% plastics; 112; 0.8% Water treatment and sewerage; ; 25; 0.2% 704; 4.8%

Manufacture of bio-based chemicals; 821; 5.6% Agriculture; 3558; Bio-based construction; 949; 24.2% 6.5%

Bioenergy; 987; 6.7% Waste treatment ; 1892; 12.9% Forestry and logging; 1005; 6.8%

Manufacture of bio-based pharmaceuticals; 1061; 7.2% Manufacture of Fishing and aquaculture; food; 1843; 12.6% 1642; 11.2%

Source: data of questionnaire survey of research institutions (n=219)

The survey of the universities and research institutes determined that in the implementation of bioeconomy R&D projects, the involvement of these institutions in later R&D stages is minor (Figure 43). The majority of research project results are associated with the concept of application of knowledge (about 87 percent), much fewer research results (about 50 percent) – with new (fundamental) knowledge and only a very small share (about 18 percent) – with the creation, testing and checking of a layout, development and demonstration of a trial version of a prototype and the production and assessment of a trial batch. It should be noted that results achieved at the time of implementation of certain scientific research are associated with several types of R&D stage results.

Figure 43. Research projects by bioeconomy themes considering project estimates

R01 – New knowledge (acquisition of fundamental 106 knowledge) R02 – Concept of knowledge application 196

R03 – Proof of concept feasibility (approval) 16

R04 – Model development and testing 4

R05 – Testing model by simulating real conditions 0

R06 – Prototype (pilot version) development 2

R07 – Prototype (pilot version) demonstration 1

R08 – Pilot production (final testing) 1 R09 – New product evaluation (new 11 product test examples evaluated by user/customer) Other 10

Source: data of questionnaire survey of research institutions (n=236)

Figure 44 illustrates data on the distribution of research projects by themes, considering project estimate values. More than a half of research project funds is allocated for research of sustainable agro-biological resources and safe food, 17 percent – for new production processes, materials and technologies, and 10 and 8 percent, respectively, – for energy and fuel production from biomass or waste and waste management, as well as for molecular technology for bio-pharmacy.

Figure 44. Number of bioeconomy research projects by field of biotechnology in Lithuania

Innovative creation, Value million EUR; percent improvement and recycling of bio-materials ; 339; 4% Molecular technology for bio-pharmacy; 847; 9% Functional food; 63; 1%

Production of energy and fuel of biomass or waste, waste management ; 877; 9%

Sustainable agro- New production biological resources processes, materials and safer food; and technologies ; 5781; 61% 1541; 16%

Source: data of questionnaire survey of research institutions (n=221) The following was determined in R&D field89:  low focus of research and educational institutions on prototypes, products suitable for the market, spin-offs;  research and educational institutions have insufficient experience and motivation to create patented, licensed or otherwise commercialised products suitable for the market;  management of R&D projects implemented in research and educational institutions must be enhanced in order to turn research results into products;  there is an obvious lack of start-ups and spin-offs;  the Lithuanian science system is fragmented, thus poor culture of cooperation exists not only among scientists and entrepreneurs, but also among researchers from different institutions;  cross-institutional and cross-border coordination of innovation activities in Lithuania remains inefficient. It was also emphasised that the current R&D management system remains focused on the process rather than partnership-based programme management. Companies implementing technologic innovation have cooperated with research and educational institutions increasingly less90. Open access research centres have attracted business as planned. Research and technology parks are mostly engaged in the lease of premises, even though they also were assigned other functions, such as the transfer of technologies and commercialization of scientific research results. It is not clear which share of companies established therein are engaged in innovation activities. In the performance of valley programmes, the main focus was placed on the renovation of infrastructure. It was created as

89 MOSTA. 2016. Review of the state of Lithuanian research and education. Vilnius 90 Ibidem 97 means to ensure cooperation between business and science, develop innovation and attract private investments from Lithuania and abroad. Ambitious valley programme goals and target indicators were set, but neither valley associations nor the Ministry of Education and Science presented any information thereon. The use of equipment of laboratories operating under an open-access principle by businesses is limited. In the implementation of orders of economic entities of the country, only 31 percent of works were conducted in open access centres91. Compared to the total business sector R&D expenditure, expenditure on bioeconomic activities totalled EUR 11.2 million, or 10.8 percent, in 2015. In 2008–2015, this share decreased by 1.6 percentage point. Data presented in Figure 43 allowed determining that:  the greatest expenditure on R&D was in the chemical industry. It almost doubled in eight years and accounted for more than two fifths of all business spending on R&D in bioeconomic activities, or almost 5 percent of all business expenditure on R&D in 2015;  expenditure on R&D of pharmacy and food companies ranks second and third. In 2015, it accounted for a fifth of all business expenditure on R&D in bioeconomic activities, or 2 percent of all business R&D expenditure, each. Business expenditure on R&D in the pharmacy industry changed slightly in eight years, but significantly increased in 2014; it nearly doubled in food, beverages and tobacco industry;  lately, R&D expenditure of furniture production companies has increased. In 2013, it accounted for 35 percent of the total R&D business expenditure in all sectors of bioeconomy, while in 2015 it amounted to almost a tenth;  R&D expenditure of the business sector on manufacture of textiles, apparel and leather, agriculture, wood and paper is minor.

Figure 45. R&D expenditure in business sector in Lituanian bioeconomy

R&D expenditure (million EUR)

2008 2009 2010 2011 2012 2013 2014 2015 12 10 8 6 4 2 0 Agriculture, Manufacture of Manufacture of Manufacture of Manufacture of Manufacture of Manufacture of Manufacture of forestry and food, beverages textiles, apparel wood products paper chemicals* pharmaceuticals* furniture and other fishing and tobacco and leather* manufacture*

Business admits that innovations are a very risky area, and failures are frequent here, thus not all business representatives are willing to take the risk. Another problem is the lack of control and the sharing of managerial skills: there is a shortage of specialists, who could help find the missing profe- ssionals of different areas, who could work with the company from the initial stage of the creation of

91 Valstybės investicijos į mokslinius tyrimus ir eksperimentinę plėtrą siekiant inovacijų augimo. Valstybinio audito ataskaita. Vals- tybės kontrolė. 2017 m. balandžio 10 d. Nr. Nr. VA-P-50-1-7 98 innovation till its practical adaptation, ensure a smooth project implementation and familiarise with opportunities to receive additional financial support92. Businesses in the country often confine themselves to providing financial assistance at the product development stage only, without rendering assistance for the introduction of a new product into the market, where the risk of a failure is signifi- cant93. On one hand, it was determined that as many as 75 percent of new products in the market fail, on the other hand, the introduction of a product into the market is an expensive procedure94. The process of commercialization of industrial biotechnology products is long for regulatory constraints, poor consumer awareness of the products, the advantages and functions whereof are not sufficiently clear. Moreover, currently there is no approved definition and common understanding of the term “bioproduct”95. It has been emphasised that so far Lithuania does not have the culture of accounting for funds for research – in the absence of incentives, only a small part of companies declare research96. Since there is no clear understanding of what R&D investments are and which used funds can be attributed thereto due to the lack of information, corporate accounting often does not reflect the actual investments in innovation97. Another reason of non-declaration of business expenditure on R&D is insufficient system efforts of the country in this field. In order to take advantage of the incentive, companies incur additional costs, the payoff whereof is economically sound only when a significant profit is received. Moreover, the use of R&D incentive is associated with the risk of recalculation of additional payables and interest for the companies due to discrepancies in their accounting98. The analysis revealed the condition and trends of research and development and the potential of innovation in bioeconomy: − There were 13.3 percent of relative R&D researchers working in the fields of research directly attributable to bioeconomy in 2015. Considering the fact that bioeconomy-related research in biochemistry, biophysics and environmental engineering has also been conducted, the proportion of researchers may be 2–5 percentage points greater; − Manufacture of chemicals had the most R&D employees in business during the period under examination. Increase in the number of R&D employees was observed in this business. A fewer R&D employees were employed in manufacture of food products, beverages and tobacco. A much lower but similar number of R&D employees was observed in manufacture of textiles, apparel and leather products, pharmaceuticals and furniture. “Infilt- ration” in agriculture, forestry and fisheries or manufacture of paper and its products is very poor and fragmented; − The number of doctoral bioeconomy students accounted for an average of 16–18 percent of the total number of doctoral students in the past four study years, and increased more rapidly than the number of doctoral students of other areas unrelated to bioeconomy. More than a third of R&D expenditure in Lithuania is designated for fundamental research, and slightly less than 2/3 – for applied research and experimental development. The business- funded share of research significantly decreased in 2016 compared to 2015;

92 Balčiūnas A. 2017. Su kuo valgomos inovacijos Lietuvoje? Delfi, kovo 6 d; interview of representatives of business associations 93 Interview of representatives of business associations. 94 Kaip sėkmingai įvesti į rinką naują produktą? Verslo žinios, 2015-04-08 95 The bioeconomy enabled: a roadmap to a thriving industrial biotechnology sector in Europe. Funded by the European Union. 96 Jakubavičius A. 2017. Verslo investicijų į MTEP didinimas: misija (ne)įmanoma. Delfi, kovo 6 d. 97 Balčiūnas A. 2017. Su kuo valgomos inovacijos Lietuvoje? Delfi, 2017 m. kovo 6 d; interview of representatives of business associations 98 Jakubavičius A. 2017. Verslo investicijų į MTEP didinimas: misija (ne)įmanoma. Delfi, kovo 6 d. 99

− Lithuania has a scientific potential for the development of bioeconomic activities, however the involvement of business in joint research is insufficient, and thus the country is among the last ones in the ranking of the European Innovation Scoreboard. The Lithuanian research system is fragmented, thus the culture of cooperation not only among researchers and entrepreneurs, but also among scientists of different institutions is poor. Cross-institutional and cross-border coordination of innovation activities remains inefficient in Lithuania. Business-oriented actions and measures under “Horizon 2020” and the Baltic Sea Region Programme are planned separately. Coordination of different sources of financing and funds and coordination and monitoring of the system level remain the main innovation system management problems. Activities of open access centres do not attract business as planned; research and technology parks are usually engaged in the lease of premises, while business makes little use of equipment of laboratories of valleys operating under the open access principle; − Even though Lithuania has a scientific potential for developing bioeconomic activities, business is insufficiently involved in joint research. Its involvement could be increased through projects funded by the Research Council of Lithuania. Considering the fact that research and experimental development is allocated 2/3 of expenditure in Lithuania, the commercialization of research products is too slow. Business can make very limited investments in research and experimental development, because enterprises are relatively small. In order to speed up the introduction of new products into the market, business involvement could also be increased through the implementation of European innovation partnership projects; − In order to increase the competitiveness level of Lithuania’s bioeconomy, ensuring high scientific competence and promoting innovation in the segment of bioeconomic activities creating a higher value added is important. Considering the bioeconomy value chain, Lithuania should focus the available potential of researchers and doctoral students and the conducted research projects on innovative bio-based pharmaceuticals and chemicals, manufacture of food and feed. Focus should also be placed on manufacture of products at the bottom of the “bioeconomy value pyramid”, because here bioproducts and waste unsuitable for recycling may be used. It is important to ensure the longest possible “lifecycle” of biomass and products made thereof, i.e. assuring that it led towards circular economy.

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5. Analysis of the bioeconomy sector of European Union countries

5.1. Analysis of strategic documents of the EU and OECD related to bioeconomy development

The examined strategic EU documents present bioeconomy strategies and action plans as well as bioeconomy sector-related strategies and action plans. The main EU bioeconomy strategic document is Communication from the Commission “Innovating for Sustainable Growth: A Bioeconomy for Europe” (2012). The plan is to review this strategy in 2017. Bioeconomy strategy is also partially laid down in the European Parliament’s document “A strategy for a bio-based economy” (2012). The regional EU bioeconomy strategy is laid down in the Communication from the Commission “Con- cerning the European Union Strategy for the Baltic Sea Region” (2009). Other documents lay down strategies and action plans closely related to the bioeconomy sector: circular economy action plan, European Innovation Partnership on Biomaterials, rebirth of the industry via the use of biomass, the strategy for smart bioeconomy specialisation and strategic directions of R&D programme “Horizon 2020”. The examined strategic OECD documents emphasise the role of biotechnology in bioeconomy. Table 11 presents the EU and OECD strategic documents, bioeconomy and related strategies set as a result of the analysis of their content, action plans and their substantiation.

Table 11. Provisions of strategic documents of the EU and OECD on the development of bioeconomy

Documents Bioeconomy strategic provisions, action plans and their substantiation Communication from the Co- The Bioeconomy Strategy and its Action Plan aim to pave the way to a more innova- mmission to the European tive, resource efficient and competitive society that reconciles food security with the Parliament, the Council, the sustainable use of renewable resources for industrial purposes while ensuring envi- European Economic and So- ronmental protection. They will form research and innovation agendas in bioeco- cial Committee and the Co- nomy sectors and contribute to a more coherent policy environment, better interrela- mmittee of the Regions “Inno- tions between national, EU and global bioeconomy policies and a more engaged pub- vating for Sustainable lic dialogue. The bioeconomy's cross-cutting nature offers a unique opportunity to Growth: A Bioeconomy for comprehensively address inter-connected societal challenges such as food security, Europe”. Brussels, 14.2.2012, natural resource scarcity, fossil resource dependence and climate change, while COM/2012/060 final achieving sustainable economic growth. The Europe 2020 Strategy calls for a bioeconomy as a key element for smart and green growth in Europe. European Parliament. A stra- The strategy for a bio-based economy states that future bio-based economy should tegy for a bio-based economy. focus on higher value applications – i.e. chemicals and materials – rather than on Green New Deal Series vo- bioenergy as an application of biomass, because these do not require such big volu- lume 9, 2012 mes of biomass as feedstock. The EU is in need of creating such a level playing field between the different uses of biomass to be able to steer biomass demand away from the most inefficient way to use biomass: for energy purposes. The success or failure of a sustainable bio-based economy goes hand in hand with the sustainable production of biomass. The application of biomass that is located at the bottom of the value pyramid is bioenergy. The total volume of biomass needed for energy production is so huge that the sustainability of biomass production cannot be guaranteed. Communication from the Co- The European Union Strategy for the Baltic Sea Region is a key instrument in pro- mmission to the European moting territorial cohesion with land and maritime dimensions. The strategy aims at Parliament, the Council, the ensuring that policies contributed to a competitive, cohesive and sustainable devel- European Economic and So- opment of the region at all levels (local, regional, national and the EU). In that sense, cial Committee and the Co- such a strategy serves well the objectives of territorial cohesion: reducing territorial mmittee of the Regions “Con- disparities, ensuring equivalent living conditions, building on the territories, recog- cerning the European Union nising diversity as an asset, acknowledging the potential of the regions, allowing for Strategy for the Baltic Sea Re- a fair access to infrastructures and services, strengthening polycentricity, building gion. Action Plan”. Brussels, good links between urban and rural areas, promoting good governance with equal

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10.6.2009, COM (2009) 248 participation and sharing of common resources, resting on the ecosystem-based man- final agement and planning of maritime space. European Commission. Co- The bioeconomy offers an integrated approach to incorporate economic / prosperity, mmission Staff Working social and environmental (on land and in the sea) aspects of sustainability in agricul- Document. European Union ture, forestry, fisheries and aquaculture – and more than that: it also offers an ap- Strategy for the Baltic Sea Re- proach for enhancing sustainability, entrepreneurship, competitiveness and growth – gion. Action Plan. Brussels, in cities and rural regions alike – by building on circular thinking; and an approach 20.3.2017 SWD(2017) 118 fi- that aims to enable a transition from a fossil-based to a sustainable bio-based society. nal In other words a sustainable bioeconomy is linked to all parts of the green and blue economy. The bioeconomy offers opportunities for paving the way for strengthening the international competitiveness of the European economy as well as for a lower emission and more resource efficient economy that combines food production with the sustainable use of renewable resources for industrial and energy purposes and environmental protection. The conversion to a bio-based economy means a transition from an economy that is based, to a large extent, on fossil fuels, to a more resource- efficient economy based to a higher extent on renewable raw materials that are produced through the sustainable use of ecosystem services from land and water. The Baltic Sea region is making progress towards realising a number of opportunities embedded in the bioeconomy. For example, good farming practices (innovative technologies for animal feeding and housing; processing; storage; improved water quality and quantity; and handling of fodder, fertiliser and handling of manure – including with a view to energy production); good marine practices (macroalgae harvesting and cultivation, mussel cultivation, reed harvesting, large-scale microalgae cultivation, and sustainable fish aquaculture); good practices on waste water management; good health practices (on boosting the engagement of smaller biotechnology companies and commercialisation of clinical inventions); good circular economy practices (such as through industrial symbiosis) and more generally, many good practices on technology chains and business innovation. The development of blue bioeconomy in the Baltic Sea region should be promoted. The main targets of the development: improved recycling of nutrients in agriculture; added value through cooperation within Baltic fisheries and aquaculture; synergies from cooperation between the Rural De- velopment Programmes; involvement of the business community, increase knowledge on sustainable forest management; increased coordination and synergy in the Baltic Sea region among public sector and NGO cooperation initiatives, projects and stakeholders dealing with bioeconomy; realizing the bioeconomy in the Baltic Sea region: development of a sustainable bioeconomy in the Baltic Sea region; contributions to the development of the European Bioeconomy. Communication from the Co- The transition to a more circular economy, where the value of products, materials mmission to the European and resources is maintained in the economy for as long as possible, and the generation Parliament, the Council, the of waste is minimised, is an essential contribution to the EU's efforts to develop a European Economic and So- sustainable, low carbon, resource efficient and competitive economy. Such transition cial Committee and the Co- is the opportunity to transform our economy and generate new and sustainable com- mmittee of the Regions “Clo- petitive advantages for Europe. sing the Loop – An EU Ac- The Commission will propose a revised EU regulation on fertilisers, so as to facilitate tion Plan for the Circular Eco- recognition of organic and waste-based fertilisers in the single market and thus nomy”. Brussels, 2.12.2015, support the role of bio-nutrients in the circular economy. COM (2015) 614 final In order to support the achievement of the Sustainable Development Goal target on food waste and to maximise the contribution of actors in the food supply chain, the Commission will develop a common EU methodology to measure food waste and define relevant indicators. It will create a platform involving Member States and stakeholders in order to support the achievement of the SDG targets on food waste through the sharing of best practice and the evaluation of progress made over time; take measures to clarify EU legislation relating to waste, food and feed and facilitate food donation and the use of former foodstuff and by-products from the food chain in feed production without compromising food and feed safety; examine ways to improve the use of date marking by actors in the food chain and its understanding by consumers, in particular the „best before“ label. Commission will promote efficient use of bio-based resources through a series of measures including guidance and dissemination of best practices on the cascading use of biomass and support for innovation in the bioeconomy. The revised legislative

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proposals on waste contains a target for recycling wood packaging and a provision to ensure the separate collection of biowaste. Communication from the Co- This EIP will contribute to the mid- and long-term security of sustainable supply of mmission to the European raw materials (including critical raw materials, industrial minerals and wood-based Parliament, the Council, the materials) that are required to meet the fundamental needs of a modern resource ef- European Economic and So- ficient society. It is an essential contribution to the competitiveness of European in- cial Committee and the Co- dustries, to increased resource efficiency in the EU, and to the development of new mmittee of the Regions “Ma- European-based recycling activities. The EIP has an overall target of reducing Eu- king Raw Materials Available rope's import dependency on raw materials that are critical to Europe's industries. for Europe's Future Well- This will be achieved by providing Europe with enough flexibility and alternatives Being. Proposal for a Euro- in the supply of important raw materials, whilst taking into account the importance pean Innovation Partnership of mitigating negative environmental impacts of some materials during their life cy- on Raw Materials”. Brussels, cle, thus making Europe the world leader in the capabilities related to exploration, 5.3.2012, COM (2012) 82 fi- extraction, processing, recycling and substitution by 2020. As part of its Strategic nal. Implementation Plan (SIP), the EIP will be expected to set out impact targets to measure its success, for example in terms of major reductions in import dependency of some of the most critical raw materials. Opinion of the European Eco- Among EESC recommendations: the goal of greening European industries to be ac- nomic and Social Committee companied by a strong drive towards more new technology and knowledge-based, on the „Communication from higher value-added, competitive industrial and service sectors; all players, including the Commission to the Euro- employees and employers, to be involved in creating a favourable, predictable envi- pean Parliament, the Council, ronment for industry, with initiatives based in regions; every reasonable measure to the European Economic and be taken to reduce European energy prices. The EESC supports the Commission's Social Committee and the Co- intentions on raw materials diplomacy and its plans to eliminate price distortions on mmittee of the Regions — For inputs for industry. Exploration and exploitation of raw materials within the EU an European Industrial Re- should be stepped up and relevant regulation should be harmonised. As for legislative naissance“ COM(2014) 14 fi- initiatives on resource efficiency and waste, they should be designed carefully in or- nal der to deliver optimal results while avoiding unnecessary cost burdens (in the short term) for companies. Policy neutrality in access to biomass is needed for efficient application of the cascade principle in the use of biomass. Bioeconomy development in By 2030, applications of biotechnology could account for 2.7 percent of the GDP. the EU regions. Mapping of Well before 2030, biotechnology will be used in the development of all new pharma- the EU Member States’ / re- ceuticals and most new varieties of large market crops such as wheat, soy beans, gions’ Research and Innova- potatoes and cotton. Bioeconomy will create winners and losers, often within the tion plans & Strategies for same sector. The full benefits of the emerging bioeconomy will not develop without Smart Specialisation (RIS3) purposeful goal-oriented policy. This will require leadership, primarily by gover- on Bioeconomy. Framework nments but also by leading firms, to establish clear goals for the application of bio- Contract 2014.CE.16.BAT technology to primary production, industry and health; to put in place the structural Lot 2. Final Report. 28.2.2017 conditions required to achieve success such as obtaining regional and international agreements, and to develop mechanisms to ensure that policy can flexibly adapt to new opportunities. Many regions in Europe have a low level of bioeconomy maturity, i.e. cannot fully exploit the potential of bioeconomy on their own. Further development of bioeconomy-related R&I activities of the EU regions and Member States would require, at least: a common definition/classification of bioeconomy, for bioeconomy-related economic and research activities and for bioeconomy maturity in the EU regions that allows for monitoring and benchmarking bioeconomy deployment and support knowledge transfer; a coordinated support from the EU level to cities and regions in strategic planning and communication within a streamlined and integrated EU strategy and policy framework for bioeconomy. Also the knowledge exchange between Member States and regions should be supported/encouraged; strategic planning and leadership to coordinate, align and combine efforts on R&I, according to the different bioeconomy profiles and maturity levels; a more specialised support on the development of value chains according to different bioeconomy profiles and maturity levels; support in engaging traditional sectors (e.g. agriculture, trade, food, fisheries etc.) and, in particular, SMEs, in conversion processes towards the bioeconomy; support on developing transdisciplinary and specific bioeconomy competences and skills, both for research and academia and in businesses; better access to finance for small scale demo activities and pilot plants until new value chains and new technologies reach a sufficient TRL level to be market ready; more synergies and better coordination in funding and investments.

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Horizon 2020. The Fra- Under Horizon 2020, the EU identified seven priority challenges where targeted in- mework Programme for Re- vestment in research and innovation can have a real impact. One of these is Societal search and Innovation, Brus- Challenge, addressing a wide range of the key EU policy priorities: 1) the call “Inno- sels, COM(2011) vative, sustainable and inclusive Bioeconomy” (ISIB) runs in 2014 with a budget of 44.5 million. Known throughout the former research funding programme (FP7) as Knowledge-based Bioeconomy (KBBE), the call is now more generally designated as Bioeconomy; 2) the calls "Sustainable Food Security" (138 M€ in 2014) and "Blue Growth" (100 M€ in 2014) contribute to cover other important areas of Bioeconomy. Altogether, the budget for the three calls will serve to further implement Bioeconomy in Europe where at least five countries (Finland, Germany, Ireland, Sweden and Norway) already have approved strategies at governmental level. Industrial Biotechnology and This paper explores the potential role of industrial biotechnology in the bio-based Climate Change. Opportuni- economy and examines emerging trends, the impact of innovation, the convergence ties and Challenges. OECD, of technologies, and goes on to identify the challenges involved. It concludes with a 2011 need for an integrated and strategic approach to allow industrial biotechnology to fulfil its potential in the struggle with climate change. Industrial biotechnology has suffered a lack of investment at all levels, and there is a serious mismatch between future expectations of this industry and this low level of investment. Policy interven- tion is seen to be required across three broad criteria – social/environmental, industrial performance and economical. To make all this happen, not only national but also international policy is necessary in a rapidly globalising world. OECD International Futures The role of biotechnology could play in addressing what are considered the most Programme “The Bioeco- serious challenges to world economies and societies over the next decades. These nomy to 2030: Designing a challenges include providing food, water, energy, healthcare and other resources and Policy Agenda. Main Fin- services to the world that will see its population increase by a third in the face of dings and Policy Conclu- mounting environmental stresses over the next 20 years. Bioeconomy may have a sions”. OECD, 2009 major impact in many of these areas to ensure long term economic and environmental sustainability. The following are the main policy conclusions: 1) to prepare the foundation for long-term development of bioeconomy (to encourage the application of biotechnology in agriculture, to support long-term follow-up research into health outcomes and to reward environmentally sustainable technologies in industry); 2) to reverse the neglect of agriculture and industrial biotechnologies; 3) to prepare for a costly but beneficial revolution in healthcare; 4) to turn the potentially disruptive power of biotechnology to economic advantage (several biotechnologies that promise productivity improvements, better health or environmental sustainability could dis- rupt current business models and economic structures); 5) to reduce barriers to biotechnology innovation (high research costs, regulatory barriers and market concentration can prevent new entrants, hindering biotechnological innovation, especially for small market applications); 6) to promote the integration of biotechnology research across commercial applications (coordinating policies across government ministries has always been a challenge); 7) to create an ongoing dialogue among gover- nments, citizens and firms. The Application of Biotech- Developing a sustainable economy more extensively based on renewable carbon and nology to Industrial Sustaina- eco-efficient bioprocesses (a bio-based economy) is one of the key strategic challen- bility – A Primer. OECD, ges for the 21st century. At present, the global economy depends to a large extent on 2001. energy, chemicals and materials derived from fossil carbon sources, mainly petroleum. Petroleum provides us with fuels for transportation and heating. It also yields synthetic chemicals for producing plastics, paints, dyes, adhesives and a wide range of other useful industrial and consumer products. These developments have contributed to strong economic growth and employment and have literally transformed our global society. Improved understanding of biodiversity, ecology, biology and biotechnology is making it possible both sustainably to increase biomass productivity in forestry and agriculture as well as to utilise biomass and waste organic materials in a highly efficient and sustainable manner. Without such advances in science and technology, the transition to a bio-based economy would result in rapid depletion of renewable resources and environmental degradation. Thus, advances in science and technology are making it possible to have an economy where industrial development and job creation are not in opposition to environmental protection and quality of life. Getting there will be a major challenge, requiring effective tools to assess technology, processes and products for sustainability as well as policies that encourage sustainable production and consumption.

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Having examined the EU and OECD strategic documents related to the development of bioeconomy (Table 11) and conducted the analysis of their content, the main directions of expansion of bioeconomy at the EU and international level were identified. Having summarised the analysis of the content of the EU strategic documents, the following was determined: − bioeconomy strategy shall be focused on three areas: investment in research, innovation and skills; strengthening policy interaction and participation of stakeholders; increasing markets and competitiveness in bioeconomy sectors; − many European regions have a low level of bioeconomy maturity, thus cannot fully exploit their bioeconomy potential themselves. In pursuit of its better exploitation, maturity of economic and research activities must be assessed in the EU regions, monitoring and comparing the development of bioeconomy and supporting knowledge transfer; provide better specialised support for the development of value chains according to different bioeconomy profiles and maturity levels; seek for a greater bioeconomic synergy at the EU level; − advances in bioeconomy research and implementation of innovation would create conditions for Europe to improve the management of biological resources, open up new and more diverse markets of food and biotechnology products. European Innovation Partnership would also serve this purpose allowing reducing Europe’s dependence on imported raw materials which are very important for European industry; − bioeconomy shall be developed to align the supply with food, sustainable use of renewable resources for industrial purposes and ensurance of environmental protection. In order to ensure this coherence, transition to circular economy the circle whereof retains the value of products, materials and resources for as long as possible also generating the least possible amount of waste is very important; − special focus should be placed on the development of biotechnologies, because they will become the basis for the development of all bioeconomy sectors. To develop more competitive industrial and service sectors based on the latest technology, knowledge and higher value added. To apply cascading principle of the use of biomass. Bioeconomy will create winners and losers, often in the same sector, thus creating the greatest possible value added will be impossible without a targeted, goal-oriented policy. Future bioeconomy should be focused on the creation of a higher value rather than the use of biomass in the production of bioenergy, i.e. manufacture of chemicals and materials, because it does not require such large volumes of biomass as raw materials; − bioeconomy shall be developed in the Baltic Sea region in order to ensure that policy of all levels (local, regional, national and the EU) contributed to the development of a competitive, stable and sustainable region. In the performance of the regional policy, good governance with uniform participation and resource sharing, using ecosystems-based management and planning maritime spaces, should be promoted; “Horizon 2020” programme “Blue Growth” is also aimed at the implementation of these goals; sustainable development – economic, social and environmental, is the greatest challenge of the Baltic Sea region. Summary of the analysis of the content of OECD strategic documents revealed that main attention was devoted to efficient measures that allow assessing the sustainability of technologies, processes and products as well as the policy promoting sustainable production and consumption. Not only national but also international policy is necessary to this end, emphasizing therein the necessary 105 research and technology advances, because without the advances, renewable resources would rapidly die out, and the environment would degrade. Thus biotechnology receives exclusive attention. The analysis of the strategic documents of the EU and OECD related to the development of bioeconomy implies the following main recommendations for bioeconomy development in Lithuania: − main attention should be devoted to the use of biotechnologies targeted at manufacture of products of higher value (chemicals and materials) rather than the bioenergy, and the creation and development of biotechnologies for smaller waste and processing of this waste; − cascading principle in the use of biomass should be applied; − Lithuanian science and business should be encouraged to take over the knowledge, experience and commercialised products from the EU member states that have a high level of bioeconomy maturity; − a common policy of the development of bioeconomy of the Baltic Sea Region and the EU Member States should be formed.

5.2. Review of bioeconomy development of the European Union countries

Bioeconomy turnover According to the data of the bioeconomy report of the European Commission’s Joint Research Centre for 201699, in 2014, bioeconomy turnover of the EU-28 states totalled about EUR 2.2 trillion, with 18.6 million people employed in the sector. Bioeconomy accounts for an important share of the entire EU economy (about 9 percent). It was determined that about three fourths of persons employed in the EU bioeconomy worked in the manufacture of food, beverages and tobacco generating about two thirds of bioeconomy turnover. The industry of food, beverages and tobacco generated more than a half of bioeconomy turnover, while agriculture accounted for 17 percent (0.38 trillion EUR). In terms of sectors, the contribution of the biomass production sector in bioeconomy turnover accounted for 20 percent, meanwhile its contribution into the overall employment of bioeconomy was 55 percent; respective contribution of fully bio-based manufacturing industry comprised 67 and 35 percent and of partially bio-based production – 13 and 9 percent. Data of the above-mentioned report show that during the period from 2004 to 2014 the number of persons employed in the EU bioeconomy decreased by 2.2 million (or 10.5 percent), while bioeconomy turnover increased by EUR 140 billion (or 7 percent). It should be noted that the greatest reduction in the number of employees was in agriculture (by 1.2 million) due to its constant restructu- rization, also, in manufacture of wood and furniture made of wood (by 390 thousand), bio-based textile and clothes (300 thousand) and food, beverages and tobacco (by 200 thousand). It should be noted that the growth of the EU bioeconomy turnover was mainly determined by the development of food production (the turnover increased by EUR 98 billion), and slightly less – by changes in agriculture, where the turnover increased by EUR 26 billion, also in the production of chemical substances, medicines, plastics and rubber based solely or partially on raw materials of biological origin.

99 European Commission. 2017. JRC Science for Policy Report: Bioeconomy Report 2016. EUR 28468 EN. 106

Figure 46 illustrates bioeconomy turnover in the EU countries in relative and absolute units. In terms of bioeconomy turnover per person, Ireland, Finland and Denmark were leaders in 2014 (with about EUR 8800). Belgium, the Netherlands, Sweden and Austria had a somewhat lower bioeconomy turnover (of EUR 6200 – EUR 6900). Among the five countries generating most bioeconomy turnover, results of three countries, namely, France, Germany and Italy, were higher (EUR 4800 – EUR 5100 per person) than the EU-28 average (which is EUR 4400 per person), while two countries, namely, Spain and the United Kingdom, had results lower than the EU-28 average (EUR 4100 and EUR 3300 per person, respectively). In Lithuania, bioeconomy turnover per person was EUR 3800, which is lower than the EU-28 average.

Figure 46. Bioeconomy turnover in the EU countries

thousand EUR per person employed billion EUR in 2014 9.5 10 9.0 8.8 450 400 8 6.9 6.7 350 6.5 6.2 300 5.1 6 5.0 4.8 250 4.4 4.1 3.8 3.7 200 4 3.3 3.3 3.2 3.0 3.0 2.7 2.5 2.5 2.4 2.3 150 2.8 1.8 1.8 100 2 0.7 50

0 0

Italy

Spain

Malta

Latvia

France

Poland

Ireland Greece

Cyprus

Austria Croatia

Estonia

Finland

Sweden

Portugal

Bulgaria

Belgium

Slovenia Hungary Slovakia

Romania

Denmark

Lithuania

Germany

Netherlands

Luxembourg Czech Republic Czech United Kingdom United Source: authors elaboration on information in JRC Science for Policy Report: Bioeconomy Report 2016. European Co- mmission. 2017. Data of turnover in absolute terms for 2014 presented in that same Bioeconomy Report show that five countries generate almost two thirds (or EUR 1.4 billion in 2014) of bioeconomy turnover in the EU: Germany (18.3 percent of the total EU bioeconomy turnover), France (15.1 percent), Italy (13.2 percent), the United Kingdom (9.5 percent) and Spain (8.6 percent). Another one tenth is generated by Poland (5.1 percent) and the Netherlands (5 percent), while the remaining one fourth – by all other EU member states the contribution of each of which into the overall EU turnover ranged from 0.01 percent (Malta) to 3.5 percent (Belgium). Also, turnover data by bioeconomic activities in the EU countries revealed that:  France, Germany, Italy, the United Kingdom and Spain are the largest manufacturers of food, beverages, tobacco products and agricultural produce. In 2014, the total turnover of their food sector accounted for more than two thirds of the entire turnover of this sector in the EU. Also, these five countries generated about two thirds of manufacture of bio-based chemicals, pharmaceuticals, plastic and rubber sectors of the EU;  The largest manufacturers of textiles, wearing apparel, leather and related products in the EU are Germany, France, Italy and Spain. Their total turnover in 2014 accounted for 74 percent of the total turnover of manufacture of textiles, wearing apparel, leather of the EU-28 member states;  Spain, the United Kingdom and Italy are the largest manufacturers of fishing and aquaculture products in the EU. Their contribution into the total turnover of the EU fisheries sector accounted for 68 percent in 2014;  More than a half of manufacture of the EU wood and its products as well as of furniture made solely or partly of wood is concentrated in Germany, Italy, France and the United

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Kingdom. In terms of turnover, these four countries generated 54 percent of turnover of this sector in the EU in 2014;  Sweden was also determined to have generated 16 percent of the total turnover of the forestry and logging sector of the EU-28 in 2014. That same year, turnover of paper industry of Finland accounted for 10.6 percent of the total turnover of this industry in the EU-28, while Belgium generated about 9 percent of the total bioelectricity manufacture turnover of the EU-28 countries. Different model of bioeconomy100 with different specialisation and contribution to national economy is typical of the EU member states due to very diverse natural resources and different historically formed orientation of the country’s economy. The previously mentioned EU bioeconomy report revealed the specialisation of bioeconomy of certain EU countries. The analysis of bioeconomy turnover of 2014 allowed determining that:  the bioeconomy of Malta has been concentrated in two areas: agriculture generated 42 percent of the country’s bioeconomy turnover and aquaculture – 32 percent;  bioeconomy of Sweden, Finland, Latvia and Lithuania is significantly focused on the forestry sector, the turnover of which accounted for more than a tenth of national bioeconomy turnover of these countries (compared to the EU average of 2 percent);  Italy and Portugal generated about a sixth of the total bioeconomy turnover in manufacture of textiles and wearing apparel (17 and 15 percent, respectively) (compared to the EU average of 5 percent);  Estonia and Latvia stand out in terms of manufacture of wood and furniture made solely or partly of wood – the turnover of this sector accounted for about a third and more (38 and 33 percent, respectively) of their national bioeconomy turnover (compared to the EU average of 8 percent);  paper production of Finland and Sweden accounted for 9 and 22 percent of the national bioeconomy turnover, respectively, compared to the EU average of 8 percent;  Ireland and Denmark generated about a sixth of bioeconomy turnover in sectors of manufacture of bio-based chemicals (excluding biofuels), pharmaceuticals, plastic and rubber (with the EU average being 6 percent). Furthermore, having examined the contribution of separate sectors of bioeconomy or bio- based manufacturing industries to GDP and employment of separate EU countries according to the data of national Eurostat accounts on the GVA and persons employed under NACE 2 activities, areas of bioeconomy where countries specialise compared to the overall EU bioeconomy were identified. The main limitation of this analysis is the fact that there are no data on GVA created using solely or partly bio-based raw materials by partly bio-based manufacturing types. The same limitation also applies due to the lack of information on persons employed in this sector. Thus when analysing both of these indicators, the focus will be placed on the sectors of biomass production and fully bio-based manufacturing, which, as previously mentioned, account for the majority of turnover (87 percent) in the EU bio-economy and for more than 90 percent of the employed. The analysis presented below reveals a sufficiently clear view of peculiarities of bioeconomy specialisation of the EU countries.

100 European Commission. 2017. JRC Science for Policy Report: Bioeconomy Report 2016. EUR 28468 EN.

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Contribution of sectors of bioeconomy to GDP The specialisation (or concentration) of bioeconomy of a particular EU country can be determined using a relative indicator – location quotient (LQ). In this Study, LQ is calculated based on two variables, namely, GVA and employment. In the first case, LQ is calculated as a ratio between the share of GVA of the bioeconomy sector (or bioeconomy activity) in a certain EU country and a respective share throughout the EU. LQ shows how specialised (concentrated) a country is in a certain bioeconomy sector (or a separate economic activity) compared to the entire EU. In the second case, LQ is calculated as a ratio between the share of persons employed in bioeconomy sector (or a separate economic activity) in the total number of employees in a separate EU country and the respective share throughout the EU. This indicator illustrates the concentration of the country’s labour market in a certain bioeconomy sector or in a separate economic activity compared to the entire EU. According to absolute and relative units of GVA presented in Figures 47, 48 and Table 15 in Annex 9, it was determined that the majority of the EU countries are engaged in concentrated biomass and/or fully bio-based manufacturing. In 2014, the share of both sectors in GDP was greater (ranging from 4 to 10.1 percent) than the EU average (3.9 percent) in nineteen countries (out of the 26 analysed countries, Malta and Luxembourg were not included in the analysis due to the lack of data). Meanwhile, the contribution of both sectors to GDP of the United Kingdom, Germany, Denmark, Belgium, Cyprus and Sweden (from 2.4 to 3.6 percent) was lower than the EU average, while in France it corresponded to the EU average, despite the fact that France and Germany are the largest manufacturers of agricultural and food products in the EU, while the United Kingdom ranks fifth.

Biomass production sector Romania and Bulgaria are the EU countries specialised in biomass production the most. The share of GVA in GDP created in this sector in both countries (4.7 and 4.6 percent, respectively) is more than three times greater than the EU-28 average (1.4 percent). Hungary and Slovakia are two other countries highly specialised in biomass production, where the contribution of this sector to GDP (having reached 4 percent) was by almost 2.8 times greater than the EU-28 average. The significance of the biomass sector to the national economy in other five countries, including Lithuania (also Cro- atia, Greece, Estonia and Latvia), is more than twice greater than in the EU. These countries, except for Latvia and Estonia, have concentrated biomass production in agriculture the most out of all the EU counties. Its contribution to GDP in Romania (4.3 percent), Bulgaria (4.1 percent) and Hungary (3.8 percent) was more than 3 times greater than throughout the EU (1.2 percent), and in Slovakia (3 percent), Greece (2.9 percent), Lithuania (2.8 percent) and Croatia (2.7 percent) it was greater by almost two and a half times. Latvia, Finland, Estonia, Sweden and Slovakia are countries most concentrated in forest and logging out of all the EU countries. In 2014, the share of this subsector in GDP in Latvia and Finland (1.7 percent in each) was ten times greater than throughout the EU (0.16 percent), in Estonia (1.2 percent) it was greater by seven and a half times, while in Sweden and Slovakia (0.9 percent in each) – by more than five times. Lithuania is also specialised in forestry and logging – here the share of the created GVA in GDP (0.6 percent) is more than three times greater than the EU-28 average. Greece and Croatia are most specialised in fishing and aquaculture, where the share of this biomass production sector in GDP was respectively by 8.3 and 6.3 times greater than the EU-28 average. The specialisation of fishing and aquaculture is also important in Portugal, Cyprus and Es- tonia, where its contribution into GDP is more than 3 time greater than throughout the EU.

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Figure 47. Share of bioeconomy gross value added in the GDP in the EU countries

persent of GDP, 2014 persent of GDP, 2014 C10-C12 - Manufacture of food, beverages and tobacco Biomass production A01 - Agriculture Fully bio-based manufacturing A02 - Forestry and logging Partly bio-based manufacturing* C16 - Manufacture of wood C17 - Manufacture of papers A03 - Fishing and aquaculture

Romania 4.7 5.4 4.2 Romania 4.6 4.3 Lithuania 3.4 5.8 6.6 Lithuania 4.0 2.8 Latvia 3.1 5.1 1.9 Latvia 2.5 1.3 Bulgaria 4.6 3.6 4.1 Bulgaria 3.0 4.1 Croatia 3.5 4.2 3.1 Croatia 3.5 2.7 Estonia 3.1 4.4 2.8 Estonia 2.0 1.8 Slovakia 4.0 2.9 3.7 Slovakia 1.4 3.0 Poland 2.6 4.1 3.9 Poland 2.9 2.3 Hungary 4.0 2.5 4.4 Hungary 2.0 3.8 Greece 3.3 3.2 1.5 Greece 3.0 2.9 Ireland** 1.3 4.7 Ireland 4.5 1.1 Finland 2.4 3.3 2.5 Finland 1.3 0.7 Czech Republic 2.5 2.9 4.5 Czech Republic 2.0 1.8 Spain 2.3 3.1 3.1 Spain 2.7 2.0 Portugal 2.0 3.1 4.1 Portugal 2.2 1.4 Slovenia 2.1 2.5 6.3 Slovenia 1.3 1.5 Netherlands 1.7 2.4 2.8 Netherlands 2.1 1.6 Italy 1.9 2.1 4.0 Italy 1.5 1.8 Austria 1.2 2.8 3.2 Austria 1.6 0.8 France 1.5 2.4 2.4 France 2.1 1.4 EU (28 countries) 1.4 2.4 3.5 EU (28 countries) 1.8 1.2 Sweden** 1.2 2.4 Sweden 1.00,3 Cyprus 1.8 1.7 0.9 Cyprus 1.5 1.6 Belgium 0.6 2.4 4.7 Belgium 1.9 0.6 Denmark 1.4 1.6 5.0 Denmark 1.3 1.1 Germany 0.7 2.0 4.3 Germany 1.4 0.6 United Kingdom 0.6 1.8 2.5 United Kingdom 1.5 0.6 0 2 4 6 8 10 12 14 16 0 2 4 6 8 10 12 * the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators; ** excluding the share of partly bio-based sector due to the lack of Ireland’s data on GDP in chemistry (C20) and Sweden’s data on GDP in chemistry (C20) and medicines and pharmaceuticals industry (C21) . Source: authors calculations based on Eurostat data: National accounts aggregates by industry (up to NACE A*64) and GDP and main components (output, expenditure and income) Source: authors elaboration on information in Eurostat (National accounts aggregates by industry (up to NACE A*64))

Fully bio-based manufacturing sector Lithuania, Romania and Latvia are the EU countries specialised in bio-based manufacturing sector the most. Here, the share of this sector in GDP (5.8, 5.4 and 5.1 percent, respectively) is more than twice greater than the EU-28 average (2.4 percent). On the other hand, the contribution of bio- based manufacturing sector to GDP in Lithuania and Latvia is close to the contribution of the biomass production sector (see Figure 2 and Table 1 of Annex 1). Food industry together with the manufacture of beverages and tobacco products is best developed part of the fully bio-based manufacturing sector in the EU countries, except for Estonia, the larger share of GDP whereof consists of manufacture of wood and its products (2.2 percent), and Latvia, where the contribution of both sectors (food and wood) in GDP is nearly the same. Moreover, in the majority of countries, food industry creates the highest value added compared to biomass production sectors, as illustrated in Figure 3. Lithuania, Ireland and Romania are the EU countries that specialise in the production of food, beverages and tobacco products the most. Here the share of this sector in GDP (4.0, 4.5 and 4.5, respectively) is 2 – 2.5 times greater than in the EU.

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Figure 48. Gross value added in biomass production and fully bio-based manufacturing subsectors in the EU countries

At current prices (mill. EUR), 2014 Manufacture of food, beverages and tobacco Agriculture 100 000 Forestry and logging 80 000 Fishing and aquaculture Manufacture of wood 60 000 Manufacture of papers 40 000 20 000

Italy

Spain

Latvia

France

Poland

Greece

Ireland

Cyprus

Croatia Austria

Estonia

Finland

Sweden

Portugal

Belgium Bulgaria

Hungary Slovakia Slovenia

Romania

Germany Denmark

Lithuania

Netherlands

Czech Republic Czech United Kingdom United

Source: authors elaboration on information in Eurostat (National accounts aggregates by industry (up to NACE A*64)) Latvia and Estonia are most specialised in manufacture of wood and its products in the EU. The share of this industry in GDP is almost ten times greater than the EU average in Latvia and almost 9 times greater – in Estonia. Lithuania and Slovakia are the other two countries specializing in the production of wood and its products, with the contribution of this sector in GDP being 4-5 times greater than the EU-28 average. Finland is most specialised in manufacture of paper and its products among all the EU countries; its share in GDP (1.4 percent) is more than four times greater than that of the EU (0.3 percent). Swe- den ranks second, while Poland and Austria are third and fourth in terms of the contribution of the paper industry to GDP.

Growth in bioeconomy sectors Figure 49 presents data on the change in GVA in 2010-2014 calculated according to the chai- ned volume index (in 2010 = 100) illustrating which EU countries and which bioeconomy subsectors increased or decreased in the last period of average duration. Forestry and logging grew the fastest throughout the EU (by an average of 3.1 percent per year); paper industry and fishing increased slowly (by 1 percent per year) with agriculture and food, beverages and tobacco sectors (0.4 percent and 0.3 percent per year, respectively) experiencing a very slow growth. Meanwhile, wood industry (excluding furniture production) decreased by 8.3 percent, however, these bioeconomy subsectors experienced a very rapid or rapid growth in certain EU countries:  Fishing grew very rapidly in Slovakia, Romania and Cyprus – by 25 percent in the first two countries, and 14 percent – in Bulgaria per year. The fishing sector also grew rapidly in Lithuania (by an average of 8.5 percent per year), Hungary, Austria, Spain and Greece (more than 5 percent per year);  Slovakia can also be distinguished for a very rapid growth of the agricultural sector (by an average of 20 percent per year). A rapid growth in agriculture was also observed in Estonia, Latvia and Hungary (by 9.2, 8 and 6 percent per year, respectively), while agriculture in Lithuania and the United Kingdom increased by more than 4 percent per year;

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Figure 49. Change in the gross value added in the bioeconomy subsectors between 2010 and 2014 in the EU countries (±percent)

A01 - Agriculture A02 - Forestry and logging A03 - Fishing and aquaculture

Slovakia 80.8 Greece 57.2 Cyprus 90.0 Estonia 36.7 United Kingdom 55.0 Bulgaria 56.7 31.9 Latvia Estonia 47.5 Lithuania 33.8 Hungary 23.9 Romania 44.1 Hungary 23.1 Lithuania 17.6 Lithuania 34.8 Austria 22.6 United Kingdom 16.9 Slovakia 32.1 Spain 22.0 Romania 14.3 Denmark 25.1 Greece 20.0 Czech Republic 14.1 Germany 23.3 Germany 13.9 Denmark 12.6 Slovenia 22.6 United Kingdom 13.6 Slovenia 8.8 Finland 21.1 Austria 8.2 Poland 15.6 Poland 11.1 France 5.1 EU (28 countries) 12.4 EU (28 countries) 4.0 Spain 4.2 Portugal 11.6 France 2.1 Netherlands 3.1 France 9.7 Czech Republic 0.6 Greece 2.5 Spain 8.3 Belgium -1.6 Bulgaria 1.9 Sweden 8.2 Portugal -6.9 EU (28 countries) 1.7 Czech Republic 3.5 Slovenia -9.7 Poland 0.2 Belgium 3.5 Croatia -15.1 Croatia 2.9 Italy -0.5 Denmark -15.5 Portugal -0.7 Italy 1.4 Finland -15.8 Finland -11.2 Austria -1.9 Sweden -21.0 Sweden -12.3 Netherlands -2.9 Italy -25.1 Belgium -16.5 Hungary -6.6 Estonia -26.6 Cyprus -23.2 Bulgaria -8.9 Germany -23.9 Latvia -10.4 Latvia -27.6 Croatia -26.1 Cyprus -25.5 Netherlands -31.1 -50 0 50 100 -100 0 100 -100 -50 0 50 100 C16 – Manufacture of wood C17 - Manufacture of papers C10-C12 – Manufacture of food, beverages and tobacco Estonia 56.4 Lithuania 52.8 Belgium 27.5 Poland 27.9 Slovakia 33.1 Austria 26.3 Bulgaria 27.9 Lithuania 28.2 Belgium 16.6 Bulgaria 21.2 Poland 24.7 Lithuania 16.1 Latvia 12.8 Germany 12.2 Netherlands 11.5 Poland 9.5 Slovakia 7.2 Portugal 6.7 France 7.7 Italy 7.0 United Kingdom 6.4 Austria 5.7 France 5.6 Italy 4.1 Slovenia -2.3 Latvia 4.9 France 3.4 Denmark -2.3 EU (28 countries) 4.5 Slovenia 2.0 Croatia -3.7 Slovenia 2.8 EU (28 countries) 1.2 Portugal -4.6 Finland 2.0 Estonia -0.2 Netherlands -7.6 Croatia 0.0 Germany -1.5 EU (28 countries) -8.3 Portugal -1.1 Latvia -1.7 Finland -8.8 United Kingdom -3.0 Romania -2.2 Germany -9.2 Bulgaria -3.0 Austria -3.4 United Kingdom -9.5 Sweden -3.1 Greece -3.4 Sweden -13.2 Czech Republic -3.9 Czech Republic -4.1 Hungary -13.9 Netherlands -5.8 Croatia -4.7 Belgium -17.4 Estonia -6.5 Slovakia -4.9 Romania -20.6 Spain -12.4 Denmark -11.0 Italy -22.0 Hungary -14.7 Hungary -12.2 Czech Republic -23.1 Denmark -15.9 Sweden -13.4 Spain -24.7 Cyprus -22.0 Finland -15.0 Cyprus -57.8 Greece -27.5 Spain -18.3 Greece -70.4 Romania -39.5 Cyprus -26.5 -100 -50 0 50 100 -60 -40 -20 0 20 40 60 -50 0 50 100 Source: authors elaboration on information in Eurostat (National accounts aggregates by industry (up to NACE A*64), Based on Chain linked volumes index (2010 = 100))

 The forestry and logging subsector experienced most rapid growth in Greece, the United Kingdom, Estonia and Romania (by an average of 11-14 percent per year), it also rapidly grew in Finland, Germany, Denmark, Slovakia and Lithuania (by an average of 5-9 percent per year). Moreover, the industry of wood and its products increased most rapidly in Esto- nia, Slovakia and Lithuania – by 14.1, 8.3 and 7.1 percent per year;  Poland and Bulgaria are the countries with the fastest growing sector of food, beverages and tobacco (by an average of 7 percent per year, each). In Lithuania and Belgium it increased by an average of 4 percent, while in the Netherlands – by almost 3 percent per year.

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The growth of food, beverages and tobacco sectors was negative in as many as fifteen EU countries (out of the analysed 26 countries);  Lithuania was the leader in terms of the growth of the paper industry (by an average of 13.2 percent per year), which was twice greater than the growth rate of this sector in Bel- gium, Austria and Poland, which ranked second-fourth in terms of this indicator, and Austria and Poland, which reached the average annual growth of 6-7 percent. Thus Lithuania is among the leaders in terms of bioeconomy growth in all subsectors of biomass production and fully bio-based manufacturing – it ranks first in terms of growth of the paper industry, third – in terms of growth of fishery, fourth – in terms of growth of agriculture, food, beverage, tobacco and wood (except for the production of furniture) sectors and fifth – in terms of the growth of forestry and logging subsector.

Employment in bioeconomy sectors As previously mentioned, 18.6 million people were employed in bioeconomy of the EU, and more than 90 percent of them worked in biomass production and fully bio-based manufacturing. Due to the previously-mentioned lack of data, comparative analysis of employment in the EU bioeconomy was conducted by activities of these two sectors, as illustrated in Figures 50-51. Due to the lack of data, Malta and Luxembourg were not included into the analysis. Most jobs were concentrated in the biomass production sector in more than half of the EU countries, including Lithuania, compared to every other fully or partly bio-based manufacturing sector, and in biomass production of Romania, Bulgaria, Greece, Poland and Portugal, job concentration was greater than in both sectors together. Moreover, most persons engaged in bioeconomy were brought together in agriculture in the majority of the EU countries, except for Germany, the United Kingdom, Belgium, Estonia and Cyprus, where most of them work in manufacture of food, beverage and tobacco products, as illustrated in Figure 50.

Figure 50. Employment in bioeconomy subsectors of the EU countries

Thousand persons employed, 2014 Agriculture Manufacture of food, beverages and tobacco 3 000 Manufacture of wood 2 500 2 000 Manufacture of papers 1 500 Forestry and logging 1 000 Fishing and aquaculture 500

Italy

Spain

Latvia

France

Poland

Greece

Ireland

Cyprus

Austria Croatia

Estonia

Finland

Sweden

Portugal

Bulgaria Belgium

Hungary Slovakia Slovenia

Romania

Denmark

Lithuania

Germany

Netherlands

Czech Republic Czech United Kingdom United

Source: authors elaboration on information in Eurostat: National accounts employment data by industry (up to NACE A*64)

According to relative values of employment in bioeconomy sectors illustrated in Figure 6 and Table 16 of Annex 9, namely, the share of all the persons employed in the country and LQ in 2014, the following peculiarities of bioeconomy labour market in the EU countries were observed:  workforce concentration in agriculture was the greatest in Romania and Bulgaria compared to the entire EU. In both countries, the proportion of persons employed in agriculture a- mong persons employed in the economy is a few times greater than in the EU, i.e. the share 113

of persons employed in Romanian agriculture was by 6.2 times greater, and in Bulgaria it was by 4.1 times greater than the share of persons employed in the EU agriculture. The share of workplaces concentrated in agriculture in Greece, Poland and Portugal was more than twice greater than the average in the EU, Lithuania and Croatia – by three fourths, and in Slovakia – by two thirds;  in Latvia, eight times greater workforce is concentrated in the forestry and logging labour market compared to the entire EU (0.24 percent); it is 4.5 times greater in Slovakia, Estonia and Lithuania, and 3-4 times greater in Finland, Croatia, Sweden and Slovenia. Moreover, the highest workforce concentration in Latvia, Estonia and Lithuania is in the production of wood and its products. The share of persons working in wood industry in Latvia and Estonia is 5 times greater than the EU average and in Lithuania it is greater by more than 3 times;

Figure 51. The share of persons employed in bioeconomy sectors of all the persons employed in the EU countries

percent of Total in all NACE activities, 2014 percent of Total in all NACE activities, 2014 A01 - Agriculture C10-C12 - Manufacture of food, beverages and tobacco Biomass production A02 - Forestry and logging Fully bio-based manufacturing C16 - Manufacture of wood C17 - Manufacture of papers Partly bio-based manufacturing* A03 - Fishing and aquaculture

Romania 28.7 2.1 Romania 29.3 3.2 7.4 Bulgaria 18.8 3.2 Bulgaria 19.4 4.1 7.4 Poland 10.9 3.3 Poland 11.5 4.7 6.1 Greece 11.6 2.7 Greece 12.2 3.3 2.5 Lithuania 8.0 3.4 Lithuania 9.2 5.5 6.0 Croatia 8.2 3.9 Croatia 9.5 5.0 5.5 Portugal 10.1 2.3 Portugal 10.8 3.3 7.0 Latvia 5.3 3.1 Latvia 7.4 5.9 3.9 Slovenia 7.5 1.7 Slovenia 8.3 3.2 6.1 Hungary 6.3 2.8 Hungary 6.7 3.7 4.8 Estonia 2.62.7 3.7 5.5 5.7 Estonia Ireland 5.3 2.4 Ireland 5.6 2.8 3.7 Cyprus 2.6 3.1 Cyprus 4.1 3.8 1.8 EU (28 countries) 4.6 2.1 EU (28 countries) 4.9 2.9 4.1 Finland 3.41.5 Finland 4.4 3.2 3.0 Austria 3.8 1.9 Austria 4.4 3.1 3.7 Czech Republic 2.82.4 Czech Republic 3.2 4.0 6.3 Spain 3.7 2.3 Spain 4.1 2.9 3.2 Slovakia 2.11.9 Slovakia 3.3 3.4 5.6 Italy 3.41.8 Italy 3.7 2.7 5.3 France 2.62.4 France 2.7 2.8 3.0 Norway 1.71.9 Denmark 2.52.22.9 Denmark 2.21.8 Sweden** 2.32.4 Sweden 1.41.2 Germany 1.52.8 4.0 Germany 1.42.2 Netherlands 2.21.83.3 Netherlands 2.21.5 Belgium 1.32.6 3.4 Belgium 1.22.1 United Kingdom 1.41.72.3 United Kingdom 1.31.3 0 5 10 15 20 25 30 35 40 0 5 10 15 20 25 30 35 40 * the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators ; ** excluding the share of partly bio-based sector due to the lack of Sweden’s data on persons employed in chemistry (C20) and medicines and pharmaceuticals industry (C21) Source: authors elaboration on information in Eurostat: National accounts employment data by industry (up to NACE A*64)  Cyprus is characterised by a very high workforce concentration in fisheries, where the share of persons employed (0.38 percent of all the persons employed in the country) is as many

114

as 17 times greater than the EU average (0.08 percent). Also, a very high workforce concentration is in fisheries of Greece, Croatia and Portugal, where the share of employed persons is 4-6 times greater than the EU average;  Finland and Sweden can be characterised by the highest workforce concentration in manufacture of paper and its products. The share of persons working in this sector in Finland is greater by 2.9 times and in Sweden – by 2 times compared to the entire EU. Meanwhile, changes in concentration of workforce in manufacture of food, beverages and tobacco have not been that great among the EU countries as those determined in the agriculture, logging, fisheries and wood manufacturing. The share of this industry in the labour market of separate EU countries ranges from 1.2 to 3.9 percent and in the entire EU – about 2 percent (in 2014), while the concentration of workforce therein is the highest in Croatia and Lithuania, where it is higher than the EU average by 1.8 and 1.6 percent, respectively.

5.3. Good practice of the EU Member States in the development of bioeconomy and opportunities of its adaptation in Lithuania

Good practice of the EU Member States in the development of bioeconomy was analysed and summarised in three levels: 1) at the national strategic level of the EU Member States; 2) at the state governance level of the EU Member States; 3) at bioeconomic cluster level of the EU Member States and 4) at the level of good practice examples of research and the created products of the EU Member States. Good practice of Ireland, Belgium, Denmark, Estonia, Spain, Italy, Latvia, the Netherlands, France, Finland, Sweden and Germany was analysed and summarised. The opportunities for adapting good practice in Lithuania have been provided for considering the situation in the Lithuanian bioeconomy sector and the maturity stage.

Analysis of good practice of bioeconomy strategies of the EU Member States 5 out of 12 examined the EU countries have prepared bioeconomy strategies: Belgium and Germany (2013), Finland (2014), Spain and Italy (2016). In addition to the bioeconomy strategy, Germany has also prepared the “National Research Strategy Bioeconomy 2030” (2011). The Nether- lands has developed the Bio-based Economy Strategy (2012) and Sweden – the Bio-based Economy Research and Innovation Strategy (2012). Denmark set up the National Bioeconomy Advisory Coun- cil in 2013, however, so far it does not have any bioeconomy strategy. Ireland, Estonia and France plan to prepare a bioeconomy strategy, while the Ministry of Agriculture of the Republic of Latvia is currently finishing up the drafting of such strategy in Latvia in cooperation with the University of Agriculture of Latvia. The Ministry addressed the Nordic Council of Ministers’ Office for cooperation in establishing the main bioeconomy strategic directions and activities and conveying best practice examples. Having examined bioeconomy strategies of the EU countries, their structure was determined. Usually, the strategy is started with the substantiation of its need (bioeconomy as an opportunity, a global and regional context of its development and bioeconomy challenges). The next step is SWOT or a different analysis, which allows identifying strengths and weaknesses, threats and opportunities of the bioeconomy sector of the country preparing the strategy. All this allows forming the vision and

115 goals of bioeconomy, the pursuit of which shall be based on certain universally accepted principles. Policy, R&D, education and training, biomass value chain, markets and competitiveness are the main components of the strategy. Partnership at the EU and regional level is also presented in certain strategies as a separate component. The action plan is formed and measures are provided for via the main components of the strategy. Certain bioeconomy strategies are completed with the implementation of the strategy, monitoring and impact assessment, also indicating specific measurement indicators, and others – with an action plan. Italian bioeconomy strategy also contains the legal framework and stakeholders. Bioeconomy in Flanders101 states that research institutions, the business world, ports, civil society and consumers are the key stakeholders and players in the transition to bioeconomy. The government has a framework-creating and facilitating role. To create this framework and achieve the vision, five strategic objectives have been formulated: 1) the development of a coherent Flemish policy that supports and facilitates sustainable bioeconomy; 2) putting Flanders at the top for education and training and research and innovation in future-oriented bioeconomy clusters; 3) biomass is to be optimally and sustainably produced and used across the entire value chain; 4) strengthening of markets and competitiveness of bioeconomy sectors in Flanders; 5) Flanders is to be a key partner within European and international joint ventures. The German National Policy Strategy on Bioeconomy102 is based on these guiding principles: food security takes priority over the production of raw materials for industry and energy internationally; paths of use with a higher value-adding potential must be given preference in the remainder of the work on structuring the bioeconomy’s framework conditions; where possible and purposeful, cascading use and coupled use of biomass should be applied; the aim to secure and strengthen the competitiveness of bioeconomy in Germany and the areas of growth potential on the international markets should always be kept in sight; having well-trained and well-informed specialist personnel is imperative for the competitiveness of bioeconomy; the opportunities and framework conditions for using key technologies and for effecting their transfer into commercial use need to be improved; bioeconomy needs to satisfy increasingly challenging requirements from society in terms of the way in which goods are produced (this applies to the protection of the environment, the climate, nature and animals, also to the compliance with standards of social responsibility); the use of sustainability standards in the producer countries, especially in those with weak government leadership and weak institutions, must be expanded and appropriate efforts must be made to check compliance with them. Close cooperation between all those involved, from the political, economic, scientific and environmental spheres and from the society at large is needed in the development of bioeconomy. The vision and quantitative targets of the Finnish Bioeconomy Strategy103 will be implemented by means of four strategic goals: 1) a competitive operating environment for the bioeconomy: a competitive operating environment will be created for bioeconomy growth; 2) new business from bioeconomy will be generated in bioeconomy: by means of risk financing; bold experiments and the crossing of sectoral boundaries; increasing equity financing and innovation inputs in bioeconomy; funding piloting and demonstration projects of new bioeconomy solutions; developing bioeconomy cooperation platforms across sectoral boundaries; 3) a strong bioeconomy competence base: the bioeconomy competence base will be upgraded by developing education, training and research; 4) accessibility and sustainability of biomass: availability of biomass, well-functioning raw material markets and sustainability of use of biomass will be secured.

101 Bioeconomy in Flanders. The vision and strategy of the Government of Flanders for a sustainable and competitive bioeconomy in 2030. 102 National Policy Strategy on Bioeconomy. Renewable resources and biotechnological processes as a basis for food, industry and energy. 103 The Finnish Bioeconomy Strategy. 2014. 116

The Spanish Bioeconomy Strategy 2030 Horizon104 to be developed is designed to encourage economic activity and improve the competitiveness and sustainability of productive sectors linked to the use of biologically-based resources, promoting the generation of know-how and its use in developing and applying derived technologies, via collaboration within the science and technology system and Spanish public and private bodies. The competitive development of new industrial sectors and new professional skills is also foreseen. Bioeconomy strategy in Italy105 is related to the vision based on these priorities: 1) to move “from sectors to systems“; 2) to create “value from local biodiversity and circularity”; 3) to move from “economy to sustainable economy”;4) to move “from concept to reality”; 5) to promote “bioeconomy in the Mediterranean area”. Ensuring a strong coordination among ministries, other public administration and national technological clusters involved in the bioeconomy domain, in order to define a proper and coherent legislative framework and to minimise duplication and fragmentation is important. A permanent working group on bioeconomy composed of representatives of such organisation will be established with the aim of: collecting and sharing data and information; guaranteeing policy coordination among public authorities with particular attention to the implementation of Eu- ropean policies on waste prevention and minimization, in order to encourage full exploitation of the resources and circularity; monitoring the implementation of the bioeconomy strategy; proposing new measures and action to improve the bioeconomy system, also evaluating the social and environmental impact of subsidies on non-renewable resources; implementing and coordinating international initiatives to boost bioeconomy in the Mediterranean basin. The Copenhagen Declaration for a Bioeconomy in Action106 (March 2012) found that a level playing field must be created for different uses of biomass, such as food, feed, bio-based products and bio-energy, by reviewing incentives and regulatory frameworks as a prerequisite for increasing the value generated from biomass and for stimulating the value chains. It has also been agreed that there is a need for new ways of highly committed partnering between all stakeholders: citizens, consumers, academia, industry, primary producers and policy makers. The conflict between food and non-food production from arable land could be overcome by using agricultural crop and forestry residues and bio-degradable waste as well as selecting feedstock such as algae and other under-exploited resources from aquatic and marine environments, and by using existing and new knowledge and technologies to increase biomass yield. Some suggestions from Danish Bioeconomy Panel107 could be useful for Lithuania:  biomass should be treated as a limited resource. Given the trend of global climate change, growing population and greater prosperity, the pressure on natural resources is set to intensify in coming years. At the same time, transition towards a bio-based economy will increase demand for biomass, so the use of biomass must be carefully thought through. Priority must be given to food production, resource efficiency and mitigation of environmental stress. The feasibility of increasing the production and accessibility of biomass should also be closely examined;  it is important to acknowledge that new value chains in bioeconomy will rarely come about in a single leap, but will typically appear step by step. To this effect, focusing on the development of bioeconomy in the short and medium term without losing sight of more long- term development potentials could be beneficial;

104 The Spanish Bioeconomy Strategy 2030 Horizon. 105 Bioeconomy in Italy. A unique opportunity to reconnect Economy, Society and the Environment. Consultation draft. 106 The Copenhagen Declaration for a Bioeconomy in Action. March 2012. 107 Denmark as growth hub for a sustainable bioeconomy. Statement by the National Bioeconomy Panel. September 2014. 117

 bioeconomy must develop a more resource-efficient and sustainable society. In this context, the concept of sustainability should be understood in climatic, environmental, social and economic terms;  sustainability requirements should be identical for a given type of biomass, and the effort to address bioeconomic sustainability should be prioritised. When introducing sustainability criteria, identical requirements should apply to a given type of biomass regardless of its end use. The requirements should, to the extent possible, be drawn up internationally or within the EU. It must be ensured that all stakeholders can have their voice heard in the preparation of sustainability standards;  framework conditions should stimulate the development of new bioeconomic value chains. This implies, among other requirements, that framework conditions must be predictable, stimulate the development of new markets, ensure job creation and mitigate the climate and environmental burden. The production of biofuels is seen as a part of a bio refining complex108. The principle of biorefining is to extract products and materials in cascading sequence of value from an organic feedstock. This means that from the feedstock several products are produced by different levels of refinement, yielding smaller and smaller volumes at higher orders of refinement. Several authors also refer to this principle as “biomass cascading”, i.e. the maximum extraction of value from a given biomass by cascaded use of different quantities and qualities of products and materials that biomass can yield through fractioning and bio-refining. The extraction, refinement and sale of higher sequence products, for instance pharmaceutical ingredients, can thus help finance the extraction and production of lower sequence products, such as bulk chemicals or energy and heat from the feed-stock. The “biorefining pyramid” (Figure 52) shows the relationship between the volume and value of different products extracted from biomass in a biorefinery.

Figure 52. Biorefining pyramid

Pharmaceutical and

cosmetics ingredients V o

Cascading l e u u m l a

Bioplastics and polymers e V

Food and feed

Bulk chemicals, building materials and fuels

Energy and heat

Source: Danish Transport Authority. Sustainable Fuels for Aviation. An Analysis of Danish Achievements and Opportunities. 2013.

Swedish Research and Innovation Strategy for a Bio-based Economy109 defines the needs for the following research and development: − the replacement of fossil-based raw materials with bio-based raw materials;

108 Danish Transport Authority. Sustainable Fuels for Aviation. An Analysis of Danish Achievements and Opportunities. 2013. 109 Swedish Research and Innovation Strategy for a Bio-based Economy. 2012. 118

− smarter products and smarter use of raw materials; − change in consumption habits and attitudes e.g. increased product lifetimes; increased recycling, more efficient transport, distribution and storage, new services; consumer behaviour; − prioritisation and choice of measures e.g. environmental and socio-economic consequences, conflict of objectives, governing policies. Research and development must be complemented by innovation-fostering initiatives and measures that specifically address bioeconomy challenges. The nature and extent of these challenges necessitates widespread collaboration among actors and sectors that work together to deal with complex issues and demands for solutions that the challenges raise. It includes:  stimulating cross-industry collaboration in research and development in order to develop and implement solutions that contribute to a growing bio-based economy.  stimulating the growth of strong research and innovation environments that contribute the relevant knowledge and create preconditions for innovation within the area.  accelerating development, verification and commercialisation of new bio-based solutions and provision of continued support for the demonstration of products, systems and services other than fuels and energy technology solutions;  offering support to small and medium-sized enterprises for the commercialisation of new technologies. France110 has foreseen these bioeconomy goals: 1) to guarantee food security and sustainable living standards for current and future generations by conserving natural resources and ecosystemic functions of habitats; 2) to be efficient, resilient, circular and productive over the long term; 3) to focus on the general public and to be rooted in local regions, contributing to the development of economic value and jobs; 4) to offer innovative solutions that are effective, affordable and capable of addressing the diversity of human needs. The UK Bioenergy strategy111 points out that there are risks and uncertainties associated with bioenergy: whether it genuinely contributes to carbon reductions; the availability and price of sufficient sustainably-sourced biomass; the relationship between bioenergy and other uses of land, such as food production, and other uses of biomass, such as for construction materials; the environmental impacts on air quality, biodiversity and water resources. UK Bioenergy principles (approach to bioenergy in the UK) are the following: 1) policies that support bioenergy should deliver genuine carbon reductions that help meet UK carbon emissions objectives to 2050 and beyond; 2) support for bioenergy should make a cost effective contribution to UK carbon emission objectives in the context of overall energy goals; 3) support for bioenergy should aim to maximise the overall benefits and minimise costs (quantifiable and non-quantifiable) across the economy; 4) UK bioenergy demand is likely to significantly hinder the achievement of other objectives, such as maintaining food security, halting bio-diversity loss, achieving wider environmental outcomes or global development and poverty reduction. The development of bioenergy sector is related to the use of waste, biomass boilers and biomethane, use of biofuel in the road construction and other sectors. Biomass is available in many forms and from many different sources, including:  conventional forestry management, such as thinning, felling and coppicing of sustainably managed forests, parklands and trees from other green spaces;

110 A Bioeconomy Strategy for France. 111 UK Bioenergy strategy. 2012. 119

 agricultural crops, including wheat, maize, sugar, rapeseed or oil palm, and crops grown primarily for use in energy generation (‘energy crops’), such as short rotation coppice (SRC) or miscanthus grass which can be grown on land unsuitable for food crops;  biodegradable waste and residues, including residues from the wood processing (e.g. sawmill residues, parts of trees unsuitable for the wood industry), agricultural residues (straw, husks), sewage sludge, animal manure, waste wood from construction, and food waste;  algae. Both microalgae and macroalgae can be grown in either fresh or saline water for use as a feedstock for bioenergy. This is not yet viable at commercial scales, but could in the future be an important source of both liquid biofuels and solid biomass. In summary of good practice of bioeconomy strategies of the EU Member States, the following opportunities for its adaptation in Lithuania can be foreseen:  the drafting of the Lithuanian bioeconomy strategy and action plan in consultations with the Nordic Council of Ministers and institutions responsible for the bioeconomy sector of the EU Member States (with Belgium being one of them). The Ministry of Economy could be responsible for the drafting of the Lithuanian bioeconomy strategy and the action plan in cooperation with other ministries (usually strategies are prepared by the Ministry of Economy, Food Sector, or Agriculture);  the following are the key components of bioeconomy strategies of the EU countries: substantiation of the need for the strategy; SWOT analysis of the bioeconomy sector; vision, goals and principles of bioeconomy; key components of the strategy indicating the action plan and measures (policy; R&D, training and education; biomass value chain; markets and competitiveness); implementation, monitoring of the strategy and impact assessment;  the Lithuanian bioeconomy strategy should provide for measures to promote the creation of biotechnologies aimed at the most efficient use of biomass as a scarce resource, or their takeover from more biotechnologically mature member states; the greatest focus should be placed on biotechnologies aimed at the manufacture of products (chemicals and materials) of a higher value rather than at the use of biomass for the production of bioenergy;  Lithuanian bioeconomy strategy should be focused on wasteless production and biowaste processing technologies that meet the needs of all stakeholders;  a conflict between food and non-food production from arable land should be resolved using agricultural crop and forestry residues, growing non-food biomass in abandoned agricultural land, selecting new feedstock and additives for fuel, such as algae, and other under- exploited resources from aquatic and marine environments; bioeconomy demand shall not interfere with the pursuit of goals, such as the supply with food, preservation of biodiversity, poverty reduction, etc.

Analysis of good practice of state governance of the EU Member States The bioeconomy policy strategy in Germany112 was developed jointly by the Federal Ministry for Food and Agriculture (BMEL), which also coordinates the implementation efforts together with the Federal Ministry of Education and Research (BMBF), the Federal Ministry of Economics and

112 Nordic Council of Ministers. 2016. State of Play. Bioeconomy strategies and policies in the Baltic Sea Region countries. Working Paper no. 1 – The Baltic Sea Regional Bioeconomy Council. 120

Energy (BMWi), the Federal Ministry for Economic Cooperation and Development (BMZ), the Fe- deral Ministry for the Environment, Nature Conservation and Nuclear Safety (BMUB), the Federal Ministry of the Interior (BMI) and the Foreign Office (AA). The German Bioeconomy Council plays an important role as an independent advisory body to the German Federal Government. The 17 members of the Council have expertise covering a broad thematic and stakeholder spectrum of bioeconomy. The Council mainly seeks to promote the dialogue with the public and to advise on innovation policy and related implementation issues. Furthermore, the Council considers bioeconomy development in a global context and presents its insights to the Federal Government. The German Bioeco- nomy Council convenes regularly to prepare position statements and to discuss policy issues. It organises events on relevant issues, and promotes the future vision of bioeconomy to broader society. The activities of the council are oriented both towards long-term objectives as well as current policy requirements. The Finnish Bioeconomy Strategy113 is implemented in cooperation between ministries that cooperated to conceive the Strategy. The Ministry of Employment and the Economy leads coordination. The organisations in the administrative branches of the ministries are extensively involved in the implementation. For example a number of funding organisations contribute towards realising the strategy, including: Tekes (the Finnish Funding Agency for Innovation) and SITRA (the Finnish Innovation Fund). A bioeconomy panel has been established to support the implementation and further development for the Strategy. The panel is chaired jointly by the Ministry of Employment and the Economy and the Ministry of Environment and Agriculture. The panel has 40 members from industry associations, RDI, government and governmental agencies and NGOs. The first meeting was held on 19 January 2016. In going forward the panel will meet two-three times a year and thematic working groups will be established to address various specific aspects of bioeconomy. In Flanders,114 the Bioeconomy Strategy was developed by the Flemish interdepartmental Working Group in consultation with the Advisory Council on Environmental and Nature Protection Policy of the Flemish government and Strategic Advisory Council for Agriculture and Fisheries. To start drafting the Spanish Bioeconomy Strategy, the Ministry of the Economy and Com- petitiveness, the Ministry of Agriculture, Food and the Environment and115 a working group chaired by the Secretary of State for Research, Development and Innovation were brought together. A monitoring group for the Spanish Bioeconomy Strategy was formed at the initiative of the Interministerial Council for Scientific, Technological and Innovation Policy. A Spanish Bioeconomy Strategy Mana- gement Committee, whose objective will be to foster the implementation of measures, was created. In 2013, the Danish Government established the National Bioeconomy Panel116 with the aim to support cooperation among ministries, government agencies and the society. The Panel is hosted and chaired by the Danish AgriFish Agency under the Danish Ministry of Environment and Food. The panel is composed of 25 representatives of companies, researchers, NGOs and authorities. The panel met for the first time in December of 2013, and convenes approximately three times a year. In 2014, the National Bioeconomy Panel presented “Denmark as growth hub for a sustainable bioeconomy”. Being a “statement” rather than a “strategy” the paper provides a number of recommendations to the Danish Government for promoting bioeconomy, including: the establishment of an advanced, integrated, industrial-scale biorefinery; review if incentive structures support the development of new

113 Sustainable Growth from Bioeconomy. The Finnish Bioeconomy Strategy. 2014. 114 Bioeconomy in Flanders. The vision and strategy of the Government of Flanders for a sustainable and competitive bioeconomy in 2030. 115 The Spanish Bioeconomy Strategy 2030 Horizon. 116 Nordic Council of Ministers. 2016. State of Play. Bioeconomy strategies and policies in the Baltic Sea Region countries. Working Paper no. 1 – The Baltic Sea Regional Bioeconomy Council. 121 industrial bioeconomic value chains, or if e.g. support for technological development is needed; encourage more partnerships with the participation of public authorities, private sector actors and knowledge centres; ensure close cooperation between relevant ministries in relation to bioeconomic development; utilizing public procurement of sustainable bioeconomic products as a driver for development, including by seeking knowledge and ideas from industry organisations, knowledge centres and NGOs. In Sweden,117 the Ministry for Enterprise & Innovation has prepared a long-term national forest program to be launched 2017. The Action includes a number of efforts to develop the forestry- based bio-economy, including on: sustainable use of forest; processing and innovation; experience and recreation; and Sweden in the world (know-how and export). The Swedish Energy Agency also supports the development of bioeconomy. Biofuel is particularly important for bioeconomy in Swe- den, 90percent of it coming from Swedish forestry. The Swedish Energy Agency support, for example, R&D in biofuel system development (availability, resource cost reductions, yield increases and more) as well as a number of sustainability efforts related to biofuels and bioliquids. The Swedish forest industries are focusing more and more on the forest’s contribution to bioeconomy. They have increased the total research budget allocated to “bio-economy research”. There are also several and increasing “public-private partnerships” concerning bioeconomy. One example is the project “Processum” which supports “research and development in the areas of biotechnology, energy technology, organic chemistry and raw materials with a focus on sustainability”. As obvious from the above, the governance of many government supported bioeconomy development efforts is divided among many institutions and organisations in Sweden. Bioeconomy is a new political topic in Estonia,118 and so far a bioeconomy advisory body/panel has not been established. Inter-ministerial coordination efforts are mainly being facilitated by the Council of Agriculture and Rural Development, the Council of Fisheries and the Council of Forestry. Currently, the “Estonian Bioeconomy Strategy until 2030” is being negotiated between the following ministries: the Ministry of Rural Affairs (with responsibility for rural life, agriculture, fisheries, food processing industry, food safety and agricultural sciences); the Ministry of Envi- ronment (with responsibility for forest resources, fish stocks, waste management, climate policies, eco-system services and environmentally sound procurements); the Ministry of Economic Affairs and Communications (with responsibility for biotechnology, bioenergy and bioeconomy-related elements of industrial policies); the Ministry of Education and Research (with responsibility for knowledge- based strategic support and education policy related to various bioeconomy fields); the Ministry of Social Affairs (with responsibility for eating habits, healthy eating and health, and chemical safety/ biochemistry); and the Ministry of Finance (with responsibility for administration and budget). Analysing the EU member-states’ good experience in governance, defining bioeconomy support measures is important. In Flanders,119 the policy must strengthen the knowledge network in the sectors of bioeconomy and ensure better cooperation and coordination between the policy areas of research and innovation, economy, agriculture and fishing, environment, nature, energy, spatial planning, education and training, work and social economy and supporting taxation. To bring about bioeconomy, multidisciplinary research and innovation have to be supported across the entire value chain. Cooperation and knowledge transfer between all parties in the value chain will be encouraged. Research and upgrade to stimulate the closure of circuits and a maximum focus on waste and residual streams must

117 Ibidem 118 Ibidem 119 Bioeconomy in Flanders. The vision and strategy of the Government of Flanders for a sustainable and competitive bioeconomy in 2030. 122 be further promoted and supported. Research into techniques and crops that optimise the yield of biomass economically, ecologically and socially as well as market development will be supported by the government, by playing a pioneer role by means of public procurement. The most commonly mentioned support measures for the development of bioeconomy120 are tax incentives on the production and consumption; soft measures encouraging consumers to buy (and pay more for) sustainable bio‐based product substitutes; tax reliefs on private RTD, research vouchers etc. Soft enablers may include various efforts to link better private companies with knowledge and research centres by means of technology transfer centres, open innovation networks, business incu- bators etc. Governmental organisations – local, national and international – may develop bioeconomy markets in a number of ways: regulations and taxation can encourage producers and consumers to substitute fossil based products and services to bio-based alternatives; bioeconomy public procurement schemes may be effective both in terms of creating new immediate markets, as well as by encouraging private sector RTD activities leading to a higher future supply of bioeconomy products and services; public awareness campaigns that encourage end‐users to substitute consumption towards more sustainable alternatives, even if economic costs are higher. In Italy, Bioeconomy strategy121 is foreseen to connect physical and digital systems, complex analyses of big data and real-time settings through the use of smart machines inter-connected and connected to the Internet, and provides for intense financial support to enterprises through hyper- depreciation and super-depreciation scheme, tax credit for research and development and innovation expenditure, tax reliefs on investments in venture capital, start-ups and innovative SMEs. In summary, the EU Member States can be stated to solve issues of the drafting, implementation and monitoring of the bioeconomy strategy and strategies of the related sectors. The formation of ministries, working groups or councils under the integrated and strategic approach remains the main principle. Working groups are delegated the drafting function, while councils are delegated the function of monitoring the strategy and the action plan as well as the advisory function. The majority of support measures for the development of bioeconomy are typical in other economic activities, including of Lithuania. Nevertheless, such incentives as encouraging consumers to buy (and pay more for) for sustainable bio-based products as substitutes for traditional products, the creation and funding of public procurement programme and large data arrays are noteworthy.

Analysis of good practice of bioeconomy clusters of the EU Member States Table 2 lists sectors of bioeconomy included in good regional cluster practice. In many cases, the research and development sector is the main sector driven by industrial needs and funded from budgets at the national and regional level122. The good practice of primary biomass sector clusters were found in Finland, Lower Bavaria (Germany) and the Netherlands. Central Finland is also considered to be an example of good practice in other sectors of bioeconomy, such as pulp, paper and energy. North Rhine-Westphalia, Manchester, Toulouse and Ghent are examples of good practice in the chemicals and polymers industry, with Ghent also being an example in the energy industry. Manchester is very strong in research. However, so far there is a lack of good practice examples in construction, textile and apparel sectors.

120 A Bioeconomy for the Baltic Sea Region – impact, engaging the private sector and financing cooperation. Workshop Paper, Berlin, 18‐19 September 2014. 121 Bioeconomy in Italy. A unique opportunity to reconnect Economy, Society and the Environment. Consultation draft. 122 Good Practices in Selected Bioeconomy Sector Clusters: a Comparative Analysis. Project acronym BERST. Project full title „BioEconomy Regional Strategy Toolkit“. Grant Agreement No: 613671. 2015. 123

Table 12. Bioeconomy sectors involved in each good practice region

North Central Lower Biobased Bioeconomy Westland Rhine Manches- Ghent Toulouse Finland Bavaria Delta sectors (NL) Westfalia ter (UK) (BE) (FR) (FI) (DE) (NL) (DE) Primary Biomass ˅ ˅ ˅ ˅ Food and feed ˅ ˅ Construction ˅ ˅ Chemicals and ˅ ˅ ˅ ˅ ˅ ˅ polymers Pulp and paper ˅ Textiles and ˅ clothing Energy ˅ ˅ ˅ ˅ R&D services ˅ ˅ ˅ ˅ ˅ ˅

Source: Good Practices in Selected Bioeconomy Sector Clusters; a Comparative Analysis. Project "BioEconomy Regional Strategy Toolkit " report. Grant agreement no: 613671. 2015.

Regional good practice cluster examples in Belgium, Finland, France, Germany, the Nether- lands and the United Kingdom are analysed in order to:  understand how various essential elements are interrelated and function in different stages of development;  identify the experience and plan for cluster development perspectives;  make recommendations to other regions and clusters, which they shall have to consider in order to create, develop and successfully expand different bioeconomy sectors. Ghent Bio-Energy Valley123 was founded at the initiative of Wim Soetaert in 2005 as a Public Private Partnership between Ghent University, the City of Ghent, the Port of Ghent, the Development Agency East-Flanders and a number of industrial companies related to the Ghent region, active in the fields of generation, distribution, storage and use of bio-energy. The driving force for the establishment of GBEV was mainly of a political nature. By joining forces, companies were hoping to obtain as the largest possible production quota for biofuels from the Belgian government. In addition, the partnership was intended to tackle common problems related to production, feedstock or infrastructure. Finally, GBEV also provided a platform for informing the general public on these new products and technologies in a concerted way. In 2013, the cluster acknowledged that despite the fact that it was initiated with bioenergy activities, a new range of activities were subsequently introduced; the name was changed to “Ghent Bio-Economy Valley” to reflect this. North Rhine Westfalia cluster124 was founded with the aim to initiate research and development projects in the field of industrial biotechnology. The cluster has 80 members, encompassing large industrial partners, small and medium-sized enterprises, which account for 40 per cent of their membership and bring diversity of technologies and products to the cluster, and universities. Its operation and future development is based on closing gaps between science and technology: the cluster brings together academic and industrial members who are active in research, development, production and commercialization. The cluster solves the questions related to markets, innovative (economic and ecological) materials, cost-efficient production processes and simplified downstream workflows, as well as helps its members to manage the process of innovation.

123 Ibidem. 124 Ibidem. 124

The region of Straubing in Lower Bavaria, Germany125, is relatively rural with the proportion of people employed in agriculture and forestry significantly higher than the national average. In addition to being agriculture and forestry-rich, the region has direct inland waterway access via a major port on the Danube to Eastern and Western Europe. The port specialises in biomass handling and freight. The Eastern Danube countries hold large biomass potential which makes the region an ideal source for biomass or intermediate imports. A priority economic sector for Bavaria is life-sciences and the Straubing-based cluster “Renewable Raw Materials”, which was initiated in 2009 as a politically rather than industry-led top-down initiative. The cluster comprises four sub-sectors, namely, primary biomass, energy, chemicals and R&D services in biomass. The state of development is he- terogeneous. Primary biomass is at mature stage and is analysed in this report as Good Practice. Energy is at drive to maturity stage. R&D services and chemicals & polymers are both at initial stage. The other sectors are analysed in the individual Case Study report which is a part of D3.2: A representative set of case studies. Despite the fact that the majority of the circa 100 members are from the private sector, engagement of the private sector is considered to be relatively weak. This is due to the origin of the cluster being top-down and politically-led. The area of Central Finland (Keski Suomi)126 has a population of 270 thousand inhabitants and covers nearly 20 thousand km2. The region is characterised by strong presence of the paper and pulp sector, which is based on equally strong primary supply and has also a very well developed bioenergy sector. Also, the region has the most developed and extensive bioenergy R&D – including education and training activities – in Finland. The three bioeconomy sectors of primary biomass, pulp & paper and energy are considered Good Practices from which other clusters or regions can draw lessons and get recommendations on how to establish, develop and successfully operate similar cluster activities. Toulouse White Biotechnology cluster in France127 is a pre-industrial demonstrator that supports the development of innovative biological tools (enzymes, microorganisms, microbial con- sortia) thus opening new avenues for the production of chemical molecules, biopolymers, biomaterials and biofuels based on the use of renewable carbon. Most of the participating companies are SMEs. There are three key aims: 1) to promote white biotechnology (white, or industrial, biotechnology is the application of biotransformation and fermentation for manufacturing chemicals, materials, energy on an industrial scale through the use of biomass as a renewable raw material). The challenge lies in developing an innovative bio-economy that makes use of renewable carbon without competing with food requirements; 2) to be a catalyst for scientific innovation (promotes scientific and technological innovation by funding pre-competitive projects carried out in the very early stages of development); 3) to strengthen links between research and industry. The Biobased Delta cluster in south-west Netherlands128 started operating in 2012. It was formed by the merger of two clusters in Zeeland and Brabant regions which have strong mature agricultural sectors that provide major contributions to local and national economy. The primary biomass sector is considered to be in a mature stage. However, new economic activities in the non-food and non-feed sectors are developing. These sectors are at the initial stage. Though these sectors are relatively small, they have good growth potential, driven by factors such as rising oil prices, climate change and the political drive to reduce dependency on energy imports. The main economic activity which Biobased Delta aims to increase is the refinement and conversion of biomass (either locally

125 Ibidem 126 Ibidem 127 Ibidem 128 Ibidem 125 sourced or imported) to chemicals. These include fuels, bulk, platform and specialty chemicals, and polymers. Biobased Delta is a leading European cluster in its field, in large part due to the presence of strong chemical industry and primary sectors. One of the examples is to find ways to valorise the one million tonnes of pulp that remains annually after production of beet sugar. Netherlands-Westland cluster129 was initiated by the Municipality of Westland in 2013. The main driver was the presence of a large area (approximately 3000 ha) of greenhouses in the area with vegetables, flowers and plants and the concept to gain value from residues such as stems, leaves and class 3 products. The Westland area is very well known for its horticulture. Its location on the coast leads to a favourable climate conditions year-round, including relatively high light density which is beneficial for horticulture. In addition, the region lies between a few big Dutch cities and has good water, road and airplane connections for transport. The Westland is a prosperous and innovative area, due to the fast-growing developments in the field of agribusiness. In the greenhouse cluster there is an extensive cooperation between supplying companies, production, trade and knowledge institutes. United Kingdom-Manchester cluster130 is a research based organisation funded by industrial actors with focus on the industrial development of northwest England. So far they have funded mostly doctoral level research on pharmaceuticals but there is a recent re-focus to advanced chemical applications including bioenergy and biomass. Albeit these activities are relatively new and advanced, they already form an important part of the activities among certain partners of the cluster. The organisational structure of a bio-cluster is presented in the Figure 53.

Figure 53. Organisational structure of a bio-cluster

Active bioeconomy entrepreneurs

Supply of biomass Competitive Consumers bioeconomy products

Policy makers willing to Bioeconomy R&D Institutes support the bioeconomy

Source: Good Practices in Selected Bioeconomy Sector Clusters; a Comparative Analysis. Project "Bioeconomy Regional Strategy Toolkit" report. Grant agreement no: 613671. 2015.

Estonian Centre of Food and Fermentation Technologies (CFFT)131 is an R&D company that focuses on improving quality, functionality and stability of food as well as developing and introducing new innovative food and fermentation technologies. CFFT has an extensive cooperation with research institutions and more than 40 industrial enterprises from different countries. In summary of the good practice of bioeconomy clusters of the EU Member States, the following opportunity for its adaptation in Lithuania may be planned for:

129 Ibidem 130 Ibidem 131 Bioeconomy development in EU regions. Mapping of EU Member States’ / regions’ Research and Innovation plans & Strategies for Smart Spe- cialisation (RIS3) on Bioeconomy. Final Report. February 2017. Framework Contract: 2014.CE.16.BAT Lot 2. 126

 creation of clusters at the national level is expedient only when there is a very strong scientific potential and many business enterprises prepared to commercialise products; support for their creation should be associated with the implementation of strategic bioeconomy goals;  creation of clusters should first of all be initiated “from the bottom”, and only in the absence of the initiative to create them “from the top”;  in presence of a weak scientific potential, to search for membership opportunities in clusters created in the EU Member States, or to acquire patents of the necessary biotechnologies.

Analysis of good practice of research and the created products of the EU Member States In Estonia a unique probiotic Lactobacillus fermentum ME-3 could be an example of success, since it is the only one in the world to have two sets of patented properties: 1) antimicrobial properties (direct and adverse effects on harmful bacteria). ME-3 bacteria reduce the risk of gastrointestinal tract infections, especially those of salmonellosis and shigellosis by attacking and neutralising various harmful bacteria in the gastrointestinal tract; 2) antioxidant properties (indirect beneficial effects promoting human health)132. Ireland’s company “Biomass Heating Solutions” developed a number of poultry litter com- bustors using fluidised bed combustion technology. The burning of the litter creates energy to provide a sustainable source of heat for the poultry housing on farm. Another example of good practice is the production of high quality biodiesel from recovered vegetable oil and tallow feed-stocks. Thus biodiesel from the plant at New Ross is available at forecourts around Ireland as a blend with mineral diesel133. The Irish Bioeconomy Association was established in 2016 as a vehicle to bring together relevant stakeholders with an interest in establishing a National Bioeconomy Hub at Lisheen. The hub will be the location of choice for both indigenous and FDI companies to establish businesses in the bioeconomy sector. All the relevant infrastructure is in place in Lisheen for the establishment of a number of businesses, and the Association is represented in the third and fourth level sectors by Limerick Institute of Technology, University College Dublin and Trinity College Dublin. Current members from the private industrial sector include Bord Na Móna (principal interest in Biomass), Glanbia and co-operative Mushroom Producers who lodged a planning application for the construction of a compost production facility in phase 1 of the project,leading on to an integrated mushroom, packing and R&D facility in future phases of the project134. In Finland wood-based pharmaceuticals GrowDex® was developed. It is a wood nanocellu- lose hydrogel product developed by UPM-Kymmene Corporation for the needs of the pharmaceutical industry. GrowDex® can be used to replace animal testing and enable the development of cell-based drugs, tests and models that can be used in the future to better treat serious diseases. UPM Biofuels has developed a process to transform wood-based residues from pulp production into an advanced biofuel that can be used in any diesel engine without modification. The product, UPM BioVerno, is a commercial-scale renewable diesel that reduces greenhouse gas emissions as well as tailpipe emissions significantly compared to conventional fossil diesel. Production of renewable diesel does

132 National Bioeconomy Profile. Estonia. European Commission. 2014. 133 National Bioeconomy Profile. Ireland. European Commission. 2014. 134 Irish Bioeconomy Developments: http://www.agriforvalor.eu/article/Irish-Bioeconomy-Developments-62 127 not generate additional demand for forest harvest areas or compete with food production as processing residues are used as feedstock135. The municipality of Ii in Finland is committed to reaching zero waste and becoming a non- carbon economy, utilising only local and renewable resources for energy, transportation, and production. Public buildings are either equipped with ground-sourced heat, solar panels, or connected to the district heating network with bioenergy as primary energy source. Currently the electricity is generated by wind turbines, small- and large-scale hydropower and solar energy – Ii produces 9 times more green energy than uses. Ii has launched a system where biowaste is collected and fed into a digestion plant for biogas production. Ii created its own certificate given to producers for using local employees, services, feedstock and energy, while surplus food is sold/ donated to the poor to minimise waste streams, and the remainder of waste is recycled136. In Denmark, “Arla” has successfully converted whey from being a by-product from cheese production into a valuable ingredient in products such as protein powder. Previously, whey was sold as animal feed, but is now mainly sold for human consumption in the areas of medical, infant and sports nutrition due to its high content of proteins. As a result of strong market demand for whey- based products, Arla is now importing about 50percent of raw material for whey protein, because the company needs more raw material than its own main production facilities can deliver137. BioValue SPIR (Denmark) is a strategic platform for innovation and research on value-added products from biomass, used to develop new solutions to upgrade plant material into high-value industry products. The platform’s projects address the entire value chain – from sustainable biomass production to improved separation and conversion techniques. The platform co-funds a number of projects to help small- and medium-sized enterprises in bringing innovations and products within biorefinery to the market138. In Sweden, Seafarm is a research project between 4 universities aiming to grow, cultivate and use macroalgae for the production of food, feed, bioenergy and other bio-based materials focusing on creating a circular bioproduction. Holistic approach supports a goal to develop a sustainable system for the use of seaweeds as a renewable resource, avoiding the need for fertilisers and irrigation, not competing for arable land. In addition, seaweeds are fast-growing and their farming counteracts loss of oxygen in the ocean139. In Belgium, “Tomato Masters” integrates aquaculture with horticulture. Fishing water is later used for growing tomatoes, getting higher yields and saving water. Belgium company “MilliBETER” uses fish food wastes for bioconversion into larvae by the black soldier fly. Rapidly developing larvae are dried and used as feed for fish. This is one example of a circular economy140. In Austria, “Land&Forst” wood waste and straw ashes are used for the production of compost, the renovation of forest and other roads, and for fertilizing forests 141. In Germany, the company “Kaffeeform” manufactures coffee cups and saucers that consist of used coffee grounds. Up to 40percent of the product is made from recycled coffee grounds. Plant fibres, cellulose and a resin made of biopolymers are additionally used for the production of cups. The company “Vegavita” uses blue sweet lupine seeds for the production of ice-cream. They are rich

135 Nordic Bioeconomy. 25 Cases for Sustainable Change. Nordic Council of Ministers, 2017. 136 Ibidem 137 Ibidem 138 Ibidem 139 Ibidem 140 Tomato Masters and Aqua4C. Combining horticultural production and fish breeding in Belgium: https://ec.europa.eu/eip/agriculture/en/event/eip- agri-workshop-opportunities-agriculture-and 141 Development of innovative processes for wood ash upcycling in Austria: https://ec.europa.eu/eip/agriculture/en/event/eip-agri-workshop-opportunities-agriculture-and 128 in proteins, which have a bitter taste due to their high alkaloid content, are lactose and gluten-free, and suitable for those who suffer from allergies. As nitrogen fixers they are great fertilisers for Ger- man soil142. In summary of good practice of research and the created products of the EU countries, the following opportunities for its adaptation in Lithuania may be planned for:  improvement of food quality, its functionality and stability as well as the creation and presentation of new advanced food and fermentation technologies; creation of probiotics (Estonian experience);  the use of waste as biomass, for example, poultry litter combusters (Ireland’s experience); collection of biodegradable waste and production of biogas; production of cellulose of wood waste and its conversion to modern biofuel (Finland’s experience); production of coffee cups of used coffee grounds (Germany’s experience);  integration of bioeconomy sectors, for example, production of compost, growing and packaging of mushrooms (Ireland’s experience), growing fish and tomatoes (Belgium’s experience),  the use of biomass for the production of high value added products, for example, wood- based pharmaceuticals (Finland’s experience), processing of plant materials to high value added products (Denmark’s experience);  the use of biomass for the production of high value added products;  the replacement of one type of biomass with another one, for example, replacing sea fish oil with rapeseed oil feeding rainbow trout (Finland’s experience); processing of whey into a powder and its use for human food, in medicine, for infant and sport nutrition due to its high protein content (Denmark’s experience);  search for alternative forms of biomass, for example, growing micro and macro algae and the use of their oil for the production of food, feed and bioenergy (Sweden’s experience); the use of lupine seeds in the production of ice cream (Germany’s experience);  development of circular economies, for example, conversion of fish waste into fly larvae used as fish feed (Belgium’s experience); the use of wood waste and straw ash in the production of compost, renovation and construction of forest roads and fertilization of forests (Austria’s experience). This is just a few examples of good bioeconomy practice, which could be a stimulus for Lithu- anian companies to produce higher value products of that same biomass, process biodegradable waste, integrate sectors of bioeconomy, search for alternative biomass forms, replace one type of biomass with another and develop wasteless production moving towards circular economy.

142 BioSTEP. Bioeconomy in Everyday Life.

129

6. Analysis of the Norwegian bioeconomy sector

6.1. Development of Norwegian bioeconomy

Norway aims to be a frontrunner in the emerging bioeconomy. While the petroleum industry has been important to Norwegian economy development over the last few decades, Norway has always been strong in traditional bio-based industries such as fisheries, forestry and agriculture. With an abundance of high quality raw materials and a skilled workforce, Norway is presently de-veloping a leading position in advanced biorefining, particularly related to advanced processing of marine co- products and lignocellulose 143.

Gross value added Value creation in the bioeconomy depends not only on production technology and market conditions for final products and inputs, but also on how much and which parts of the value chain are created in Norway. Value chains in the Norwegian bioeconomy currently involve processing and supplier industries to varying degrees. The bioeconomy comprising biomass production sectors, fully bio-based transformation sectors and partly bio-based transformation sectors account for 5.1 percent of gross domestic product in Norway (EUR 16963 million in 2016). Value added in biomass production sectors totalled EUR 7416 million being the largest contributor to the Norway’s bioeconomy, providing 2.2 percent of Norway’s gross domestic product (GDP) in 2016. The GVA of fishing and aquaculture sector was by far the largest contributor to the Norway’s economy and resulting 1.6 percent of GDP in the same year. Manufacture of food, beverages and tobacco production is the second component of the Norwegian bioeconomy with over 1.5 percent of GDP (in 2016). Partly bio- based transformation sectors contributed the smallest share of GVA in the bioeconomy sectors, which accounted for 1 percent of Norway’s GDP in the same year (Figure 54).

Figure 54. Gross value added in Norwegian bioeconomy sectors (at current prices)

(Million euro, 2016) (Million euro, 2016) 337 18 000 18 000 362 603 Manufacture of paper 16 000 16 000 3463 Partly bio-based 849 Manufacture of textiles, apparel and leather* 14 000 manufacturing sectors 14 000 960 1538 Furniture and other manufacture* 12 000 12 000 Fully bio-based 2113 manufacturing sectors Manufacture of wood products 10 000 6085 10 000 Manufacture of chemicals etc* Biomass production 8 000 4899 8 000 sectors Manufacture of rubber and plastics 6 000 6 000 Agriculture and forestry 4 000 4 000 7416 5303 Manufacture of food, beverages and tobacco 2 000 2 000 Fishing and aquaculture 0 0

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators. No data are available on subsectors of the manufacture of chemicals and manufacture of basic pharmaceuticals Data source: authors elaboration on information in Norway Statbank (Production account and income generation, by industry)

143 Invest in Norway (2017). Bioeconomy. Norwegian Government webpage for innovation and development of Norwegian enterprises and industry. 130

The GVA in 2016, as compared to 2010, significantly increased in manufacture of rubber and plastics, manufacture of textiles, and wearing apparel, and fishing and aquaculture, by 29.2 percent, 23.8 percent, 21.5 percent, by 7.1 and percent, respectively. More modest increase of GVA was found in manufacture of food and beverages (5.1 percent) and in manufacture of wood products (3.6 percent). As well the increase in GVA was estimated in agriculture and forestry, with a growth of 0.8 percent. By contraries, manufacture of paper and saw the biggest decline of 31.1 percent over the considered period. Followed by manufacture of furniture, with a fall of 15.5 percent, and then manufacture of furniture and other manufacturing, with 11.9 percent. (Figure 55).

Figure 55. Change in the gross value added in Norwegian bioeconomy sectors

Change in volume between 2010 and 2016 (±percent) Manufacture of rubber and plastics* 29% Manufacture of textiles, apparel and leather* 24% Fishing and aquaculture 21% Manufacture of food, beverages and tobacco 5% Manufacture of wood products 4% Agriculture and forestry 1% Furniture and other manufacture* -15% Manufacture of chemicals etc* -28% Manufacture of paper -31% -50% -30% -10% 10% 30% 50% * the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators. No data are available on subsectors of the manufacture of chemicals and manufacture of basic pharmaceuticals Data source: authors elaboration on information in Norway Statbank (Production account and income generation, by industry) Employment Bioeconomy in Norway employed around 1361.4 thousand of people in 2016 and, compared to 2010, the number increased by 9.1 percent (Figure 66).

Figure 56. Employment in Norwegian bioeconomy sectors

(thousand persons employed, 2016) (thousand persons employed) Manufacture of wearing apparel* 140 140 Manufacture of textiles* 24.5 Manufacture of paper 120 120 4.24.1 5.8 Manufacture of pharmaceuticals* 8.6 100 Partly bio-based 100 10.1 Manufacture of rubber and plastics* manufacturingsectors Forestry and logging 80 56.9 80 13.5 Fully bio-based Manufacture of beverages 60 manufacturing sectors 60 37.4 Manufacture of furniture* Manufacture of chemicals* Biomass production 40 40 sectors Manufacture of wood products 55.0 Fishing and aquaculture 20 20 40.4 Agriculture 0 0 Manufacture of food products

131

The agricultural sector and the manufacture of food products are the largest employment sectors, altogether providing 5.7 percent of the total in all NACE activities employment in Norway. The fully bio-based transformation sectors (manufacture of food products, beverages, wood products and paper) provide 4.2 percent of the total employment in the Norway’s bioeconomy and the biomass production sectors (agriculture, forestry as well as fishing and aquaculture) provide another 4.0 percent, while the manufacture of partly bio-based products employs 1.8 percent of the workforce in the Norway’s bioeconomy. Comparing the number of employed people in 2016 to 2010, it decreased by 13.5 percent, 8.2 percent, and 19.4 percent in biomass production sector, fully bio-based transformation sector and partly bio-based production sector, respectively. In absolute numbers, the number of persons employed in bioeconomy of Norway increased by 113.7 thousand people in 2016 compared to 2010. The major increase in the number of people employed occurred in forestry and logging (+0.6 thousand people), in fishing and aquaculture (+1.2 thousand people), in manufacture of basic pharmaceuticals (+0.2 thousand people) and manufacture of beverages (+0.1 thousand people). Though major reductions in the number of people employed occurred in manufacture of paper (-3.7 thousand people), manufacture of textiles (-0.9 thousand people) and manufacture of rubber and plastics agriculture (-1.6 thousand people), in relative terms it decreased by 63 percent, 31 percent and 30 percent, respectively (Figure 57).

Figure 57. Change in the number of people employed in Norwegian bioeconomy sectors

Percentage change between 2010 and 2016 (±percent)

Forestry and logging 17 Fishing and aquaculture 10 Manufacture of pharmaceuticals* 8 Manufacture of beverages 2 Manufacture of food products -1 Manufacture of wood products -8 Manufacture of chemicals* -10 Manufacture of wearing apparel* -15 Agriculture -22 Manufacture of furniture* -28 Manufacture of rubber and plastics* -30 Manufacture of textiles* -31 Manufacture of paper -63 -80 -60 -40 -20 0 20 40

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Data source: authors elaboration on information in Eurostat (Employment – LFS series (lfsa_egan; lfsa_egan22d)) Exports The total value of Norwegian export of goods was EUR 80.9 billion in 2016. The largest share of exports in 2016 consisted of crude petroleum and natural gas, the value whereof totalled EUR 37.5 billion and accounted for 46 percent of total exported goods. The export of bioeconomy sectors accounted for 22.4 percent of the total export of goods. The largest export share of goods from bioeconomy sectors consisted of biomass production sectors (agriculture, forestry and fishing and aquaculture), the exports whereof amounted to EUR 6165.9 million and comprised 7.62 percent of the total goods exported. Partly bio-based sectors rank second in terms of export value of bioeconomy products, with their exports amounting to EUR 6112.7 million (7.56 percent of the total Norwegian export of goods). Exports of the biomass production sectors comprise 34 percent of total exports of bioeconomy sectors. The main exported goods of bioeconomy sector were fishing and aquaculture,

132 manufacture of food products and manufacture of chemicals, representing 32.7 percent, 25.5 percent and 20.4 percent of total exports of bioeconomy sectors, respectively (Figure 58).

Figure 58. Exports in Norwegian bioeconomy sectors in

(million EUR, 2016) (million EUR, 2016)

20 000 20 000 Manufacture of tobacco products Manufacture of leather 18 000 18 000 Agriculture Manufacture of wearing apparel* 16 000 16 000 6113 1 463 Manufacture of beverages 14 000 14 000 Manufacture of textiles* Partly bio-based Forestry and logging 12 000 12 000 3 695 manufacturing sectors* Manufacture of furniture* 10 000 10 000 Manufacture of wood products 5836 Fully bio-based Manufacture of rubber and plastics* 8 000 manufacturing sectors 8 000 4 618 Manufacture of paper 6 000 Biomass production 6 000 Manufacture of pharmaceuticals* Manufacture of chemicals* 4 000 sectors 4 000 6166 Manufacture of food products 2 000 5 915 2 000 Fishing and aquaculture 0 0

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Data source: authors elaboration on information in Norway Statbank (Imports and exports of goods, by product groups (CPA)) During the period of 2010–2016 the value of exports of most of the bioeconomy sub-sectors under consideration, with the exception of tobacco, paper and chemical products, increased, as shown in Figure 14. The export value of forestry and logging products increased by more than four times, while the export value of fish and aquaculture products and beverages doubled.

Figure 59. Change of export in the Norwegian bioeconomy sector

Percentage change between 2010 and 2016 (±percent)

Forestry and logging 325 Manufacture of beverages 116 Fishing and aquaculture 108 Manufacture of pharmaceuticals* 76 Manufacture of textiles* 51 Agriculture 51 Manufacture of food products 39 Manufacture of wood products 35 Manufacture of wearing apparel* 35 Manufacture of rubber and plastics* 28 Manufacture of leather 21 Manufacture of chemicals* -5 Manufacture of furniture* -11 Manufacture of paper -24 Manufacture of tobacco products** -54 -100 0 100 200 300 400

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators; ** change between 2009 and 2016 Data source: authors elaboration on information in Norway Statbank (Imports and exports of goods, by product groups (CPA)) In conclusion, we have found that fully bio-based transformation sectors and partly bio-based transformation sectors account for a small share of gross domestic product in Norway. Fishing and aquaculture sectors dominate in the GVA of the bioeconomy sectors. The fastest growing sectors during the period of 2010–2016 were manufacture of rubber and plastics, manufacture of textiles and

133 wearing apparel, and fishing and aquaculture, whilst manufacture of paper as well as manufacture of furniture shrank the most. Employment in bioeconomy sectors increased significantly over the period under consideration. The biggest share of the employed worked in the fully bio-based transformation sectors and the biomass production sectors. The export of bioeconomy sectors accounted for more than 1/5 of the total export of goods. The largest share of the export consisted of biomass production sectors (agriculture, forestry and fishing, and aquaculture). The main exported goods of bioeconomy sector were fishing and aquaculture, manufacture of food products and manufacture of chemicals. The value of exports of most of the bioeconomy sectors under consideration, with the exception of tobacco, paper and furniture products, increased. The export value of forestry and logging products as well as fish and aquaculture products and beverages increased the most.

Biomass resources and bioeconomy sectors bearing the biggest potential The full transition to bioeconomy will require a massive shift in the use of resources. In terms of biomass, there are production limitations in natural Norwegian ecosystems, but modern agriculture and aquaculture have demonstrated that the production volumes can be multiplied through technology, and with advanced biotechnology and market as well as commercialisation of know-how, the value creation can be multiplied even further. What can be counted as resources and how valuable they are depends on technological and market developments and conditions144. Bioresources of Norway are characterised by the diversity of land- and marine-based biomass in the country, in particular from forestry, agriculture, seaweed, fisheries and aquaculture. Available studies reveal that the biggest share of the biomass available is used for the low value products of the bioeconomy sectors, namely energy, electricity and heat. In Norway, the total potential area of land and inland waters for biomass production made up 15215 thousand ha and occupied 39.5 percent of the territory of the country in 2016 (Figure 60). In the last five years, the area has changed insignificantly – it has increased by only as much as 46 thousand ha. Nearly four fifths of this area was occupied by forests, about 13 percent – by inland water and 7 percent – by agricultural land.

Figure 60. Agricultural, forest land and inland waters in Norway, 2016

1 000 ha % of Total 14 000 12093 35% 31% 12 000 30% 10 000 25% 8 000 20% 6 000 15% 4 000 10% 5% 2009 3% 2 000 1113 5% 0 0% Forest land Inland Agricultural Forest land Inland Agricultural waters land waters land

Data source: authors elaboration on information in Norway Statbank (land use and coverage)

144 Centre for Rural Research (2017). BioSmart: Managing the transition to a smart bioeconomy (2015-2018). Version available at http://biosmart.no/en/om-biosmart. 134

Forest biomass In 2016, Forestland area in Norway totalled 12093 thousand ha and occupied 31.4 percent of the territory of the country as indicated in Figure 61. Although the forest area has undergone little change over the last five years – it has increased by 0.2 percent or by 26 thousand ha (its share in the country's overall territory is only 0.1 percentage points) –, the potential of forest biomass (stem, root and branches) has increased. As shown in Figure 6, according to the National Forest Inventory, the annual increment increased from 24.6 million tons m³ in 2010 to 26.1 million m³ in 2015, i.e. by 6.2 percent. In 2015, the total growing stock volume was 941.7 million m³. It has increased by 11.8 percent over the last five years (i.e. by 99.2 million m³). The growing stock per capita increased from 173 to 186 m³ over the same period.

Figure 61. Total growing stock volume and gross annual increment in Norway

2010 2011 2012 2013 2014 2015

942 1000 894 912 929 842 878 800

600

400

200 24,6 24,9 25,3 25,6 25,9 26,1 0 Total growing stock (mill. m³) Annual increment (mill. m³) Data source: authors elaboration on information in Norway Statbank (National Forest Inventory) The annual utilisation has been relatively stable – around 11 million m3 145. Forest biomass represents a big terrestrial biomass potential in Norway. Current utilisation is less than 40 percent of the annual increment. The growing stock in Norwegian forests has nearly increased by three-fold since 1925. The potential for expansion and increased use of this potential is dependent of the market situation and the ability to overcome the structural, environmental and other constraints. Large forest biomass resources can be utilised for bioenergy: 14 TWh is equivalent to 7 million m3 of timber ~ equivalent to 70 percent of today's harvest146. The recently published Norwegian bioeconomy strategy147 and the report from the Norwegian government’s expert committee for green competitiveness148 highlight the massive surplus of biomass in Norwegian forests and the low level of utilisation of forest resources as a major biological potential for further development of bioeconomy. The Strategy for Forest and Wood Sector in Norway, Skog22149, estimates the potential for the forest sector. This report was prepared as a joint effort among representatives from the private sector, public authorities and research institutions. The strategy report estimates the potential for increased biomass from Norwegian forest available for industrial use to be 15.8 million m3 in 2045. This is a 35 percent increase from the level of 2010 (11.9 mill. m3). solid wood product sector, building sector and biofuels are forecasted to be potential promising markets for the increased production of biomass. The strategy also highlights new products made of wood as a promising development achievable in a more distant timeframe.

145 Bardalen, A. 2016. Jordbrukets bidrag til bioøkonomien. NIBIO rapport. Vol 2. Nr 77. 146 Astrup, R. 2009. Forest Biomass Resources in Norway: report. Norwegian Forest and Landscape Institute. 147 Nærings- og fiskeridepartementet. 2016. Kjente ressurser – uante muligheter: Regjeringens bioøkonomistrategi. 148 Expert Committee For Green Competitiveness. 2016. Green Competitiveness: Executive summary of Report from the Norwegian Government’s Expert Committee for Green Competitiveness. 149 Olufson, G. 2015. Skog22: Nasjonal strategi for skog- og trenæringen. 135

Recent developments have, however, resulted in major changes in the Norwegian forest sector. As per statistics used in this document, the pulp and paper industry has decreased significantly in recent years. Following this development, forest production had to find other markets. Export of roundwood has increased substantially and has now reached approx. 40 percent of the production. Sweden is the prime market for export of roundwood from Norway. A significant share of the value added is created outside Norway for an important part of the wood processing. The potential for forest resources in Norwegian bioeconomy rely on the possibility to change this development. The ownership structure, topographic conditions and distance to markets are other factors affecting the competitiveness of the sector. For energy from forest biomass, low price level of competing energy sources in Norway is a major factor.

Fisheries The area of inland water (2009 thousand ha) is six times less than forest area and covers more than 5 percent of territory of the country. However, due to the development of marine fisheries and aquaculture systems, the fisheries sector creates the largest share of GVA in bioeconomy (see Figure 54). In addition, during the latter medium term, it is one of the fastest growing Norwegian bioeconomy sectors. Here the average annual GVA growth during 2010–2015 was 6.8 percent, while the overall result of agriculture and forestry for the same period grew by 0.3 percent per annum. When assessing the potential of fishery biomass according to the data of catch of fish and fish stocks presented in Figure 62, a considerable decrease in the weight of fish (by 23.7 percent) from 2679 thousand t in 2010 to almost 2044 thousand t in 2016 can be observed. Moreover, the data on fish stocks by species in the North-East Arctic and the Barents Sea indicates a decline in stocks of fish other than Blue whiting. A certain counterweight to this decline is found in the increase of fish stocks in aquaculture systems. During the period of 2010-2016 fish stocks increased here by almost a tenth, i.e. from 375.3 to 407.1 million.

Figure 62. Fish resources in Norway

Total stock biomass (1000 t.) 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 10 000 3000 8 000 2500

2000 6 000

1500 4 000

1000 2 000

500 0 0 Herring Blue Capelin Cod Haddock Saithe Catch fish (1000 t) Stocks of fish (mill. (Norwegian whiting (Barent (Northeast (Northeast (Northeast pieces) spring Sea) Arctic) Arctic) Arctic) spawning)

* caught and released fish and slaughtered fish; ** Stocks of fish at the end of the year Data source: authors elaboration on information in Norway Statbank (Aquaculture and Fisheries) Annual processing of marine by-products and sidestreams from fisheries, aquaculture and fish processing industry is approx. 870000 tonnes of biomass. Approximately 75 percent of this biomass is utilised. Microalgae is annually harvested and processed in a quantity of 170 thousand tonnes (measured in wet weight).

136

According to the scenario for the value creation from the marine sector150 the value added to be achieved in 2050 is 500 billion NOK. Aquaculture is highlighted as a sector with particularly promising potential. Aquaculture and fisheries are export oriented sectors. Thus, the Study considers global markets not to be a limitation to the estimated potential.

Agriculture Agricultural land, like forestland area, is relatively stable in Norway and occupies only 2.9 percent of the territory of the country (Figure 60). In the last five years, the area used for agriculture has increased by only 1.5 percent (or by 16 thousand ha), i.e. up to 111.3 million ha in 2016. As a result, the growth of biomass potential is mainly ensured by intensifying agricultural production. As shown in Figure 63, the yield of agricultural crops has increased over the latter medium term. In 2016, compared to 2011, the yield of fruits and berries increased by more than one third (on average by 6.1 percent a year), production of biomass for raw feed and silage increased by more than a quarter (on average, by 4.8percent a year ), the yields of vegetables and potatoes increased by more than a fifth (by 4.3 and 4.2 percent per year, respectively), and the growth of grain and hay production was slightly slower (by 3.3percent and 2.6percent per year, respectively). The livestock production potential has grown due to both the increase in the herd and flock (Figure 18) and the improved productivity of livestock. In 2016, compared to 2011, the largest increase was observed in the bird flock – by 9 percent (up to 69.9 million). Sheep flock increased by 8.5 percent (up to 1129.4 thousand). The number of pigs and cattle, except for cows, increased by 2.4 percent (up to 1696.8 and 560.6 thousand, respectively), and the goat flock increased by more than one percent (up to 34.5 thousand).

Figure 63. Biomass production potential in Norwegian agriculture

Thousand head (animals) Yield (1000 tonnes)

Pigs 2016 Hay 2016 Winter feed 2015 2015 sheep 2014 2014 Grain Other cattle 2013 2013 2012 Total crops for green fodder 2012 2011 and silage Cows 2010 2011 2010 Dairy goats Potato

0 500 1 000 1 500 2 000 Vegetables 2016 Million head (poultry) 2015 2014 Fruit and berries Poultry 2013 2012 2011 0 1 000 2 000 3 000 4 000 0 20 40 60 80 100 2010

Data source: authors elaboration on information in Norway Statbank (Agricultural area and livestock)

Organic waste (by-products and side streams) from the meat and poultry industry provides approx. 220 thousand tonnes of biomass annually. These resources are utilised for various products

150 Det Kongelige Norske Vitenskapers Selskap DKNVS and Norges Tekniske Vitenskapsakademi NTVAV (2012). Verdiskaping basert på productive hav I 2050. 137 within medicine, renewable energy and a number of other products. Side streams from other agriculture products are also available in large quantities, but limited data on volumes are available. No exact information exists on the volumes of wet organic waste categorised by source or end-use. Norwegian government is working on a white paper on waste and circular economy. We may expect a more structured policy guidance in this field in the future.

Challenges related to biomass resources Under the Nordic Carbon-Neutral Scenario (CNS), Nordic primary energy supply is expected to decrease by 25 percent in 2050 compared to 2013 (excluding net electricity export). Energy supply from fossil fuels and nuclear will decrease, while supply from bioenergy, wind and hydropower as well as net electricity exports will increase. The CNS requires a dramatic change in the composition of primary energy supply, coupled with aggressive energy efficiency policies that substantially reduce demand151. Bioenergy is expected to surpass oil as the largest energy carrier, with the total demand for biomass and waste increasing from almost 1100 Petajoules (PJ) in 2013 to over 1600 PJ in 2050, corresponding to a share increase from 18 percent to 35 percent. At present, oil is the dominant energy in Norway, but its declining use in transport is the single most important source of emissions reduction in the CNS, accounting for almost 40 percent of total reductions alone. Primary supply for power and heat also undergoes a significant transformation152. The CNS shows the anticipated 50 percent increase in the use of biofuel in transport, which will be supplied by a fourfold increase in net biofuel imports. Aiming for a greater domestic production to cover the entire demand for bioenergy would imply diverting biomass away from higher value uses in industry or producing biofuel from less economic domestic feedstocks. Increased research, development, demonstration and deployment (RDD&D) efforts on the supply of low-cost biomass feedstocks and integrated process concepts to produce advanced biofuels could make them more cost- competitive153. On the other hand, if biomass continues to be transformed into higher- value products (e.g. within the pulp and paper industry), 16 percent of the total Nordic biomass demand across all sectors will need to be met by imports in 2050. Thus sustainable and politically acceptable sourcing of those resources will be crucial. Moreover, the physical availability of biomass resources is not the only and even not the main limiting factor for the development of the bioeconomy sector in Norway. Limitations and challenges are to be found at the cost level, policy level and societal changes at large. Identification of these limitations is a part of ongoing research projects in Norway, including the BioSmart154 project.

Biomass resources for bioenergy use In terms of biomass resources for bioenergy use in Norway, there still is a significant potential available for increasing bioenergy contribution to energy supply. Forest resources represent the major potential for increased bioenergy production. The potential increase varies in different studies according to assumptions. Ergseng et al. (2012)155 estimated the potentially increased biomass supply at

151 OECD International Energy Agency. 2016. Nordic Energy Technology Perspectives: Cities, flexibility and pathways to carbon- neutrality. 152 Ibidem 153 Ibidem 154 Centre for Rural Research. 2017. BioSmart: Managing the transition to a smart bioeconomy (2015-2018). Version available at http://biosmart.no/en/om-biosmart. 155 Bergseng, E, Eid, T, Rørstad, P.K and Trømborg, E 2012. Bioenergiressurser i skog – kartlegging av økonomisk potensial. Rapport nr 32-3012. NVE 138 the harvesting level to be 20-25 PJ where harvesting residuals represented the major share. Agricul- tural land can also be used for energy crops, but limited availability of agricultural land limits the potential (agricultural land covers 3.2percent of the total land area). If all biomass resources where used for energy production, the theoretical potential would be around 180-210 PJ (50-55 TWh)156. The potential for biogas production in Norway is estimated to be around 8 PJ (NOU 2012:9)157. However, the abundance and relatively low energy prices (i.e. fossil fuels and hydro energy), in connection with the need for high investment costs, did not favour bioenergy production. However, there are several limitations related to topography, accessibility and economics. Biomass resources and the full range of technologies available for heat or electricity generation can provide good opportunities for increased bioenergy production. In Norway there is a deficit of mobilization of biomass resources and insufficient industrial integration of bioenergy with other forest-based sectors158. Challenges for increased use of forest biomass for bioenergy include the following159: 1. Market for bioenergy. Norwegian energy prices have historically been very low. With the current energy prices, utilizing forest biomass for bioenergy is still profitable, and as the district heating is not very developed in Norway, the largest energy product from forest has been firewood to this day. 2. Environmental considerations. Today 15-20 percent of forested area is under a certain type of environmental protection, therefore not all biomass can be utilised. Increased biomass utilization will lead to a decrease in some environmental values.160. For that reason, continuous development of management practices and planning in order to minimise adverse environmental effects will be necessary. 3. Type and quality of forest recourses. Harvest residues can be utilised for bioenergy. Es- timated amount of harvest residues – 1.6 million tonnes; not all of them can be utilised leading to a reduction of 40 -70 percent; residues are generally found in places where timber harvest already is economic.

Other issues of bioeconomy are the implications of agricultural land use changes on terrestrial biodiversity and GHG emissions, influence the energy footprint of bioeconomic developments, environmental sustainability of the foresighted bioeconomic development scenarios as well as the efficiency in bioeconomy itself. In conclusion, we have found that Norwegian bioeconomy is developing across sectors. Fo- rest, agriculture, fisheries and aquaculture sectors are main sources of biomass in the Norwegian bioeconomy. The potential for increased production differs across sectors based on the biological resource base, economic conditions and environmental challenges. Norway is rich in forest resources. Forestry has an obvious potential based on biological resource base, but previous mentioned structural, economic and environmental challenges have to be tackled. Additional forest biomass may be mobilised in Norway by more intensive management of currently exploited forests. The world’s largest wooden building is currently in Bergen city in the western Norway. That is a potential for Norway and Lithuania. This is due to a deliberate policy combining wood technology development, knowledge of architects and construction specialists of

156 Trømborg, E. 2015. Bioenergy Task 40 – Country report 2013 for Norway. Norwegian University of Life Sciences. 157 NOU 2012:9. Energiutredningen – verdiskaping, forsyningssikkerhet og miljø. 158 Scarlata, N., Dallemand, J.-F. Et all. 2011. An overview of the biomass resource potential of Norway for bioenergy use // Re- newable and Sustainable Energy Reviews. Volume 15, Issue 7. 159 Astrup, R. 2009. Forest Biomass Resources in Norway. Norwegian Forest and Landscape Institute. 160 Vennesland, B. Hobbelstad, K. Bolkesjø, T. Baardsen, S. Lileng, J. Rolstad, J. 2006. Skogressursene i Norge 2006. Muligheter og aktuelle strategier for økt avvirkning i Norge. Viten fra Skog og Landskap 139 wood as a building material. This could easily end up in a limited result, if it was not for the fact that the future demand for climate change mitigation efforts will also most likely be driven by urban area developments and the construction sector in Europe and elsewhere. Building sector is a significant contributor to non-ETS161. Emissions in Europe – approx 40 percent (much less in Norway). Given the current development in the negotiations on the EU compliance with their commitment to the Paris Agreement, we should soon expect much stricter demands for mitigation results. Thus wooden structures in urban areas provide a huge potential for Norway and Lithuania. Agriculture has proven a substantial development in Norway. Further expansion is possible through technical development, agronomic practices and utilization of crops with higher yield potential. The extent of the expansion is limited by natural conditions and environmental constraints. Ag- riculture and food processing is by far the most important bioeconomy sector in Europe as a whole, as well as in Lithuania and Norway (if marine value chains are included as well)162. Market for ag- riproducts, known and unknown, has a potential for significant expansion. Focus should be on effectiveness of agricultural production, including precision agriculture. Norway has a modest agriculture sector, but a significant development in precision agriculture, digitalization, automatization and e- ffective value chains, whichshould be utilised. Another major asset is the food safety situation. Food safety standards of Norwegian agriculture are among the world leading. Norwegian breed of livestock is a world’s commodity due to the safety standards, and it has been growing. Fisheries and aquaculture – including processing industry –already are the front-running bioeconomy sectors in Norway. The utilization of fisheries resources are basically in balance with the resource base. Data on the potential for bioeceonomy based on marine value chains are limited. There is, however, a huge potential in the marine sector in Norway. Fisheries and aquaculture, including the processing industry, are already highly developed, while aquaculture is expected to grow substantially. Utilization of other marine resources has a potential (i.e. plankton and seaweed)163. New products are under development, but will still lag behind the value and potential of aquaculture and fisheries in the medium term. Marine biomass, nonetheless, will continue to be one of the sectors with the highest potential in Norway. In order to assess availability and distribution of biomass resources in Norway from forestry, agriculture and the marine environment in terms of annual availability, fluctuations and use as well as to provide qualitative and quantitative estimates for the future under scenario conditions defining the types of bioeconomy-relevant resources likely to be in demand in 2030, the Research Council of Norway launched a 40 Million kroner research project under the Prog- ram BIONÆR (2012-2021)164. The sector-based overview briefly explains the potential viewed from the supply perspective. The development is expected to generate new products, new markets and opportunities of supply of resources and products that currently are limited in volume and value, but have a significant potential. Currently, forecasting these new products and processes is difficult, but a number of examples are provided in Chapter 6.3 hereof.

161 ETS sectors – industrial and power sectors, covered by the EU emissions trading system (ETS), while the other sectors of the economy are the so-called non-ETS sectors. 162 European Commission. 2017. JRC Science for Policy Report: Bioeconomy Report 2016. EUR 28468 EN. 163 Falk Andersson, Janne (NORUT), Forbord, Magnar (Norsk senter for bygdeforskning) and Vennesland, Birger (NIBIO): Mapping the bioeconomy. Biological Resources and Production in Forestry, Agriculture, Fisheries and Aquaculture Across Norway. NO- RUT report 16/2016 164 Centre for Rural Research. 2017. BioSmart: Managing the transition to a smart bioeconomy (2015-2018). Version available at http://biosmart.no/en/om-biosmart. 140

R&D potential In the Norwegian Government Long-Term Plan for research and higher education 2015 – 2024165 the thematic priorities are clustered around areas, most of which directly or indirectly cover R&D related to bioeconomy sectors: sea; climate; environment and green energy; renewal of the public sector and better and more efficient welfare, health and care services; enabling technologies; innovative and adaptable businesses; and world-leading experts166. Although research and innovation is becoming increasingly international, the national dimen- sion remains the key when activities and resources in this field are measured. For example, around 90 percent of R&D in Norway is still funded by national sources. All the R&D funding sources fall into four categories167:  Funds from private enterprises. Most go to R&D in own enterprises.  Funding from ministries’ budgets. Mostly institutional grants, for example, general university funds and funds distributed through the Research Council of Norway, but there are also funds for programmes and projects of ministries and other state institutions. A smaller portion comes from counties, municipalities, state banks, etc.  other sources such asown revenues at universities and research institutes; private founda- tions and gifts, loans, funds from NGOs and SkatteFUNN. SkatteFUNN is in principle public funding, but according to international guidelines168 any tax incentive schemes are classified as own funding of the relevant sector. This is because the tax incentives are very different, and in many countries there are period-related discrepancies between actual R&D activity and the associated tax benefits.  Foreign sources: funds from foreign enterprises and institutions, funds, the EU, Nordic and other international organisations. Foreign sources cover both public and private funding, but are often classified as private funds when total financing is divided into two main categories, namely, public and private. Total expenditure on R&D in Norway amounted to almost 6.7 billion EUR in 2015169. That same year, R&D expenditure in the Norwegian business enterprise sector amounted to 3.66 billion EUR and accounted for more than a half of Norway’s total R&D expenditure. During the period of 2011 – 2015, R&D expenditure in the business enterprise sector grew by a third, i.e. by more than 918.7 million EUR. Figure 64 illustrates the R&D personnel in Norwegian enterprises by bioeconomy sectors. The biggest share of R&D personnel work in food industry enterprises. In 2015, 1597 persons were employed in R&D activities in these enterprises, which made up 5.1 percent of all R&D staff employed in business enterprises. That same year, 919 R&D personnel worked in the chemical industry, which accounted for 3 percent of the total R&D personnel in all business enterprises, and 851 (or 2.7 percent) – in the fisheries sector. The remaining sectors employed several times less R&D employees than the previously-mentioned sectors, as shown in the Figure below. Since 2010, the number of R&D personnel has been increasing in all sectors of bioeconomy, with the exception of the pharmaceutical industry, furniture and textiles as well as clothing production enterprises. Over the same period, the

165 Norwegian Ministry of Education and Research. 2014. Long-term plan for research and higher education 2015–2024. Meld. St. 7 (2014–2015) Report to the Storting (white paper). 166 The Research Council of Norway. 2015. Report on Science & Technology indicators for Norway 2015. 167 The Research Council of Norway (2015). Report on Science & Technology indicators for Norway 2015. 168 OECD. 2015. Frascati Manual 2015: Guidelines for Collecting and Reporting Data on Research 169 EUROSTAT Total intramural R&D expenditure data (Last update: 30.11.16) 141 number of R&D personnel has increased the most in waste management enterprises (by 2.6 times), fisheries (by 87.4 percent) and food industry enterprises (by 65.5 percent).

Figure 64. R&D personnel in Norwegian business by bioeconomy subsectors

R&D personnel

6000 Manufacture of textiles, wearing apparel and leather* Manufacture of paper 5000 Manufacture of furniture* 4000 246 Manufacture of pharmaceuticals* 262 Water supply, sewerage and waste* 3000 851 176 Manufacture of rubber and plastics* 199 154 201 197 650 2000 454 495 416 349 919 Manufacture of wood products 925 916 863 853 918 Fishing and aquaculture 1000 1597 965 990 1017 997 1086 Manufacture of basic chemicals (incl. pertoleum) etc* 0 Manufacture of food, beverages and tobacco 2010 2011 2012 2013 2014 2015

Figure 20 illustrates R&D expenditures in Norwegian business by bioeconomy sectors. Du- ring the recent years, food, pharmaceutical industry and fishery enterprises have accounted for the largest biggest share of the overall spending. Their shares in all expenditure on R&D amounted to 3.8, 3.4 and 2.6 percent, respectively, in 2015. During the period under review, R&D spending increased rapidly in the fisheries and food businesses (by an average of 13.5 percent and 10.9 percent, respectively, per year). Slower growth was observed in the production of wood, textile and clothing (an average of about 8 percent per year) as well as furniture production enterprises (5.6 percent). Meanwhile, R&D spending fell in the industries of paper, rubber,plastics and chemicals (including oil) by an average of 13.7, 9.7 and 3 percent, respectively, per year.

Figure 65. R&D expenditures in Norwegian business by bioeconomy subsectors

Total funding (EUR million)

450 Manufacture of paper 400 Manufacture of wood products 350 Manufacture of textiles, wearing apparel and leather* 36.9 300 Manufacture of basic chemicals (incl. pertoleum) etc* 52.4 40.9 250 61.5 92.5 49.1 82.1 62.6 Water supply, sewerage and waste* 39.7 40.8 200 43.6 37.7 Manufacture of furniture* 105.9 150 118.2 113.0 Manufacture of rubber and plastics* 111.6 107.9 114.1 100 Fishing and aquaculture 118.2 50 70.5 74.5 87.3 80.5 87.9 Manufacture of pharmaceuticals* 0 Manufacture of food, beverages and tobacco 2010 2011 2012 2013 2014 2015

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Data source: prepared according to the data of StatBank Norway (R&D in the business sector)

142

Biotechnology R&D expenditure of Norwegian businesses amounted to EUR 2909 million in 2015170, which made 5.1 percent of the overall expenditure of enterprises. It is noteworthy that enterprises spend the most of R&D expenditure on information and communication (47 percent) and on other technologies, with the exception of nanotechnologies and new materials (42 percent). R&D spending on biotechnology increased by 2 percent in 2010 – 2015, i.e. from 146.2 to 149.1 million EUR, while all R&D expenditure on technologies increased by 34.9 percent. As shown in Figure 11, the biggest share of R&D expenditure on biotechnology falls within the fisheries sector. Here it has grown rapidly since 2013 – by an average of 20.6 percent per year; it increased slightly less in the food and beverage industry (by 15.4 percent), in the pharmaceutical industry (by 7.3 percent) and in the chemical industry (by an average of a mere 1.1 percent per year). In recent years, business R&D expenditure on biotechnology has dropped sharply in waste management and paper industry (by 45.5 percent and 72 percent, respectively, in 2015 compared to 2010. R&D expenditure was low on the development of biotechnology in manufacture of textiles and clothing as well as in the production of paper and its products, and it was non-existent in the production of wood, furniture and plastics in 2013–2015 (Figure 66).

Figure 66. MTEP R&D expenditure of Norwegian businesses on biotechnology by bioeconomy subsectors

Current cost (EUR million)

120 Manufacture of textiles, apparel and leather* 100 14.6 15.1 Manufacture of paper 80 21.5 18.3 15.2 20.6 Water supply, sewerage and waste* 14.6 16.4 Manufacture of chemicals (incl. pertoleum) etc* 60 16.5 24.5 20.7 43.6 13.4 16.7 Manufacture of food, beverages and tobacco 40 28.5 18.4 16.7 16.4 Manufacture of pharmaceuticals* 20 42.5 Fishing and aquaculture 23.2 24.1 24.2 21.3 26.2 0 2010 2011 2012 2013 2014 2015

The results of the analysis of R&D costs and the number of employees in business enterprises by bioeconomy sectors show that:  R&D potential is concentrated mainly in three sectors of bioeconomy: fisheries, pharmaceuticals and food processing;  R&D potential is the fastest growing in the fisheries business sector;  Most of R&D expenditure on biotechnology is spent in the fisheries sector, and it is rapidly increasing.

170 Norway Statbank: Technology area of R&D in the business enterprise sector. Current cost, by detailed industry (SIC2007) (NOK million) based on EUROSTAT Euro/ECU exchange rates – annual data (last update 01.06.17). 143

R&D infrastructure development and funding Public schemes stimulate private sector investment in research and development in several different ways. The threshold for investing is lowered through tax relief, such as the Skattefunn tax deduction scheme. The public sector also creates schemes that directly stimulate research in trade and industry, and that also contribute to cooperation with research institutions. This applies, for example, to programmes under the Research Council of Norway and Horizon 2020171. The Government has increased its investments in renewable industries through several grant programs administrated by the Norwegian Research Council and Innovation Norway. In May 2015, the Norwegian Research Council announced a total of NOK 900 million for research based innovation for Norwegian industry172. Innovation, sustainability and a more environment friendly business sector are the key themes of the call for proposals. NIBIO, the Norwegian Institute of Bioeconomy Research, was established on 1 July 2015 as a merger between the Norwegian Institute for Agricultural and Environmental Research (Bioforsk), the Norwegian Agricultural Economics Research Institute and the Norwegian Forest and Landscape Institute. The goal of the new Institute with its approximately 700 employees is to contribute to food security, sustainable resource management, innovation and value creation through research and knowledge production within food, forestry and other bio-based industries173. An important step towards implementation of the new strategy was the establishing of a Norwegian Biorefinery Laboratory (NorBioLab) as a part of Norway’s national strategy for research infrastructure 2012–2017174. Also, NIBIO175, the Norwegian Institute of Bioeconomy Research, was established on 1 July 2015 as a merger between the Norwegian Institute for Agricultural and Envi- ronmental Research (Bioforsk), the Norwegian Agricultural Economics Research Institute and the Norwegian Forest and Landscape Institute. It is Norway’s largest institute specifically dedicated to bioeconomy research.

Bio-based knowledge centres As bio-based value chains typically depend on a multidisciplinary approach, there are new alliances emerging. Knowledge hubs with unique strengths are extending their capabilities into new sectors. Heidner is a cluster in the southeast of Norway, leveraging a world-leading expertise in breeding technologies. Originally developed for livestock and pig farming, this competence has created an essential basis for Norway’s success in salmon aquaculture. The Heidner community maintains close relations with the large University of Life Sciences (NMBU) at Ås, 50 km south of Oslo, which represents a major academic centre and a cluster of key research institutes such as NOFIMA and NIBIO (link). For the marine sciences, there are main centres in the cities of Bergen and Ålesund on the west coast of Norway as well as in Tromsø further north.

171 Norwegian Ministry of Education and Research. 2014. Long-term plan for research and higher education 2015–2024. Meld. St. 7 (2014–2015) Report to the Storting (white paper). 172 The Research Council of Norway. 2016. NOK 900 million available for research-based innovation for industry. Newsletter at https://www.forskningsradet.no. 173 Norsk institutt for bioøkonomi (NIBIO) – www.nibio.no 174 National Research Council of Norway. 2016. Norway’s national strategy for research infrastructure 2012-2017. 175 Den Norske Regjeringen. 2015. Norsk institutt for bioøkonomi (NIBIO) opprettes 1. juli 2015. Regjeringen.no Nyhet at https://www.regjeringen.no 144

• In Bergen, the Institute of Marine Research has a national responsibility in marine surveil- lance and resource management, and Fiskeriforum Vest and the Seafood Innovation clusters represent focal points for the seafood and aquaculture industry both in Bergen and nationwide. • Ålesund is also leveraging long-standing fishing traditions, and the Legasea industry cluster has developed a leading expertise on marine ingredients such as oil and protein extracts. • Tromsø is hosting the national marine biorepository, Marbank and the Tromsø University, the northernmost University of the world. For more information, see also Biotech North. In Trondheim, the polytechnic university of NTNU with close to 25 thousand students and Northern Europe’s largest research institute, SINTEF and the Paper and Fiber Institute PFI, create a major centre for process engineering and industrial biotechnology. The processing industry is also strong in Grenland and adjacent regions in the southern part of Norway, represented by industry clusters such as the Eide network176.

6.2. Strategic Norwegian documents related to the development of bioeconomy

The Norwegian Government seeks to enhance competitiveness in the industry and has an am- bition of making Norway one of the most innovative countries in Europe. Therefore, the Government has made a commitment to commercial research and innovation, and will use the long-term plan to lay the foundation for a more knowledge-intensive business community with a robust ability to adapt and create value177. Starting from the National Strategy for the Bioeconomy, aiming to prepare the industry for the opportunities related to new value chains and markets based on sustainable manufacturing, authorities and research institutions of Norway have developed a range of strategic and political documents and started several grand projects to explore possibilities, create the necessary infrastructure and achieve the goals set in the strategic guidelines. Norway has built an economy dependent on fossil, non-renewable resources through a successful mining of North-sea oil. However, Norwegian policy makers see a national focus on bioeconomy as a part of a green shift, which has been recognised as necessary178. Norway has committed to reduce emissions of harmful greenhouse gases by 40 percent in 2030 relative to a 1990 baseline as a part of the Paris agreement. This is consistent with estimates of what is required to achieve the two-degree target made by the UN panel on climate change, and coincides with commitments made by the EU. Norway is negotiating an agreement with the EU that will entail a joint commitment to meet these targets. The Government has also set a target for Norway to become a low- emission country by 2050179. In March 2015, the Norwegian government decided on the preparation of the National Bioeco- nomic Strategy. The Research Council of Norway has played the key role in implementing the cross- sectoral strategy that formed the basis for national investment in bioeconomy. Written reports from Innovation Norway and the Norwegian Environment Agency were submitted. The Ministry of Trade,

176 Invest in Norway. 2017. Bioeconomy. Norwegian Government webpage for innovation and development of Norwegian enterprises and industry. 177 Norwegian Ministry of Education and Research. 2014. Long-term plan for research and higher education 2015–2024. Meld. St. 7 (2014–2015) Report to the Storting (white paper). 178 Hansen, L., and Bjørkhaug, H. 2017. Visions and Expectations for the Norwegian Bioeconomy // Sustainability 9, 341. 179 Norwegian Ministry of Finance. 2016. Long-term Perspectives on the Norwegian Economy 2017 – A Summary of Main Points. Meld. St. 29 (2016-2017) Report to the Storting (white paper). 145

Industry and Fisheries coordinated this project in close cooperation with the Ministry of Agriculture. They were assisted by Inter-ministerial working group with participation from 6 other Ministries and the Advisory Group with national experts. The Strategy was completed on 11 November 2016. The subsequent policy statements were developed by Norwegian Ministries:  The Ministry of Finance prepared the White Paper “Long-term Perspectives on the Norwegian Economy 2017 – A Summary of Main Points” in 2017.  The Ministry of Trade, Industry and Fisheries presented a white paper on the place of the seas and oceans in the country’s foreign and development policy – the White Paper “The Place of the oceans in Norway’s Foreign and Development Policy” in 2017.  The Ministry of Agriculture and Food presented a white paper on the forest policy and forest sector development180.  The Ministry of Agriculture and Food presented a white paper on agricultural policy in 2017181.  The Government of Norway presented a white paper on the climate policy in June 2017.  White Paper on waste policy and the circular economy to be presented to the Parliament in 2017. To implement the National Bioeconomy Strategy, the total of 16 new national Norwegian research infrastructures are being established, which will lay the foundation for ground breaking research, future value creation and attractive research and educational institutions. Along the process of the infrastructure development, researchers of scientific and academic institutions are now carrying out fundamental analytical work aimed at providing the background knowledge for further development of related policies and policy instruments as well as promoting a higher level of sustainable innovation in Norway. Over the three-year period (2015–2018) of the BioSmart project182, researchers from the NCRR, SINTEF, NIBIO, NTNU and Norut as well as a number of international research institutes will be working with a total of eleven topics or so-called “work packages”. Furthermore, a series of scientific studies will be carried out looking into issues such as biotechnological transitions, legal rights, and the levels and scope at which wealth generation can be anticipated183.

6.3. Norway’s practice in the development of bioeconomy

Two important industries in the Norwegian bioeconomy are forestry and marine sectors. Norway aims to be a frontrunner in the emerging bioeconomy. With an abundance of high quality raw materials and a skilled workforce, Norway is presently developing a leading position in advanced biorefining, particularly related to advanced processing of marine co-products and lignocellulose. The

180 Den Norske Regjeringen (2016). Meld St, 6 (2016-2017) Verdier i vekst: Konkurransedyktig skog- og trenæring. Det Kongelige Landbruks- og Matdepartament. 181 Den Norske Regjeringen (2016). Meld. St. 11 (2016-2017) Endring og utvikling. En framtidsrettet jordbruksproduksjon. Det Kongelige Landbruks- og Matdepartament. 182 Centre for Rural Research (2017). BioSmart: Managing the transition to a smart bioeconomy (2015-2018). Version available at http://biosmart.no/en/om-biosmart. 183 SINTEFF (2015). Towards a bioeconomic future. Latest news at sintef.com 146

Government has already increased its investments in renewable industries through several grant programs administrated by the Norwegian Research Council and Innovation Norway. The Research Co- uncil of Norway plays a key role in implementing the cross-sectorial strategy that forms the basis for national investment in the bioeconomy184. The key research of Norwegian University of Life Sciences is related to fisheries, forestry and agriculture. In order to increase value creation in the Norwegian aquaculture, meat and dairy industries, Foods of Norway will target three key research areas: biomass, feed efficiency and product quality. Future animal feeds should be based on sustainable feed sources that do not compete directly with human food, such as macroalgae, grass and trees. Norway has limited land area and limited climatic conditions to grow feed grains and protein-rich crops such as peas and beans on a large scale, but Norway is in a unique position with large amounts of renewable biological resources from forest, i.e. converts these resources into feed using new technology. Seaweeds (macroalgae) are one of the largest unexploited biomass resources and among the fastest-growing plants in the world. They grow rapidly under cold water conditions and provide a large potential for value creation. By exploiting seaweeds for animal feed, national food security can be increased. In Norway, timothy and meadow fescues are the dominant cultivated grasses, and together with clover they are the main sources of energy in diets for ruminants. Improving the digestibility of grass will have a large impact on resource utilization, feed efficiency, and feed cost185. For example, the research has recently demonstrated that salmon thrives on a feed with proteins derived from trees. How will small pigs react? Piglets are ready to be fed diets with yeast derived from Norwegian tree biomass. Three different experimental diets have been produced, with a yeast level replacing 10, 20 and 40 percent of the protein from the protein- rich feed ingredients186. Collaborating we are smarter: Biosmart (Managing the transition to a smart bioeconomy) (2015–2018) is funded from the Research Council of Norway’s Program BIONÆR (2012–2021) that calls for a “visionary framework” for the development of a sustainable bioeconomy in Norway. Bioeconomic development is about more than a continuation of current directions in the farming, forestry and fisheries sectors. Rather it is about a societal shift from an economy based on non-renewable resources to an economy based on resources that can be grown (forestry) or farmed (farming, fisheries). To do this, Norway needs to develop technologies capable of transforming biomass into the raw inputs for agriculture, industry and production (such as biomass to fuel, fish food, and so on). To develop a “smart” (knowledge based and wisely managed) bioeconomy we need to think of how these sectors can work together in the future. If we can achieve this, investments that help all sectors involved in the bioeconomy integrate can be made, thus cutting waste, optimising the knowledge sector of Norway and leading to a more sustainable economy. A key component in the project will be a foresight analysis of 1500 Norwegian businesses to ascertain what the needs of Norway's five key biosectors (farming, forestry, fisheries, bioscience, industry) are and where there is a potential for integration187. Some examples of research projects in Norway research institutions188:

184 Invest in Norway. 2017 Bioeconomy. Norwegian Government webpage for innovation and development of Norwegian enterprises and industry. 185 Øverland, M. 2015. Biomass. Norwegian University of Life Sciences. Version available at: https://www.foodsofnorway.net/key- research/biomass 186 Bjergene, L. R. 2017. Can piglets eat trees? Norwegian University of Life sciences. Version available at: https://www.nmbu.no/en/news/node/30564 187 Industrial Biotech Network – Norway. 2017. Bioeconomy projects. Version available at: http://indbiotech.no/content/bioeconomy-projects 188 Ibidem 147

NorZymeD. Enzyme development for Norwegian biomass – mining Norwegian biodiversity for seizing opportunities in the bio-based economy. New enzymes are tested in Borregaards demo facilities for the BALI-process, a pre-process for cellulose; BIOFEED. Novel salmon feed by integrated bioprocessing of non-food biomass. The use of biomass from wood (spruce) in salmon feed will be examined together with the use of macroalgae. Researchers will examine pre-processing techniques, enzymatic hydrolysis, screening of promising microorganisms (mainly yeasts) and evaluate processing methods; MarPol. The main goal of MARPOL is to develop innovative biomaterials by enzyme technology for modification and upgrading of polysaccharides from marine resources; CYCLE. An interdisciplinary project with a bio-economic perspective, focusing on several value chains from both agriculture and marine sectors. The main objective is to improve resource utilization in the food chain in Norway by developing sustainable eco-friendly bio-processes and novel technology, with research and innovation at its core; PROMAC. Energy efficient processing of macro algae in blue-green value chains. The project focuses on energy efficient processing and refining of macroalgae to food and feed, and includes a logistic and economic analysis of the value chain, as well as a life-cycle analysis; SusValueWaste. Sustainable path creation for innovative value chains for organic waste products (SusValueWaste) is led by NIFU. The project will address the potential for value creation and improved sustainability in the valorisation of organic waste streams, residual feedstock and by-products – by analysing value chains inside and across different sectors of bioeconomy; Food to Waste to Food (F2W2F). The project aims to demonstrate a closed cycle organic waste treatment system using municipal organic waste to provide energy, water, fertiliser and carbon dioxide for greenhouse agriculture. BioMim – Advancing biomass technology. BioMim is a four-year research project funded by the Norwegian Research Council. Research and technology development are critically needed to find cost-effective and sustainable solutions for the conversion of biomass. Extensive exploitation of lignocellulosic biomass as a feedstock for a variety of products is the key to develop a viable bio-economy. However, the natural resistance of lignocellulosic biomass to chemical and biological deconstruction is a challenge that biorefineries have to overcome. Some examples of good practice in Norway companies: Trefokus. Sustainable building solutions. To increase the use of wood in construction. Coo- perating with the local municipality to obtain support for using wood in public buildings. The Nardo School project made use of wood, not only in the interiors but also in sheathing and even the load- bearing structures189; Borregaard. From petroleum-based to bio-based additives. The Exilva plant is a wood-based performance-enhancer that replaces petroleum-based additives in adhesives, coatings, agricultural chemicals, and cosmetics with bio-based materials – namely cellulose from wood, the most abundant organic polymer on Earth. Exilva consists of a network of suspended microfibers known as microfibrillated cellulose that are extracted from wood and converted into a network of microfibrils. It is a so- called multifunctional additive, which reinforces and stabilises various substances. Microfibrillated cellulose was not available in commercial quantities until the opening of Borregaard’s Exilva plant in 2016, with a production capacity of 1 thousand tonnes per year190;

189 Nordic Council of Ministers (2017). Nordic Bioeconomy: 25 Cases for Sustainable Change. 190 Nordic Council of Ministers (2017). Nordic Bioeconomy: 25 Cases for Sustainable Change. 148

Borregaard AS. Forest / agricultural waste conversion. Extensive investment in R&D to produce new and sustainable products from wood and agricultural waste has led to the value-added products of highly intensive knowledge activities. Considerable investments in R&D (e. g. Borregaard 3–4 percent of its turnover used for innovation and 9 percent of employees work in R&D) transform a company from a traditional wood-processing to an advanced manufacturer of bio-based chemicals. Approximately 90 percent of the incoming lignocellulosic biomass is converted to marketable pro- ducts191. Also forest waste, straw and wood chips were used to produce biofuels and valuable green chemicals; Biomega. Turning tonnes of waste into new products. Biomega produces salmon oil, meal and peptides for pet food and human consumption by sourcing more than 36 thousand tonnes of former by-products such as heads, fins, bones, guts and tails. For a long time, non-edible parts of the fish were dumped into the sea, causing detrimental effects to ocean health192; Calanus AS. Break down (hydrolysis) of protein from marine plankton to improve feeding stuff. Calanus finmarchicus, a part of zooplankton, is a potentially large resource of proteins if sustainably harvested and processed in application of a gentle and environmental biorefinery technology. Breaking down marine proteins leads to the new products (e.g. third generation omega 3, protein hydrolysates) with better functional properties (e. g. high digestibility, heat stable, highly soluble, excellent amino acid profile, low mineral content, GMO free, pleasant marine flavour). Thus the products serve as a nutrient source and an excellent flavour enhancer in premium pet food, treats, pet supplements and pharmaceuticals, even in very low inclusions; Norvegian Government. Publicly financed bioeconomy infrastructure. Publically financed national centres and infrastructures for biotechnologies and bioeconomy (e. g. the Norwegian Centre for Bioenergy Research, the Norwegian Biorefinery Laboratory NorBioLab, the National Facility for Marine Bioprocessing NAMAB193, etc.) is publically available for commercial organisations within the frame of research projects in collaboration with participating institutions. The sources of public funding are the following: international, national and/or local authorities (e. g. Fisheries Directorate, Ministry of Local Government and Modernisation, Research Council of Norway, Innovation Norway, Technology Strategy Board, Executive Agency for Competitiveness and Innovation, etc.) by establishing programs and funds (e. g. the EU EP7, User-Led Innovation Arena (BIA), Eco-Innovation Project, MABIT-programme, etc.), universities (e. g. Norwegian University of Life Sciences (UMB)), institutes (e. g. NIBIO, SINTEF, etc.) or others; Tromsø, Norway. Role of regional spill-over. Natural environment (e. g. cold waters of the Norwegian Sea), infrastructure (e.g. fishing port, economic services, research centres, laboratories) and social conditions (e. g. living conditions of modern city) provides with competitive conditions for start-up companies to succeed. This gives companies an easy access to adjacent oceans as well as access to available research infrastructure and competencies both for marine exploration, on-shore research and product development (e. g. Science Park, Aquaculture Station, BioTep facility, hub for global marketing of seafood, etc.). The academic environment (Norges arktiske universitet, College of Fisheries) serves as a place for the sharing of knowledge and experience. Home to some of the world’s most competent scientists within marine biotechnology is a reason for many start-ups within the marine biotech sector194;

191 Lange, L. et all. 2015. Development of the Nordic Bioeconomy. NCM reporting: Test centers for green energy solutions o Biore- fineries and business needs. TemaNord. T. 582. Denmark: Nordic Council of Ministers. P. 219. ISBN 978-92-893-4426-5. 192 Nordic Council of Ministers (2017). Nordic Bioeconomy: 25 Cases for Sustainable Change. 193 Lange, L. et all. (2015). Development of the Nordic Bioeconomy. NCM reporting: Test centres for green energy solutions o Bio- refineries and business needs. TemaNord. T. 582. Denmark: Nordic Council of Ministers. Psl. 219. ISBN 978-92-893-4426-5. 194 Biotech North (2016). Success stories: Calanus. Version available at: https://www.biotechnorth.no/success-stories. 149

Hadeland / Norway; Jämtland. Local partnership for acceptance of innovation. Local biomass bioenergy chain follows principles (e. g. bottom-up approach, multilevel governance; triple bottom line criteria, multi-disciplinarity, participatory, etc.) for ensuring a prosperous and sustainable bioenergy development in rural and remote communities. Triple bottom line principle examines economic, social and environmental outcomes of the development, thus all stakeholders, affected parties or actors in the chain have to be included in broad partnership relations. Good example of such relations is a ‘quintuple helix’ partnership, enabling the main groups (i.e. 1) local entrepreneurs; 2) local raw materials suppliers; 3) local authority; 4) expertise and 5) civil society, customers and users) bringing specific knowledge and other resources into the coalition in bioenergy production innovation. These relations ensure that all parties (actors) benefit from joint activities and create acceptance in the co- mmunity195; Romerike Biogas plant at Esval Miljøpark KF, Norway. Food waste to biogas and biofertili- ser as well as cooperation between public sector and industry. The Waste-to-Energy Agency’s (EGE) biogas plant at Romerike processes food waste from the Oslo region. Waste is utilised to produce liquid biogas (LBG) and bio fertiliser at the innovatively designed plant. Liquid biogas fuel- fired city busses and waste collection vehicles, and bio fertilisers are used for agricultural purposes. This creates a closed loop, where waste resources are exploited in the best manner possible. The capacity of the plant makes it possible to provide biofuel for 135 buses and biofertilisers to 100 average size local farms. In 2012, EGE and its industrial partner Cambi won a National Innovation Award for the design of the plant and cooperation between the public sector and industry196. Hynor Lillestrøm AS, Norway. Landfill gas to green hydrogen as fuel. A hydrogen production facility and a filling station for hydrogen cars were built in Lillestrøm. The company is both a hydrogen technology test centre and one of the most advanced refuelling stations in the world, located just north of Oslo. Hydrogen is produced from landfill gas, hydro power and local solar power at the station. The test center facilitates R&D projects of international importance, both on hydrogen production, compression and second generation carbon capture technologies. Hynor Lillestrøm is the result of a broad cooperation with companies, institutes and educational institutions. Collaboration with ambitious local and regional authorities plays a crucial role for its success197. Lindum AS and Esval Miljøpark KF, Norway. Food waste and sewage sludge from wastewater transformed into energy and fertilisers. The two waste treatment plants, where food waste and sewage sludge from wastewater treatment plant are used to produce environmentally friendly fertilisers and generate energy. Both plants use the thermal hydrolysis method (CAMBI technology) to improve and intensify the digestion process and thus obtain better final products. Lindum AS is also implementing a pilot project Food2Waste2Food, which consists of using CO2 from food waste treatment to support growth of new vegetables and fruits grown in special greenhouses, which are characterised by low carbon footprint. In this way another product of the waste treatment process is being used, which is in line with the principles of the circular economy198. Akershus EnergiPark, Norway. Energy supply and research. The company situated in Kjeller is both a local energy supplier and a research unit. In order to produce district heating, the company is using solar thermal collectors (in summer), wood chips, heat pumps, biogas and – as a backup

195 Bryden, J. et all. (2017). Triborn: Triple Bottom Line Outcomes for Bioenergy Development and Innovation. NordRegio Policy Brief. T. 3. May. Psl. 12. ISSN2001-3876. 196 http://esval.no/om_esval/om_biogassanlegget_i_nes 197 http://hynor-lillestrom.no/ 198 Polish-Norwegian cooperation platform for climate and energy conservation http://www.razemdlaklimatu.eu/en/32- wizyta-studyjna-w-norwegii 150 source – bio-oil produced from waste from slaughter houses and fish processing. The company is also conducting research on the production and utilisation of hydrogen fuels 199. In summary of good Norwegian practice in the area of research, the following opportunities for its adaptation in Lithuania may be envisaged:  development of innovative biotechnologies and biomaterials in search for cost-effective and sustainable solutions for the conversion of biomass, such as the creation of innovative biomaterials, extensive exploitation of lignocellulosic biomass as a raw material, and in other areas;  evaluation of the potential of the production of biomass and the need for biomass in all sectors of bioeconomy; insights of integration of all bioeconomy-related sectors in the implementation of interdisciplinary projects;  improvement of the use of resources and innovative solutions in the creation and improvement of sustainable bioprocess technologies in various biomass value chains and fields;  improvement of quality of animal feed and digestibility, creation of new feed from sources of biomass, which do not directly compete with those used in food production (for example, macro algae, grass and wood products) in order to increase the value added in the production of aquaculture products, meat and dairy products. In summary of good Norwegian practice in the business area, the following opportunities for adapting it in Lithuania may be envisaged:  transition from petroleum-based to bio-based additives of cellulose from wood – most abundant organic polymer on Earth – in the production of adhesives, coatings, agricultural chemicals, cosmetics, etc.;  biorefinery of wood and agricultural by-products and waste into higher value added chemical bio raw materials;  processing fishery and aquaculture by-products into food and feed;  biowaste treatment and processing into new products;  production of biogas from waste. In summary of good Norwegian practice in business and local governance area, the following opportunities for adapting it in Lithuania may be envisaged:  development of the local biomass bioenergy chain on the basis of local partnership based on such principles as “bottom-up”, multi-level governance, triple bottom line, etc., when all stakeholders, affected parties or actors in the chain (suppliers of raw materials, energy producers, suppliers, consumers, local municipalities and local communities) are involved in interaction;  creation of competitive conditions for start-ups to establish in aquaculture or other sectors of bioeconomy, giving them an easy access to , research infrastructure, accumulated R&D competencies, product development skills, etc.;  collection of municipal and household food waste, its processing into biogas in sludge treatment facilities in the local sewage cleaning plant, use of the produced biogas in city transport with local government subsidising the difference in biogas prices;  sustainable business solutions in order to increase the use of wood and other biomaterials in the construction of public buildings in cooperation with local municipality.

199 Polish-Norwegian cooperation platform for climate and energy conservation http://www.razemdlaklimatu.eu/en/32- wizyta-studyjna-w-norwegii 151

7. Analysis of Lithuanian and Norwegian business cooperation opportunities in the bioeconomy

7.1. Investment and success stories of Norwegian companies in Lithuania

Norwegian direct investment in Lithuania constantly growing (by annual 4,7 percent on average since 2011) and Norway FDI totaled EUR 919 million in 2016. The Norwegian FDI growth is more rapid compared to growth rate of total FDI in Lithuania (by 3.4 percent) or compared to Swedish FDI (by 1.9 percent) or Finnish FDI (by 2.9 percent). Norwegian FDI were fifth largest in Lithuania, while six years ago (i.e. in 2010) they were only in top 10200. It should be noted that Lithuanian foreign direct investment in Norway totaled EUR 1.6 million in 2016 and has been flat over the past three years201. Norwegian foreign direct investment in Lithuanian bioeconomy stood at EUR 84.6 million in 2016 and has increased by nearly four and a half times since 2005, i.e. by 12 percent annually, on average (Figure 65). Norwegian direct investment in Lithuania has been rising at a much higher pace, thus the share of bioeconomy sector investment has fallen remarkably from 17.2 to 9.2 percent over the years 2005–2016 Norwegian companies invested mostly in the wood, wood products and furniture sector (figure 21). Investments in these sectors in 2016 reached the EUR 46.5 million level, i.e. 5 percent of all Norwegian FDI in Lithuania. Norwegians has also invested in textile, wearing apparel and leather EUR 26.3 million (i.e. 2.9 percent of all FDI), in food products and beverages and agriculture, forestry and fishing almost EUR 6 million. There was no Norwegian FDI into aquaculture although there are successful fish processing companies controlled by Norwegian capital in Lithuania. During recent mid-term period most rapid increase of the Norwegian FDI were in wood manufacturing (on average by 12.9 percent annually), in textile, wearing appareal and leather (by 7.1 percent), food products and beverages (by 4.2 percent) manufacturing and agriculture, forestry and hunting (by 3.8 percent).

Figure 67. Norway direct investment in bioeconomy sectors in Lithunia

Wood and wood products million EUR Textiles, wearing apparel and leather* Furniture* 100 Agriculture, forestry and fishing Food products and beverages 80 6.1 6.4 60 5.4 5.3 3.8 26.2 2.7 4.5 6.6 4.9 6.2 5.4 4.52.7 22.8 40 4.2 3.9 5.8 5.1 21.2 3.4 5.5 11.6 4.0 16.4 5.7 6.3 14.8 17.3 19.5 17.7 20 5.03.3 39.9 26.5 29.2 24.5 28.0 32.1 16.0 24.0 20.1 19.2 17.8 20.6 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

* the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Source: authors elaboration on information in Lithuanian Official Statistics Portal (Foreign direct investment by economic activity)

200 Estimated according data of Lithuanian Official Statistics on foreign direct investments. 201 Lithuanian Official Statistics Portal: Lithuanian direct investment abroad at the end of the year. 152

During last decade number of Norwegian capital controlled enterprises in Lithuania increase by 73 to 244 in the beginning of 2015. That was 6.5 percent of all foreign capital enterprises in Lithu- ania (by the way, significantly slower growth was of enterprises controlled by Swedish (52 percent) or Finnish (28 percent) capital). Meanwhile in the beginning of 2015 there were only 20 Lithuanian capital controlled enterprises in Norway202. There were 30 Norwegian enterprises203 in Lithuanian bioeconomy in the beginning of 2015 (Figure 22), that is one eighth of all Norwegiant companies in Lithuania and almost 20 percent less compared with record high 37 companies in 2008. Most of these companies (21 of them, i.e. 70 percent) are working in furniture manufacturing, about 20 percent are in the textile and wearing apparel, two companies are in food products manufacturing, and one in wood and wood products. Since 2006 there is no Norwegian enterprise in the fisher setor in Lithuania.

Figure 68. Number of Norway-controlled enterprises in Lithuania at the end of the year

Wood and wood products Furniture* Textiles, wearing apparel and leather* Rubber and plastic products* 50 Food products and beverages Forestry and logging 40 2 4 12 32 4 1 1 21 30 1 2 8 4 1 1 3 4 3 3 7 7 1 3 3 4 6 7 4 3 6 20 7 3 6 5 4 5 3 8 8 4 8 7 7 9 10 17 20 19 15 14 11 10 12 10 13 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 * the data points represent both the bio-based and the non-bio-based manufacturing combined due to the lack of data availibility needed for separate indicators Source: authors elaboration on information in Lithuanian Official Statistics Portal (Annual structural business statistics)

Examples of successful business of joined Norwegian and Lithuanias ventures Manufacture of wood and wood products Oak and other hardwood parquet producer Bauwerk Boen UAB (until July 2017 – BOEN Lietuva) is located in Kietaviškės. It is a well-functioning and constantly growing international company with over 20 years of experience in producing premium flooring for home and gyms. The company produces more than four thousand different products, which are sold in 86 countries, on all continents. Exports account for 97.5 percent of total production. The main export markets are Scandinavia, Germany, Austria, Switzerland and the United Kingdom. The company sells its products through Boen's sales offices in Lithuania, Germany, Norway, the United States and the United Kingdom. The company's capital is owned by investors from Norway and Switzerland. Over the last five years, the company has grown by more than one and a half times, and currently employs 1228 people. For more information see: http://boen.com/en/ Massive Wood Construction UAB, based in Šiauliai, is a Norwegian capital company that designs and builds wooden frame- panel holiday houses. The company started its operation in 2005. The sole shareholder of the company is Norvegian company Massive Wood Construction AS, which sells its products, while the Lithuanian company carries out design, production, construction, project management and other construction project development work. The company is certified in Norway. Since its inception, the company has manufactured, built and fully equipped more than 200 homes. At present, an average of 50 holiday homes per year are produced and built. Most of the houses are built in ski resorts, mountains, in central and southern parts of Norway. Customers appreciate the exceptional home design, extra-fast construction process and high quality. The company has an average of 110 employees, of which 60 are employed in Lithuania and 50 more in Norway. The company organises staff

202 Estimated according data of Lithuanian Official Statistics on business statistics. 203 Excluding rubber and plactics manufacturing enterprises, indicated in figure 22. Due to insufficient date it is hard to estimate the level of biomaterials in the production. 153

training and qualification upgrading. Due to the growth of interest in products of the kind in Norway, the company is expecting on average 40–50 percent growth of turnover in the next 2–3 years. For more information see: http://mwc.lt and http://nwc.no Viking Industrier UAB is a Norwegian capital company, founded in 2006 in the remote region of Lithuania – Venta (in Mazeikiai district). The company designs, manufactures and markets high quality wooden products and accessories for gardens. The company's customers are from Norway, Germany, the Netherlands, the United Kingdom, France, Denmark and other countries. They evaluate the quality of products by 95 percent, design – 92 percent, innovations – 89 percent. The company employs 64 employees. For more information see: http://www.vikingindustrier.com/ Baldeka UAB is a subsidiary of the Norwegian company Svenheim Møbelindustri AS, working in Alytus since 2002. The company produces office furniture and designs grocery stores. The company sells its products in the Norwegian, Swedish, Danish, German markets. Over the past five years, the company’s staff has increased by almost 75 percent, and it currently employs 226 people. For more information see: http://www.baldeka.lt/ Hjellegjerde Baltija UAB is a Norwegian capital company, based in Panevėžys since 2007, that manufactures chairs and soft furniture for home with natural leather. The administrative, marketing and product development functions are carried out in Norway, production – in Lithuania. The produced furniture is exported to Norway. The company employs 108 employees. For more information see: http://www.hjellegjerde.no/en/

Manufacture of textiles and wearing apparel In 1998 the Norwegian capital company Devold has established a factory in Panevėžys. In 2015 it moved to Panevėžys Free Economic Zone. The company Devold, operating since 1853, is one of the oldest knitted apparel manufacturers in Europe and the oldest in Norway. The main activity of the company is the production and sales of clothing for outdoor sports and warm industrial clothing. According to the sales data, the company is the leader in Norway, Sweden, Iceland. It has its subsidiaries in 14 countries worldwide. Norwegians have introduced innovative production technologies in Devold subdivision in Lithuania, which allows more than 95 percent of manufactured products to be Exported. At present, over 90 percent of Devold Knitwear is produced in Lithuania. The factory also performs the storage function – the company's warehouse, which has moved to Lithuania, is supplying central European markets. The company allocates funds for co-operation with Lithuanian R&D institutions and universities (in the year 2015 the company has provided support for scholarships of KTU students of textile engineering study programmes, This educational institution also trains Devold employees), thus aiming at bringing science and business closer, reducing youth unemployment. Over the past five years, the number of employees of the company has grown by one fifth and currently it employs 303 people. Scandye UAB, Established in 2003 in Telšiai, Northwest Lithuania, is a Scandinavian capital company (48 percent – Norwegian, 49 percent – the Danish capital), engaged in textile dyeing and finishing. Scandinavian companies form a large part of Scandye UAB clients, as the company meets high quality and environmental standards. The company dyes and finishes woolen yarn, knitwear materials and products from the Norwegian capital company Devold operating in Lithuania, and returns them to Devold for further production. The company also performs dyeing of wool and polyester fabrics (washing, dyeing and finishing) and dyeing of yarns to the Danish company Gabriel AS. Over the past five years, the number of employees of the company has grown by one third and currently it employs 92 people. For more information see: http://www.scandye.lt/

Lithuania is attractive to Norwegian investors because of these factors204: − Good geographical position – Norway is close to Lithuania, which has good transport infrastructure to Eastern markets, including a possibility to export using Klaipeda sea port. − Lithuanian enterpreneurs are exporting to Eastern markets, thus has constant linkes there. − Lithuania is a part of European common market, thus free movement of products from here to all the EU countries. − High competence labour force in Lithuania is much more cheaper than in Norway, and low labour costs are attractive to Norwegian business. − There are a large number of Lithuanians working in Norway. They understand the processes and technologies, Norwegian culture and language. Part of these workers are inte-

204 Karaliūnaitė U. 2015. Norvegijos ambasadorius apie tai, kodėl jo šalies verslininkai renkasi Lietuvą. Delfi, balandžio 23 d.; Inter- view with Commercial Attache of Lithuanian Republic in the Norway Kingdom; Interviews with representatives of Norwegian capital enterprises in Lithuania (UAB „Massive Wood Construction“, UAB ,,Bauwerk Boen“, UAB ,,Viking Industrier“, UAB „Hjellegjerde Baltija“, UAB „Devold“, UAB ,,Scandye“, UAB ,,Mittet“, UAB ,,Nokvėja“, UAB „Noras LT“ ir kt.). 154

rested in going back to Lithuania to work for a lower wage but to live in their native country or near their families instead. These workers are highly attractive to Norwegian investors in Lithuania. − Lithuania has a FDI-friendly business environment, and good general conditions for starting the business. − Norwegian investors feel welcomed in Lithuania, they are developing their investments in a number of sectors. − Socially responsible Norwegian enterprises are withdrawing their activities from the countries with human slavery, everyday children exploitation, etc. Lithuania is one of the countries strickly intolerant to these processes. − Lithuania has developed open and business-oriented R&D infrastructure. − There are good governmental relations between Norway and Lithuania. Norwegian capital enterprises in Lithuania are very attractive employer for Lithuanian labour force due to higher wages and better social security measures (e.g. holidays in summer, when headquaters in Norway are on holliday, strickly follow the working day hours limits, no extra-hours, flexible work schedule for worker with young children) 205. Factor decreasing the attractiveness of Lithuania for Norwegian investors are206: − Huge bureaucracy in public institutions, applications procedures not always clearly docu- mented, long procedures of application checking, auditing, ect.; − There are increasing costs of raw materials and labour force. − Due to rapid migration out of Lithuania, there is a shortage of labour force in peripherial regions. Regional policy is insufficient. − Relatively high standards of environemental management (they getting close to Sciandi- navian ones). − Limited number and mobility of labour force able to speak any Scandinavian language. Factor decreasing the attractiveness of Lithuania for Norwegian investors are207: − huge bureaucracy in public institutions, applications procedures not always clearly docu- mented, long procedures of application checking, auditing, ect.; − there are increasing costs of raw materials and labour force. − Due to rapid migration out of Lithuania, there is a shortage of labour force in peripherial regions. Regional policy is insufficient. − Relatively high standards of environemental management (they getting close to Sciandi- navian ones). − Limited number and mobility of labour force able to speak any Scandinavian language. − High labour force tax system, which raises its price and labour cost respectively.

205 Interviews with representatives of Norwegian capital enterprises in Lithuania. 206 Karaliūnaitė U. 2015. Norvegijos ambasadorius apie tai, kodėl jo šalies verslininkai renkasi Lietuvą. Delfi, balandžio 23 d.; interviews with commercial attache at Embassy of Republic of Lithuania in Norway and representatives of Norwegian capital enterprises in Lithuania 207 Karaliūnaitė U. 2015. Norvegijos ambasadorius apie tai, kodėl jo šalies verslininkai renkasi Lietuvą. Delfi, balandžio 23 d.; interviews with commercial attache at Embassy of Republic of Lithuania in Norway and representatives of Norwegian capital enterprises in Lithuania 155

7.2. Analysis of areas of cooperation of Lithuanian and Norwegian business and the need therefor

In April – June 2017, surveys of business enterprises and business associations were conducted with the aim to identify areas of cooperation of Lithuanian and Norwegian business and the need therefor (Annex 2 and 3). Questionnaires contained the same questions on areas of bioeconomy where cooperation with Norwegian business entities is or would be important. Respondents were asked to assess the significance of areas of possible cooperation listed in the questionnaire for their business. The initial list of areas of bilateral cooperation of Lithuanian and Norwegian business was drawn up having analysed descriptions of 83 Norwegian enterprises working in the area of bio-processing and bioenergy on the origin of the biomass that they use, processing processes, products produced or R&D services provided208. They also were asked to enter other areas of potential cooperation which they found to be important, which were not on the questionnaire. A six-point scale was used in the assessment with 0 meaning not important, or from 1 point being of little importance to 5 points being of high importance. The survey results (average of importance points) by sectors of bioeconomy represented by companies and associations (food, forest biomass-based, biochemistry and production of medicines and pharmaceuticals, textile, leather industry, sewing of apparel and waste management) are presented in Figures 69-74.

Survey results of business enterprises and associations operating in the food sector Results of the assessment of areas of cooperation of the Lithuanian and Norwegian business and the need therefor according to the survey of respondents having represented the food sector are presented in Figure 69. In this case, agricultural, fishery and food production companies and associations are attributed to the food sector. The averages of importance points of cooperation with the Norwegian business are much higher according to the assessment of representatives of business associations than those of representatives of business enterprises – the distribution of opinions of representatives of associations ranged from 3 to 0.1 points, while those of business companies – from 2.2 to 0.8 points, which shows that the latter viewed the need for such cooperation to be of low or very low importance to their business. Meanwhile, representatives of business associations of the food sector consider the area of processing technologies of biomass waste / by-products to be the main area of cooperation with the Norwegian business, and treat cooperation to be of average importance (with the average importance score being 3 points and standard deviation σ = 2). The second area of cooperation assessed as somewhat less important (2.4 points, σ = 2.1) would be the management of solid biodegradable waste. Representatives of business associations referred to the recycling of combined packaging waste, processing of animal by-products, biological wastewater treatment and implementation of green innovations to be less important (with the average values ranging from 1.6 to 2.1). Other possible areas of cooperation illustrated in the Figure were assessed to be of very low importance.

208 Development of the Nordic Bioeconomy NCM reporting: Test centers for green energy solutions Biorefineries and business needs. Authors: L.Lange, B.Björnsdóttir, A.Brandt, K.Hildén, G. Óli Hreggviðsson, B. Jacobsen, A. Jessen, E. N. Karlsson, J.Lin- dedam, M. Mäkelä, S. E.Smáradóttir, J.Vang and A.Wentzel. TemaNord, 2015 (See table 10). 156

Figure 69. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: food sector

Average scores when 1 point is low importance and 5 points - very important

Representatives of business enterprises Representatives of business associations

Biomass waste / by-products treatment technologies 1.8 3.0 Management of solid biodegradable waste 0.8 2.4 Implementation of green innovation and projects in the field 1.0 2.1 Biological wastewater treatment 1.2 2.0 Processing animal by-products 0.9 2.0 Recycling combined packaging waste 1.4 1.6 Biorefinery of other plant biomass: bioenergy 1.2 1.6 Biorefinery of biomass of aquatic organisms 1.3 1.3 Production of bioplastic and biodegradable bioplastic 2.2 1.1 Biosynthesis: analytical and industrial applications, etc. 1.3 1.1 Pharmaceutical biotechnology 1.1 1.0 Biocatalysis: analytical and industrial applications, etc. 1.3 0.6 Biorefinery of wood biomass: bioenergy 0.8 0.1 5 4 3 2 1 0 1 2 3 4 5

Source: data of the survey of business enterprises (N = 54) and business associations (N = 7), food sector – as the main area of operations of respondents

Results of the survey of business enterprises and associations operating in the forest biomass- based sector Figure 70 illustrates the results of the assessment of areas of cooperation of the Lithuanian and Norwegian business and the need therefor according to the survey of forestry and logging, wood, furniture and paper industry business and business associations. The survey results have shown that the Lithuanian business found wood biomass biorefinery to be the most important area of cooperation with the Norwegian business. Representatives of business associations assessed this area of cooperation as very important (average score of importance – 4.5 points, σ = 0.7), while representatives of business enterprises – as being of medium importance (3 points, σ = 1.8). Representatives of business associations assessed the implementation of green innovations as second most important area of cooperation with the Norwegian business (3.5 points, σ = 0.7). Accor- ding to the assessment of the surveyed representatives of business, these are the areas of lower than medium importance (2.4 points, σ = 1.7). The area of cooperation on processing technologies of biomass waste and other plant biomass bio-refinery were assessed evenly by both parties in terms of its importance to business. Other possible areas of cooperation illustrated in the Figure were assessed as of low or very low importance (with average score ranging from 2 to 0.9 points).

Survey results of business enterprises and their associations operating in the manufacture bio-based chemicals and pharmaceuticals Figure 71 illustrates survey results of the assessment of areas of cooperation of the Lithuanian and Norwegian business and the need thereof of business enterprises and their associations producing

157 biochemistry products (including biofuels) and pharmaceuticals. Business associations were observed to have assessed all possible areas of cooperation as more important than representatives of business enterprises, except for analytical and industrial application of biosynthesis and bio-catalysis, production of bioplastics and biological wastewater treatment.

Figure 70. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: forest biomass-based sector

Average scores when 1 point is low importance and 5 points - very important

Representatives of business enterprises Representatives of business associations

Biorefinery of wood biomass: bioenergy 3.0 4.5 Implementation of green innovation and projects in the field 2.4 3.5 Management of solid biodegradable waste 1.6 2.5 Biomass waste treatment technologies 2.1 2.5 Biorefinery of other plant biomass: bioenergy 2.4 2.5 Recycling combined packaging waste 2.0 2.0 Production of bioplastic and biodegradable bioplastic 1.8 1.5 Pharmaceutical biotechnology 1.2 1.5 Biosynthesis: analytical and industrial applications, etc. 1.3 1.0 Biocatalysis: analytical and industrial applications, etc. 1.5 1.0 Biological wastewater treatment 1.7 1.0 Processing animal by-products 0.9 1.0 Biorefinery of biomass of aquatic organisms 1.0 1.0 5 4 3 2 1 0 1 2 3 4 5

Source: survey data of business enterprises (N = 24) and business associations (N = 2), forest biomass-based sector – as the main area of operations of respondents

Representatives of associations of businesses producing biochemistry, biotechnologies, medicines and pharmaceuticals consider implementing green innovation and projects in this field as a very important area of cooperation of the Lithuanian and Norwegian business (average score of importance – 5 points, σ = 0.0). Zero standard deviation shows that representatives of all four associations having participated in the survey had the same opinion on the importance of cooperation in this area. Business representatives having taken part in the survey also assessed cooperation in the field of green innovation as the area of possible cooperation of medium importance (3 points, σ = 2.3). Another area that they also found to be important was analytical and industrial application of biosynthesis (3.1 points, σ = 2.4). Representatives of associations assessed the cooperation with Norwe- gian business in the areas of wood and other plant biomass refinery as well as technologies of biomass waste treatment to be of more than medium importance (average scores – from 3.3 to 3.8 points). Associations can also be said to consider cooperation in another four areas to be of medium importance (with average score being 2.8 points), namely, pharmaceutical biotechnologies, analytical and industrial application of biosynthesis, solid biodegradable waste treatment and processing of biomass of aquatic organisms.

158

Figure 71. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: bio-based chemicals and pharmaceuticals manufacturing

Average scores when 1 point is low importance and 5 points - very important Representatives of business enterprises Representatives of business associations

Implementation of green innovation and projects in the field 3.0 5.0 Biorefinery of other plant biomass: bioenergy 2.7 3.8 Biorefinery of wood biomass: bioenergy 2.3 3.5 Biomass waste treatment technologies 1.9 3.3 Pharmaceutical biotechnology 2.1 2.8 Biosynthesis: analytical and industrial applications, etc. 3.1 2.8 Management of solid biodegradable waste 1.6 2.8 Biorefinery of biomass of aquatic organisms 2.3 2.8 Recycling combined packaging waste 1.4 2.5 Production of bioplastic and biodegradable bioplastic 2.4 2.3 Biocatalysis: analytical and industrial applications, etc. 2.4 2.0 Biological wastewater treatment 2.6 1.8 Processing animal by-products 1.4 1.8 5 4 3 2 1 0 1 2 3 4 5 Source: survey data of business enterprises (N = 7) and business associations (N = 4), bio-based chemicals and pharmaceuticals manufacturing – as the main area of operations of respondents Survey results of business enterprises and their associations operating in the manufacture bio-based textiles, apparel and leather Figure 72 illustrates the results of the assessment of areas of cooperation of the Lithuanian and Norwegian business and the need therefor according to the survey of businesses and business associations engaged in the manufacture of textiles, wearing apparel and leather. The survey revealed that businesses engaged in manufacture of textiles, wearing apparel and leather products have almost no interest in cooperation with the Norwegians (with the maximum average score being 2 points).

Figure 72. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: manufacture of bio-based textiles, apparel and leather

Average scores when 1 point is low importance and 5 points - very important Representatives of business enterprises Representatives of business associations

Implementation of green innovation and projects in the field 1.1 2.0 Biological wastewater treatment 0.5 2.0 Recycling combined packaging waste 0.1 2.0 Processing animal by-products 0.1 2.0 Production of bioplastic and biodegradable bioplastic 0.3 0,0 Pharmaceutical biotechnology 1.0 0,0 Biosynthesis: analytical and industrial applications, etc. 0.6 0,0 Biocatalysis: analytical and industrial applications, etc. 0.2 0,0 Management of solid biodegradable waste 0.3 0,0 Biomass waste treatment technologies 1.2 0,0 Biorefinery of biomass of aquatic organisms 0.1 0,0 Biorefinery of other plant biomass: bioenergy 0.6 0,0 Biorefinery of wood biomass: bioenergy 0.1 0,0 5 4 3 2 1 0 1 2 3 4 5 Source: survey data of business enterprises (N = 10) and business associations (N = 1), manufacture of bio-based textiles, apparel and leather – as the main area of operations of respondents 159

Survey results of business enterprises and associations operating in biowaste treatment area Figure 73 presents the results of the assessment of areas of cooperation of the Lithuanian and Norwegian business according to the survey of biowaste management enterprises (business associations did not complete the questionnaire). The greatest cooperation potential is associated with biomass waste treatment technologies (average importance score – 3.5 points, σ = 1.8), implementation of green innovations and management of solid biodegradable waste (average score in both cases was 3.3 points, σ = 2.1). Cooperation in the area of processing of animal by-products was assessed as being of medium importance (2.7 points, σ = 2.1).

Figure 73. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: biowaste treatment

Average scores when 1 point is low importance and 5 points - very important Representatives of business enterprises

Biomass waste treatment technologies 3.5 Management of solid biodegradable waste 3.3 Implementation of green innovation and projects in the field 3.3 Processing animal by-products 2.7 Biosynthesis: analytical and industrial applications, etc. 2.3 Recycling combined packaging waste 2.3 Biorefinery of other plant biomass: bioenergy 2.1 Biological wastewater treatment 2.1 Biocatalysis: analytical and industrial applications, etc. 2.1 Production of bioplastic and biodegradable bioplastic 2.1 Biorefinery of biomass of aquatic organisms 1.9 Pharmaceutical biotechnology 1.6 Biorefinery of wood biomass: bioenergy 1.4

5 4 3 2 1 0 1 2 3 4 5 Source: survey data of business enterprises (N = 8), biowaste treatment – as the main area of operations of respondents Figure 74 illustrates average scores of the assessment of the need for and areas of cooperation between the Lithuanian and Norwegian business by all businesses and business associations having participated in the survey. The survey revealed that main areas of the said cooperation include implementing green innovations, processing technologies of biomass waste, biodegradable solid waste management and plant biomass biorefinery. Results of both surveys showed the same. The following are the main insights with regard to the areas of cooperation between the Lithu- anian and Norwegian business according to survey results of business entities and associations:  business associations see a greater need for cooperation than business enterprises by separate areas of bioeconomy, because they show more interest therein and monitor international cooperation of enterprises209;  business associations see such areas as the implementation of green innovation and related projects as well as wood biomass biorefinery for bioenergy purposes as a very important cooperation with Norwegian business;  representatives of business enterprises usually see the need for cooperation in such areas as processing technologies of biomass waste, implementation of green innovation and related projects and biomass waste and biodegradable solid waste management.

209 Interview of representatives of business associations 160

Figure 74. Average score of the importance of cooperation between the Lithuanian and Norwegian business by areas: all bioeconomy sectors

Average scores when 1 point is low importance and 5 points - very important

Representatives of business enterprises Representatives of business associations

Implementation of green innovation and projects in the field 2.1 3.1 Biomass waste treatment technologies 2.1 2.8 Management of solid biodegradable waste 1.4 2.4 Biorefinery of other plant biomass: bioenergy 1.7 2.2 Recycling combined packaging waste 1.4 1.9 Biological wastewater treatment 1.6 1.8 Processing animal by-products 1.3 1.8 Biorefinery of wood biomass: bioenergy 1.4 1.7 Biorefinery of biomass of aquatic organisms 1.1 1.6 Pharmaceutical biotechnology 1.1 1.5 Biosynthesis: analytical and industrial applications, etc. 1.3 1.5 Production of bioplastic and biodegradable bioplastic 1.2 1.4 Biocatalysis: analytical and industrial applications, etc. 1.2 1.0

5 4 3 2 1 0 1 2 3 4 5

Source: survey data of business entity (N = 103) and business associations (N = 14)

It should be noted that the processing of forestry and fisheries by-products and biorefinery of waste and other biowaste (including food) are one of the most innovative areas of business development in Norway according to the analysis of development and strategic provisions of Norwegian bioeconomy and examples of good practice of business, which also corresponds to the main expectations of Lithuanian bioeconomy enterprises for the cooperation with the Norwegian business in the areas of processing technologies of biomass waste, implementing green innovations and biodegradable solid waste management identified by way of survey. Moreover the analysis of the development of the Norwegian bioeconomy and examples of good business practice revealed high achievements of Norwegian aquaculture in the areas of technological innovations, especially in salmon farming. It should be noted that a high development potential is forecasted for aquaculture. As previously mentioned, FAO has forecasted that a rapid increase in demand for fish and other aquatic products will be met through aquaculture till 2025, because fish catches will decrease by 0.06 percent per year, while aquacultures will grow by 3 percent per year210). On the other hand, the question of whether the take-over of these technologies in Lithuania may become a driving force of the development of aquaculture in Lithuania remains open. Direct Norwe- gian investments in the fisheries sector in Lithuania were zero in the past ten years. Even though according to studies, Norwegian entrepreneurs have shown interest in separate years, it also is zero at this time. It should finally be mentioned in the context of cooperation between the Lithuanian and Norwegian bioeconomy business that it turned out in the course of the survey of business entities (when a participation in the survey was aligned with more than 600 enterprises and farms by phone (Annex 3)) that the majority of enterprises and farms have never taken any effort to find out about Norwegian business enterprises and cooperation therewith, because they did not have any knowledge. However, only a fifth of all those having completed the questionnaire did not show any interest in cooperation with the Norwegian business. On the other hand, the respondents themselves did not

210 The State of World Fisheries and Aquaculture 2016. Contributing to food security and nutrition for all. FAO. Rome, 2016. 161 additionally enter any areas of cooperation of interest to them in not a single questionnaire, which illustrates the lack of information available about the Norwegian business and markets. Contact fairs were observed211 to be an important assistance for entrepreneurs in companies that do not have time or resources for the search, as short business meetings held at the time of the fairs allow deciding on future cooperation.

7.3. Potential measures to promote cooperation between the Lithuanian and Norwegian business

According to the analysis of bioeconomy of both countries as well as examples of Norwegian good practice and success stories of the Norwegian business in Lithuania, possible “cross-sectoral” cooperation elements still have not come to light due to significant differences in directions of bioeconomy development in Lithuania and Norway. Looking at the short-term prospects of cooperation between the Lithuanian and Norwegian business, the main elements of promotion of cooperation, disregarding the development of future structure of bioeconomy in both countries, should probably be based on the following areas of cooperation:  R&D and innovation (in particular the development of new innovations in the bioeconomy);  transfer of biotechnology (especially of Norwegian know-how);  development of business competencies (professional advisory, training, business development assistance services for enterprises);  improving investment climate;  investment;  dissemination of good practice (by way of business missions, business contact fairs, information and contact networks);  cross-sectoral relationships and interactions (between the biomass-producing sector and the sector transforming it into value-added products). The following are some of the main support platforms for promoting cooperation between the Lithuanian and Norwegian business:  Norwegian Financial Mechanism;  European Economic Area (EEA) financial mechanism;  the EU research and innovation programme “Horizon 2020”;  the EU fund investments. Programmes of Norwegian and the EEA financial mechanisms could continue being platforms for cooperation between the Lithuanian and Norwegian business in the area of bioeconomy. Objectives of grants of both financial mechanisms are to reduce economic and social disparities in Europe and to strengthen bilateral relations with beneficiary countries. Partnership between organisations in donor countries and beneficiary countries has been widely encouraged, which has rendered mutual benefits, facilitated exchange and enhanced cross-border interrelations. During the 2009 – 2014 financing period, Lithuania was allocated a total of EUR 35.5 million from the EEA and EUR 42.2 million – from the Norwegian financial mechanism212. In 2016, the EU, Iceland, Lichtenstein

211 Ministry of Economy of the Republic of Lithuania. 2017. Green Industry Innovation Programme. 212 Working together for a better Europe. Annual report 2016–2017. Publisher: Financial Mechanism Office Brussels on behalf of the Foreign Ministries of Iceland, Liechtenstein and Norway. 162 and Norway signed an agreement on the implementation of the EEA financial mechanism and Norwe- gian financial mechanism for the new 2014 – 2021 period. The plan is to invest EUR 2.8 billion in 15 EU countries in the implementation of these mechanisms in order to continue reducing economic and social disparities in the EEA countries and enhancing cooperation between countries. Lithuania was allocated EUR 117.6 million, of which EUR 56.2 million was support from the EEA financial mechanism and EUR 61.4 million – funds from the Norwegian financial mechanism. Funds from the financial mechanisms may also be allocated for such areas as innovation, research, improving education and increasing competitiveness, environmental protection, energy, resolving climate change problems and low-carbon dioxide technology economy, etc.213. Green Industry Innovation Programme financing from funds of the Norwegian Financial Me- chanism 2009-2014 is the closest to the bioeconomy business214. The Programme was aimed at increasing competitiveness of environmentally friendly enterprises, involving the application of green solutions in the current traditional manufacturing companies, in application of green innovation and entrepreneurship. Support for projects was provided according to two schemes – Partnership and Small Project schemes. Activities related to the creation of new environmental technologies, their implementation or introduction into the market, significant improvement of the existing technologic processes, their introduction into the market, acquisition and implementation of innovative environmental technologies as well as acquisition and implementation of new innovative environmental software, hardware and/ or production equipment were supported under the Partnership Scheme.215 The insert below presents successful examples of how projects supported from “Green Industry Inno- vation Programme” funds encourages the cooperation between Lithuanian and Norwegian enterprises in RDI area. Norwegian and the EEA financial mechanism programmes could promote the cooperation of Lithuanian and Norwegian business and research institutions in various areas of bioeconomy.

Good practice examples in bioeconomy: promoting cooperation between the Lithuanian and Norwegian business via the projects supported by the “Green Industry Innovation Programme” In 2017, UAB Akvavita implemented the project “Green Innovation Development in the Creation of a Lightweight PET Bottle” in cooperation with the Norwegian company “BergHolding AS”. Eco-friendly PET bottle was created for beverages made of 30 percent natural and 70 percent recycled materials. The new shape makes it easy to compress the bottles and to fully recycle them into textiles, building materials, plastics, furniture, etc. These solutions will allow reducing the need for raw materials (saving 54– 72 t of plastic per year, or 16 percent of the total used quantity) and electricity consumption (with its bills decreasing by 40 percent), decreasing costs of logistics by 10 percent and pollution tax – by 16 percent; also, the plan is to reduce the total carbon emissions into the atmosphere by 70 percent. This is expected to increase the competitiveness of the company in the international market, also the demand for and export of products. The joint project of UAB “Birštono Mineraliniai Vandenys” and the Norwegian company “Berg Holding AS” “The Develop- ment of the Technology of Paper Packaging in UAB “Birštono Mineraliniai Vandenys” was implemented together with researchers by creating next generation technology for recyclable packaging. The created innovative paper packaging for mineral water allowed reducing the use of plastic packaging materials. Moreover, the company created 5 new jobs in the manufacture of packaging of the new type. These innovative solutions are expected to increase sales and export of the company. Source: Green Industry Innovation Programme. Ministry of Economy of the Republic of Lithuania, 2017.

Activities related to the development of technologically new green products (produce or materials), their introduction into the market, also significant improvement of the existing products (produce or materials) in order to reduce their adverse effects on the environment and human health, and their introduction into the market, were supported under the Small Project Scheme. The insert below

213 EEA and Norwegian support to Lithuania. 2014–2021 period. http://www.eeagrants.lt/2014_2021_laikotarpis 214 Green industry innovation. Programme description. http://www.eeagrants.lt/programos/aprasymas/programos-aprasymas/program/3 215 Green industry innovation. Programme description. http://www.eeagrants.lt/programos/aprasymas/programos-aprasymas/program/1 163 presents examples how projects supported from the funds of the “Green Industry Innovation Prog- ramme” encouraged the takeover of advanced biotechnologies in Lithuanian companies. Project promoters noted that project funding from the funds of the “Green Industry Innovation Programme” is very attractive – more attractive than funding from the EU structural funds due to a low administrative burden and fast receipt of funds.

Good practice examples in bioeconomy: green innovative solutions in traditional bioeconomy companies having implemented projects supported under the Green Industry Innovation Programme Having implemented the project “Increasing Business Competitiveness of UAB Eurobagetas in 2017, UAB Eurobagetas acquired innovative, currently most eco-friendly and modern technology for making donuts, used by only a few Western European producers. The project implemented by the company will allow increasing sales volume, create additional 50 new jobs, also will allow reducing air pollution, the volume of production wastewater and waste as well as fat content in the product. Source: Green Industry Innovation Programme. Ministry of Economy of the Republic of Lithuania, 2017.

The good practice of adoption of the Norwegian Cambi technology for recycling the sewage sludge of UAB Vilniaus vandenys into biogas shows that the adoption of Norwegian know-how in the Lithuanian companies can help to increase the biowaste recycling, thus ensuring the production of renewable resources and better quality of the environment. The companies in Norway are using a new biogas production technology in small and medium-sized reactors. The adoption of this innovation can help to solve the problem of biowaste management in small Lithuanian towns and enterprises (especially in food industry, agriculture and fishery). It should be noted that it is in line with the business expectations for cooperation with Norwegian businesses in the field of biomass waste treatment technologies, identified by the survey (see Section 7.2).

Good Practices in the Bioeconomy: the Adoption of Innovative Norwegian Cambi Technology in Lithuania The consortium of German and Norwegian companies WTE Wassertechnik and Cambi have built sludge treatment facilities in the largest Lithuanian wastewater treatment plant in Vilnius, one of the most advanced in Europe. The project was financed from the Cohesion Fund and the budget of the Republic of Lithuania. Norwegian Cambi technology was introduced to convert sludge into renewable energy and high-quality biofuel. The sludge is processed in modern thermohydrolysis facilities and closed sludge diges- ters where the produced biogas is used for production of electricity and thermal energy, and the processed dried sludge as solid biofuel or valuable fertiliser in agriculture. The largest Lithuanian Vilnius wastewater treatment plant is cleaning about 113 thousand m3 of wastewater per day, resulting in approximately 200 tons of drained sewage sludge every day. The new sludge treatment facilities in Vilnius will make it possible to solve the problem of urban sewage sludge treatment very effectively due to Cambi’s technological advantage – high quantities of biogas and solid biofuels, low carbon footprint of drying and low energy consumption, compact sludge treatment facilities and no unpleasant odour of the sludge. Source: http://www.vv.lt/lt/apie/tinklo_pletra/vilniaus-dumblo-apdorojimo-irenginiai.php

Norway is a fully integrated partner and sponsor of the EU Research and Innovation Prog- ramme “Horizon 2020” (H2020), just like of previous EU research support programmes. About 5.6 percent (EUR 4208 million) of H2020 funds will be allocated for bioeconomy and its cross-sectoral solutions216. Small and medium-sized enterprises, which are the main source of jobs and innovation, receive a particular attention under H2020. The measure of small and medium-sized enterprises is targeted at highly innovative small and medium-sized enterprises willing to increase their growth potential. One-time pay-outs for feasibility studies, subsidies or the main innovation project phase (demonstration, prototype creation, checking, application, development, etc.) are offered under the measure; commercialization phase is supported indirectly, granting an easier access to debt and equity financial instruments. A small or medium-sized enterprise or a consortium established in the EU or

216 European Commission. 2017. JRC Science for Policy Report: Bioeconomy Report 2016. EUR 28468 EN. 164 an associated country may take part in the measure217. H2020 research programmes and projects could encourage cooperation of the Lithuanian and Norwegian business and science institutions in various fields of bioeconomy. The analysis of foreign direct investment revealed that the Norwegians have risen from the tenth place to the fifth among foreign investors in Lithuania during the past six years. Statistics of Norwegian investors controlled in Lithuania and, vice versa, – companies controlled by Lithuanian investors shows that the interest of Norwegian entrepreneurs in investment development in Lithuania is more than ten times greater than that of Lithuanian entrepreneurs in Norway (for more information, see subsection 7.1). The survey of business entities of Lithuanian bioeconomy revealed that lack of information and its limited availability mainly due to the language barrier was one of the main reasons of poor interest of Lithuanians in the Norwegian business. These conclusions were also confirmed by interviews of Lithuanian experts working with Norwegian companies in both countries, who also highlighted such reasons as too weak business relations, differences in the business culture, high Norwegian agriculture and food market protection, reservedness of Norwegian business community in Lithuania having lasted for some time in the beginning, which manifested in their dominant mutual business relations. The good practice of business contact fairs held under the Green Industry Innova- tion Programme of the Norwegian Financial Mechanism described in the insert below illustrates how such cooperation barriers may be eliminated. The Bilateral Cooperation Fund (EUR 0.5 million), which is aimed at enhancing bilateral relations of Lithuania and Norway in the area of green industry innovation, implementing or promoting bilateral partnership of business enterprises, organisations, research and education institutions, and developing cooperation, comprises a part of the funds of the “Green Industry Innovation Programme”. Activities related to the organisation of business contact fairs, consultations for potential partnership project promoters and project partners related to the submission of applications for support under the programme, execution of the Lithuanian Business Acceleration Programme, etc., were financed from this Fund218.

A possibility to learn from each other in business contact fairs supported from fuds of the mutual cooperation fund of the Green Industry Innovation Programme In order to promote the Lithuanian and Norwegian partnership in the green innovation area and increase environmentally-friendly business competitiveness, four business contact fairs by separate areas were arranged in 2016-2017: waste management, biomass energy, green ICT and energy efficient business. During the business contact fails, many questions and topics relevant for bilateral cooperation were raised in a discussion. It was noted that one should not forget to be open, not to be afraid to change the way of thinking, to be prepared to not only teach the partner but to also learn from him, and to take cultural differences and communication into account in all cases in the cooperation. Representatives of Lithuanian and Norwegian business and science had about 200 individual business meetings in business contact fairs to establish relationships and discuss possible joint projects. This is a very good way for Lithuanian entrepreneurs to assess Norway as an export market, find market needs and possibilities for cooperation. Participants of a biomass energy business contact fair (in Oslo) had a possibility to observe the production of renewable energy from forest waste and the production of liquid biofuel in one of the most modern and ecological Norwegian thermal power plants “Statkraft” and get familiar with activities of the largest Norwegian bioenergy power plant “Hafslund Varme” and the Europe’s largest “Haraldrud” optical waste sorting plant.

Wide business opportunities in Oslo for biomass energy representatives. lrytas.lt, 24-10-2016; Norwegian business delegation found useful contacts for future projects in Lithuania. 15min., 17 May 2017

A possibility to bring Norway’s and Lithuania’s business culture closer together, to take over innovative Norway’s project management and/ or business development means and methods is one of the cornerstone methods of long-term cooperation of business of both parties. Moreover, there is

217 HORIZON 2020: Brief information about the programme. EU Framework Programme for Research and Innovation, Luxembourg, 2014. 218 Green Industry Innovation / Bilateral programme relations. http://www.norwaygrants.lt/programos/aprasymas/programos-dvisa- liai-santykiai/program/3 165 a shortage of proactive people for developing mutual cooperation.219 The example of professional assistance of highly-skilled Norwegian experts in the area of management of Lithuanian business development described in the insert below is yet another efficient incentive promoting mutual cooperation.

Professional advisory, training, business development assistance services for Lithuanian companies The Agency for Science, Innovation and Technology (MITA) arranged the selection of Lithuanian companies for taking part in business acceleration programme to be held in September of 2017 in Norway. Professional advisory, training and business development services will be provided by highly skilled experts to young companies via the acceleration programme, which will allow them to grow within the shortest possible period of time, using various advanced measures and methods. The Norwegian Innovation Advisory Company “Proneo”, which is a member of NBIA, the global network of organisations providing incubation and business consultations, will conduct the acceleration programme (in September of 2017 in Norway). Lithuanian companies will be able to receive professional services in a single Norwegian accelerator, which has more than 10 years of experience in the business advisory areas and has provided services to more than 500 start-ups from Scandinavia and other European countries. Each company will have an individual mentor appointed for the entire acceleration programme period. During a visit to Norway, getting familiar with local business companies will be possible. Costs of participation in the business acceleration programme shall be covered from the bilateral cooperation fund of the Green Industry Innovation Programme.

We are inviting young business to take part in the Norwegian acceleration programme. MITA, 23 June 2017. http://www.mita.lt/lt/naujienos/226-kvieciame-jauna-versla-dalyvauti-norvegijos-akceleravimo-programoje

Almost two thirds of foreign investors in Lithuania have indicated to be frequently facing operational difficulties posed by a shortage of labour force, and they treat it to be one of the two areas most challenging to investors, with the second one being challenges posed by regulation of labour relations220. Norwegian companies consider qualified and relatively cheaper labour force to be one of key advantages of Lithuania. Norwegian investors appreciate employees as loyal and well working; however, in recent years, they have faced a shortage of skilled employees, which has become an increasingly greater challenge to business and an obstacle to the development of investment, especially in regions with high emigration levels of working age population. Here an efficient regional policy is missing221.

Good local partnership experience in the reduction of growing shortage of skilled employees Norwegian capital company UAB Devold making knitted apparel moved its factory to the Free Economic Zone of Panevėžys in 2015. A part of this project was funded by the EU support European Regional Development Fund and the state budget of the LR. The new factory was designed so that when investing into an additional modern equipment and workforce, production capacities could be increased by more than a half. It has solved the issue of a shortage of skilled employees, which has become a real challenge, by bringing 65 employees from Kupiškis very day, which leads to increased costs. Moreover, the company got actively involved in the course for training tailors in Panevėžys labour exchange training centre participating in the improvement of the training programme and admitting trainees. Also, currently it seeks to adjust public transport schedules in cooperation with Panevėžys municipality in order to attract employees from the surrounding areas.

Business success in Lithuania encourage Norwegians to build a new plant. Invest in Lithuania. 30 October 2015 Interview of the Head of Foreign Investors’ Association of Panevėžys (F.I.B.A. Panevėžys). Interview of the Project Manager of Panevėžys Free Economic Zone

Having summarised good practice of Lithuanian-Norwegian cooperation, the recommenda- tion is to promote Lithuanian-Norwegian cooperation in the new programme period of the Norwegian and the EEA financial mechanism programmes in the following areas:  Takeover of the Norwegian know-how in the bioeconomy area in the implementation of bilateral business or business and science projects;

219 Interview of the Head of Foreign Investors’ Association of Panevėžys (F.I.B.A. Panevėžys). 220 Lithuanian investor confidence index (9), Q I, 2017. Investors’ Forum. 221 Interview of representatives of Norwegian companies. 166

 Takeover of good Norwegian practice in the implementation of integration of bioeconomy sectors allowing to use all waste, reduce costs, optimise the knowledge sector and create innovative products and technologies (clusters, industrial symbiosis);  Takeover of good Norwegian practice creating favourable conditions for bioeconomy start- ups to be established and taking over the experience of consultations of companies via the acceleration programmes. After summarizing the evaluation of the survey of business entities on the need for and areas of cooperation between the Lithuanian and Norwegian bio-based businesses (see Section 7.2) and the analysis of Norway’s good practice, the following areas of cooperation were identified:  Biomass waste treatment technologies;  Biomass waste and biodegradable solid waste management;  Municipal and household waste collection and recycling into biogas;  Wood and other vegetable biomass, biowaste recycling for production of bio-energy, especially biogas;  Aquaculture development in closed systems;  Green innovation project implementation in all subsectors of the bioeconomy. The need for any cooperation in the future depends on many factors. Market opportunities and conditions, business relations, development stage, investment needs, business opportunities and other factors determine the selection of respective most favourable cooperation incentives. Bioeconomy requires not only new and innovative technologies, but also new and innovative methods of cooperation in countries and among countries and regions. Long-term projects have been emphasised to be the most successful, because long-term cooperation creates efficient results222. Lithuanian and Norwegian business cooperation may be encouraged by incentives (Table 13) managed via the above- listed three financial mechanisms indicated in the Table, also by attracting other funds and initiatives.

Table 13. Potential incentives for promoting cooperation between the Lithuanian and Norwegian business in the bioeconomy area

Areas Incentives 1.1. Subsidies for business feasibility studies on possibilities for the crea- 1. R&D and innovation (es- tion of bilateral businesses and project implementation; pecially the creation of 1.2. Subsidies for bilateral projects aimed at the creation and implementa- innovation in the bioeco- tion of bioeconomy innovation nomy) 1.3. Support for commercialization phase of new products by indirect instruments of financial engineering 2.1. Support of investment projects 2.2. Support for implementation of Norwegian know-how in Lithuanian 2. Transfer of biotechnolo- companies (consultations to businesses on opportunities and condi- gies tions of transfer of Norwegian technologic innovations; sponsorship of training for the employees of the firm adopting technological innovations) 3.1. Holding business contact fairs 3. Organisation 3.2. Organisation of campaigns for attracting Norwegian investors 4.1. Support for creation of information cooperation networks 4. Information 4.2. Support for good practice dissemination, news, etc. 5.1. Acceleration programmes – professional services of highly-skilled experts (advisory; training; assistance in project development; mee- 5. Development of business tings with experienced entrepreneurs and/or enterprises) competences 5.2. Support of measures for bringing closer the business culture (e.g., e- vents about the peculiarities of Norwegian business culture)

222 Norwegian business delegation found new contacts for future projects in Lithuania. 15min., 17 May 2017. 167

6.1. Support for creating and retaining jobs in Lithuanian regions 6. Improving investment cli- 6.2. Adaptation of study, vocational training and labours exchange retrai- mate ning programmes to the labour market needs 7. Financing and/or incentive platforms:  Norwegian Financial Mechanism  the EEA Financial Mechanism  the EU Research and Innovation Programme “Horizon 2020”  the EU structural funds  Lithuanian state budget funds

168

8. Conclusions and Recommendations on the development of bioeconomy and innovation in Lithuania

The Lithuanian bioeconomy created nearly EUR 4.7 billion in GVA, which accounted for 12.8 percent of GDP (in 2014). Food industry (along with manufacture of beverages and tobacco) and agriculture create the highest value added in bioeconomy, which are the largest Lithuanian bioeconomy sectors in terms of turnover. Manufacture of bio-based furniture creates about a sixth of the Lithuanian bioeconomy GDP, manufacture of wood products – about a tenth, and manufacture of bio-based textiles, wearing apparel and leather – slightly less than that. In terms of turnover, all the three industries are medium-sized sectors. Meanwhile, small knowledge-intensive and industrial biotechnology-based sectors of manufacture of pharmaceutical and chemical products do not have any significant impact on the Lithuanian bioeconomy so far, despite the fact that the manufacture of pharmaceutical products has experienced a very rapid development in recent years. Since 2010, Lithuania has been among leaders of bioeconomy growth in EU in all biomass production and fully bio-based manufacturing sectors – the first in terms of the growth of the paper sector, the third – in terms of the growth of fisheries, the fourth – in terms of the growth of the agricultural sector, manufacture of beverages and tobacco and manufacture of wood products (except for the furniture production) and the fifth – in terms of the growth of forestry and logging subsector. Almost two thirds of persons working in bioeconomy were employed in the food sector in 2015. Slightly more than a fourth of them worked in the bio-based forestry sector, less than a tenth – in manufacture of bio-based textile, apparel and leather products, and a very small share (0.4 percent) – in subsectors of manufacture of bio-based chemicals and pharmaceuticals. The share of persons employed in the food sector and manufacture of bio-based textile, apparel and leather products decreased over the decade (by 2.7 and 1.5 percentage points, respectively). The proportion of persons employed in the remaining sectors increased: 4.1 percentage points – in the forestry bio-based sector and 0.1 percentage points – in manufacture of bio-based chemicals and pharmaceutical products and preparations. Three methods were used to prepare Lithuanian bioeconomy development projections: econometric time series analysis, general equilibrium modelling and analysis bioeconomy business expectations. The following trends of development of the Lithuanian bioeconomy are likely in the long-term: the GVA, which was EUR 4.7 billion in 2014, may increase to EUR 7.8–9.1 billion in 2030, which would be a growth of 68–95 percent. Projections of persons employed in bioeconomy have some contradictions. The projection based on bioeconomy business expectations shows a certain increase in the number of employees to 305 thousand (in 2030), while projections prepared in application of different methods forecast the reduction to 153–209 thousand compared to 234.4 thousand in 2015; exports value may increase from EUR 9.9 billion in 2016 to EUR 13.9–21.1 billion in 2030. In bioeconomy, labour productivity is lower than the average productivity in the Lithuanian economy. This gap decreased significantly over the decade. Labour productivity in manufacture pharmaceutical products and preparations and the production of chemicals is very high in Lithuanian bioeconomy. Here labour productivity is from a few dozen to several times higher compared to the average labour productivity of the entire country. The lowest labour productivity levels have been observed in agriculture, which are half the country’s average. Low levels of labour productivity have also been observed in forestry and logging, manufacture of textiles, apparel and leather, and wood industry. Such differences in labour productivity mainly come as a result of differences in intensity of technology use. As a matter of fact, manufacture of pharmaceutical products and preparations is

169 attributable to high-technology industry and is a knowledge intensive business industry, while manufacture of chemicals is attributable to medium-high-technology industry. All other manufacturing industries of bioeconomy (manufacture of food, beverages and tobacco products, textiles, apparel, leather, wood and paper products, and furniture) are attributable to low-technology industry. In terms of technological intensity, primary production of biomass (agriculture, forestry and fisheries) also is a low technology area of bioeconomy. On the other hand, the gap in labour productivity between bioeconomy and the entire economy as well as among sectors of bioeconomy has also decreased due to innovative technological solutions in low technology industry, also in aquaculture, agriculture and logging. The food sector is the largest share of Lithuanian bioeconomy, just like in the majority of other EU states. Food industry and agriculture are the largest subsectors of Lithuanian bioeconomy, which can be characterized by average growth rate over the past mid-term period. Fishing and aquaculture is a very small part of the food sector, also developing at an average rate. The strategic principle of bioeconomy of the priority of food security ensures the priority of the food sector in bioeconomy. The priority of agriculture and fisheries is also determined by the principle of combination of food security with sustainable use of renewable energy sources for industrial (including energy) purposes and assurance of environmental protection. The development of the Lithuanian food sector has been encouraged by rapidly increasing food demand in the world as a result of a rapid growth of population and their purchasing power. The potential of biomass production in agriculture has been increased by the possibility of including suitable abandoned agricultural land in production and sustainably intensifying agricultural production in order to increase the productivity of agriculture. The forecasted rapid increase of demand for fish and other aquatic products in the world has increased the potential of the development of aquaculture in Lithuania. The development of aquaculture in Lithua- nia is associated with the increase of quantities of valuable species of fish in ponds and the aquaculture cultivation in closed systems. The forest bio-based sector (forestry and logging, production of wood, paper and furniture) is the second largest sector of Lithuanian bioeconomy. The priority of the forestry sector is determined by the strategic principle of combining food security with sustainable use of renewable energy sources for industrial (including energy) purposes and the assurance of environmental protection. The total volume of wood has constantly increased in Lithuania. Farmed forests make up 71.4 percent. The use of forest biomass is limited by environmental goals prohibiting or limiting economic activities. The forest area has a potential to expand by afforestation of abandoned agricultural land and other land unsuitable for agriculture. Forests perform many ecosystem functions: they help protect the soil, form a part of the water cycle and regulate climate; they are important in the implementation of EU climate goals by accumulating coal, and protect biodiversity. Other products (such as food, cork or resin) are derived from forests. Forests are also a source of various services, which increases the significance of forestry in the Lithuanian bioeconomy. The majority of wood resources in Lithuania are used traditionally, i.e. in manufacture of wood, its products and furniture, also as biofuel in energy. In order to increase the contribution of forest bio-based sector to Lithuanian bioeconomy and enhance its competitiveness, promoting sustainable use of forest in the production of higher value added industrial products is necessary. The potential of the development of the bioenergy sector has been increased by the EU provision that bioenergy will remain the main renewable energy source in the pursuit of climate and energy goals of 2020–2030. In order to reduce adverse effect of the production of traditional biofuels on the balance of food products and greenhouse gas emissions, the production of first generation biofuels

170 from rape and cereal grain should be replaced by the production of advanced second and third generation biofuels made of agricultural and wood waste, and algae. Due to their attractive price, sufficient amount of local resources and low GHG emissions, bioenergy resources should remain the principal fuel in Lithuanian district heating systems. This has a potential for increase, even though it is limited. The potential of the production of biogas from agricultural and food industry waste and biodegradable municipal waste has been poorly exploited in Lithuania, even though lately the production of biogas from agricultural waste and sewage sludge has increased. Based on the experience of advanced Eu- ropean countries, the use of biogas derived from biodegradable municipal (especially food) waste in the city transport through public procurement procedures of biogas held by government of the city helps resolve urban pollution problems and reduce GHG emissions. Currently, the contribution of manufacture of bio-based chemicals and pharmaceutical products and preparations using advanced biotechnology processes and techniques to the Lithuanian bioeconomy is poor due to due to its small scale. However, the projections of the development of bioeconomy business based on business expectations till 2030 show the greatest potential of growth of this sector. The most rapid increase of productivity of this subsector is associated with much greater expectations for attracting investments in R&D and qualified employees. The rapidly growing biotechnology sector is one of the main driver of the potential of manufacture of pharmaceutical products and chemicals. According to the European Commission’s policy on industrial revival, biotechnology as one of the main most advanced areas of technology, and bioproducts derived in application thereof are two of six priority axes for promoting investment in innovation and new technology. Biotechnology is one of the most promising new pollution prevention, resource preservation and cost reduction methods. Its application could also become the cornerstone driver in other sectors of bioeconomy, it would increase productivity, reduce adverse environmental effects and allow for a more sustainable use of renewable energy sources, especially in light of the fact that Lithuania has sufficient resources necessary for the development of the biotechnology sector (such as a sufficient number of highly qualified and production of large amounts of biomass). The transition of plastics production companies operating in Lithuania to the production of bioplastics could be another driver of increasing potential of bio-based chemicals industry. The increasing popularity of plastic packaging and plastic components in main industries, such as food industry, cars, furniture or transport, will have a positive effect on the production of plastics, while demand should increase in both local and export markets. The expediency of the Lithuanian bioeconomy strategy is based on experience of regulation of Lithuanian bioeconomy using different sectoral policies and the increasing need for consistent cross-sectoral complementarity and interoperability-based policy; experience of EU and advanced European countries in solving issues of the strategic development of bioeconomy; the need for strategic development of bioeconomy of the Baltic Sea Region, and the opinion of business, government and educational institutions on the fact that the bioeconomy strategy is very important for Lithuania. The development of bioeconomy in Lithuania is mainly regulated and encouraged through sectoral policies: the policy of agriculture, forestry, fisheries, energy, environment (including waste management), R&D, innovation and biotechnology development, etc. There are interconnections between individual cross-sectoral policies, for example, forestry and energy, agriculture and food industry, agriculture and energy or forestry and wood industry. These cross-sectoral relations will inevitably grow in the future for the need to reduce waste and move towards circular economy. Bioeconomy cross-sectoral relations in Lithuanian legislation are linked solely through the use of biomass and its waste in energy. Meanwhile, the content analysis of EU and OECD strategic documents revealed that bioeconomy shall be developed to combine food security, sustainable use of 171 renewable resources for industrial purposes and assurance of environmental protection. To ensure this synergy, transition to circular economy, the circle of which would retain the value of products, materials and resources for the longest possible period of time and result in generation of minimum possible amounts of waste, is of particular importance. Those same limited bio-resources are used in various subsectors of bioeconomy, while biowaste generated in one subsector becomes a source of biomass for another subsector. Biomass cascading principle has become increasingly important. In accordance with this principle, biomass must first of all be used in the production of products of the highest value added. Thus, future bioeconomy must be focused on the use of biomass in the production of pharmaceutical and cosmetics ingredients, bioplastics and polymers rather than on its use in the production of energy. Cascading principle of the use of bioeconomy will lead to the formation of winners and losers, often in the same sector, thus creating the highest possible value added will be possible only having a targeted, goal-oriented policy. The analysis of bioeconomy strategies and policies in the Baltic Sea Region countries also revealed that Lithuania needs a bioeconomy strategy, which would speed up the sustainable growth and development of the Baltic Sea Region. 5 out of 12 examined EU states have drafted bioeconomy strategies: Belgium and Germany (2013), Finland (2014), Spain and Italy (2016). In addition to the bioeconomy strategy, Germany has also drafted the National Research Strategy BioEconomy 2030” (2011). Sweden has a drafted Re- search and Innovation Strategy for a Bio-based Economy (2012). Denmark set up the national bioeconomy advisory council in 2013, however, it has no bioeconomy strategy so far. Ireland, Estonia and France plan to draft a bioeconomy strategy, while the Ministry of Agriculture of the Republic of Latvia is currently finishing up with the preparation of the Latvian strategy in cooperation with the Latvian University of Agriculture. Analysis of good practice of bioeconomy strategies of EU countries revealed that the Ministry of Economy could be responsible for drafting the Lithuanian bioeconomy strategy and the action plan in cooperation with other ministries (ministries of economy, food or agriculture usually draft such strategies in EU countries). Main components of bioeconomy strategies of EU countries include the substantiation of the need for the strategy, SWOT analysis of the bioeconomy sector; vision, goals and principles of bioeconomy; main parts of the strategy indicating the action plan and measures (the policy; R&D; training and education; biomass value chain; markets and competitiveness); the implementation, monitoring of the strategy and impact assessment. The analysis of good practice of state governance in EU countries showed that EU countries solve the issues of drafting a bioeconomy strategy, it’s implementation and monitoring somewhat differently. However, work groups and councils are formed under the integration principle. Work groups are delegated the function of drafting and councils – the function of monitoring the strategy and the action plan as well as the advisory function. The majority of incentives for the development of bioeconomy used in EU countries are those typically used in other economic activities, including those of Lithuania. Nevertheless, such incentives as encouraging consumers to buy (and pay more for) for sustainable bio-based products as substitutes for traditional products, the creation and funding of public procurement programme, and big data systems are important. The content analysis of strategic documents of the EU, OECD and Norway and of good practice of EU countries and Norway allowed determining that bioeconomy or related strategies and action plans are based on the following 4 principles: 1) to give the priority to food security; 2) to combine food security with sustainable use of renewable resources for industrial purposes and assurance of environmental protection; 3) to apply the cascading principle in the biomass value chain, first of all using biomass in the production of the highest value added products. The Lithuanian bioeconomy strategy and the action plan should be based on the said principles, integrating the sectors 172 of bioeconomy and including all stakeholders in order to ensure sustainable growth of bioeconomy via the biomass value chain. When giving priority to food security, it is important for biomass to first of all be used in the production of food rather than biofuels, thus shifting towards the 2nd and 3rd generation sustainable production and use of biofuels is necessary. Additional biomass needed for biofuels may be created by using abandoned agricultural land inappropriate for growing food product raw materials. The analysis of research of EU countries and good practice of bioproducts created by their companies revealed the following trends: 1) the use of waste as biomass; 2) integration of sectors of bioeconomy; 3) the use of biomass in the production of high value added products; 4) replacement of one type of biomass by another; 5) search for alternative forms of biomass; 6) development of circular economy. Both EU and Lithuanian legislation devote special attention to the reduction of biowaste, especially of food. Lithuanian legislation provide for taking active and ambitious means to cut down on food waste, help municipalities organize a food waste collection system and implement measures allowing reducing the generation of food waste. EU legislation provides for the pursuit of the goal of sustainable development of the reduction of food waste, extension of the use of food, facilitation of food donation and increase of the use of no longer used food products and food chain by-products in feed production. Emphasis is placed on educating the public about issues of reducing food waste. EU and OECD strategic documents emphasize that the bioeconomy strategy shall be focused on three areas: investment in R&D, innovation and skills; strengthening policy interaction and participation of stakeholders; increase of markets and competitiveness in bioeconomy sector, with the special focus being placed on the development of biotechnologies, because they will become the basis for the development of a whole bioeconomy sector. The plan is to develop the innovative technology and knowledge-based, more competitive industrial and service sectors of higher value added. Particular attention on the creation and development of Lithuanian innovative technologies and new products places in the “Programme for the Development of Lithuanian Innovation 2014– 2020”. It provides for the following main programme objectives: to promote investment in activities creating high value added; to encourage the entry of new products into the market; to encourage cross- sectoral cooperation in the creation of innovation and to develop high-impact innovation; to promote the creation, development and internationalization of value networks; to encourage cooperation between business and science, transfer of knowledge and technology; to promote the development of clusters and their integration in international value creation networks. These objectives are also important in the pursuit of promoting innovation in the bioeconomy sector. It is expedient to do this through innovative (pre-commercial) and green public procurement: to increase the innovative capacity of companies through pre-commercial purchases (government orders for R&D) to address social challenges, to increase the demand of the public sector for innovation, to motivate the business marketing new bioproducts. The EU countries have created strong bioeconomy clusters. The analysis of good practice of clusters revealed that their creation at the national level is expedient only when there is a very strong research potential and many business enterprises prepared to commercialize products. Support for their establishment should be linked to the implementation of strategic bioeconomy goals. The creation of clusters should first of all be initiated “from the bottom”, and only in the absence of the initiative they should be created “from the top”. In presence of a weak scientific potential, searching for membership opportunities in clusters created in EU countries would be better. It has been emphasized in Lithuania that merging into clusters is one of the opportunities to occupy a greater share of export markets, because competing for a single company is rather complex. 173

Promoting the culture of cooperation and the need for innovation by increasing popularity of the benefit of the development of clusters in research and education institutions, also creating the space for distribution of information on potential benefits of clusters, management peculiarities and business cooperation, creation of value chain via the provided services of cluster facilitators, success stories, the media, seminars and conferences are important. The plan is to encourage the national clusters to become a part of international value creation chains, especially in the Baltic Sea Region, encouraging Lithuanian clusters to develop international partnership. Thus clusters in Lithuania receive a special attention. More than a third of R&D expenditure was allocated for fundamental research in Lithuania during the examined period of time, and only slightly less than 2/3 – for applied research and development. Nevertheless, low focus of projects of research and education institutions on prototypes and products suitable for the market has been observed. Results of the survey of universities and research institutes revealed that in the performance of R&D projects in the bioeconomy area, the involvement of these institutions in subsequent R&D stages is very low. The majority of research project results is associated with the knowledge application concept (about 87 percent), must fewer research results (about 50 percent) – with new (fundamental) knowledge, and only a very small share (18 percent) – with layout design, tests and check, creation of a prototype trial version and demonstration, as well as the production and assessment of the trial batch. Lithuanian research and education institutions have little experience and motivation in creating patented, licensed or other-wise commercialised products suitable for the market, there is a shortage of start-ups and spinoffs. The Lithuanian research system is fragmented, thus the culture of cooperation not only between researchers and entrepreneurs, but also between scientists from different institutions is low. Interinstitutional and international coordination of innovation activities remains inefficient in Lithu- ania; the created infrastructure necessary to ensure research and business partnership also functions ineffectively. Activities of open access centres do not attract business as planned; science and technology parks are mainly engaged in the rent of premises, and businesses take little advantage of equipment of valley laboratories operating under the open access principle. In order to increase the efficiency of activities of centres, parks and valleys, periodic control and assessment of their activity results is necessary. Business admits that innovations are a very risky area, and failures are frequent here, thus not all business representatives are willing to take the risk. Another problem is the lack of control and the sharing of managerial skills: there is a shortage of specialists, who could help find the missing pro- fessionals of different areas, who could work with the company from the initial stage of the creation of innovation till its practical adaptation, ensure a smooth project implementation and familiarize with opportunities to receive additional financial support. Businesses in the country often confine themselves to providing financial assistance at the product development stage only, without rendering assistance for the introduction of a new product into the market, where the risk of a failure is significant. On one hand, it was determined that as many as 75 percent of new products in the market fail. On the other hand, the introduction of a product into the market is an expensive procedure. The process of commercialization of industrial biotechnology products is long for regulatory constraints, poor consumer awareness of the products, the advantages and functions whereof are not sufficiently clear. Lithuania has a scientific potential for the development of bioeconomy activities. The number of doctoral bioeconomy students accounted for an average of 16–18 percent of the total number of doctoral students in the past four study years, and increased more rapidly than the number of doctoral students of other areas unrelated to bioeconomy. The analysis of the Lithuanian research and development potential in the bioeconomy area revealed that the research area attributable directly to 174 bioeconomy employed 15 percent of conditional R&D researchers in 2015. The highest number of R&D employees in business was in the production of chemicals during the examined period of time. An increase in the number of R&D employees has been observed in this business. Business inclusion in R&D could be increased via projects funded under Horizon 2020, Interreg Baltic Sea region programme and the Lithuanian Research Council. Business can make very limited investment in R&D, because enterprises are relatively small. In such a case, acquiring the already created product is more efficient than investing in its creation. Commercialization of research results may also be accelerated via the implementation of European Innovation Partnership projects. The following directions for promoting Lithuanian bioeconomy innovation are recommended: 1) promoting investment in high value added activities; 2) promoting the introduction of new products into the market; 3) encouraging cross-sectoral cooperation in the creation of innovation and developing high-impact innovation; 4) promoting the creation, development of value networks and their internationalization; 5) promoting the cooperation between business and science, knowledge and technology sharing; encouraging the development of clusters and integration into international value creation networks. Financial and non-financial instruments for promoting innovation are first of all targeted at the growth of biomass-based economy through a more rapid commercialization of new products: different tax reliefs, constraints, financial support for the establishment of start-ups and spin-offs, provision of consultation and acceleration services to small and medium-sized enterprises, organization of innovative (pre-commercial) and green public procurement procedures and search for export markets. Creating favourable legal, organizational and financial conditions necessary for the establishment and operation of biomass value chain-based knowledge centres and clusters, production and demonstration of new bioproduct test batches, development of international partnership and increasing the number of R&D jobs in the bioeconomy sector is important for promoting innovation. Infor- mation and education of Lithuanian business sectors and the public on bioeconomy-related issues is indirect but important instrument for promoting innovation.

Recommendations – action plan for promoting the development of Lithuanian bioeconomy and innovation The analysis of the content of strategic documents of the EU, OECD and Norway as well as of good practice of the EU countries and Norway allowed determining that the strategy of bioeconomy and the related strategies and action plans are based on the following 4 principles: 1) to give the priority to food security; 2) to combine food security with sustainable use of renewable resources for industrial purposes and assurance of environmental protection; 3) to apply the cascading principle in the biomass value chain, first of all using biomass in the production of the highest value added products; 4) to maximise recycling and reuse and minimise waste. The Lithuanian bioeconomy strategy and the action plan should be based on the afforementioned principles, integrating the bioeconomy subsectors and involving all stakeholders in order to ensure sustainable growth of bioeconomy via the biomass value chain. Considering these principles and conclusions received having assessed the condition and the potential of Lithuanian bioeconomy as well as good experience of the EU member states and Norway, recommendations were prepared for promoting the development of Lithuanian bioeconomy and innovation in this sector by drafting an action plan (Table 14).

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Table 14. Goals, Objectives and Measures of Bioeconomy Development and Innovation Promotion

Goals Objectives Measures* 1.1.1. By January 1st, 2018 to form a National Bioeconomy Council with representatives from governmental (central and municipal) institutions, business associations, research and 1.1. To ensure inter-institutional inte- study institutions and non-governmental organisations raction of all stakeholders in 1.1.2. To prepare the regulations of the National Bioeconomy Council, describing the princip- solving the problems of strategic les of its formation, activities, and functions as well as the procedures of decision-ma- development of bioeconomy king and empowerment 1.1.3. To establish a secretariat of the National Bioeconomy Council and organisational and financial preconditions for its work 1.2.1. By February 1st, 2018 to establish a working group and assign it to prepare Lithuanian Bioeconomy Strategy and the Action Plan, defining strategic positions of the bioeconomy at the national and regional levels, the levels of the EU and the Baltic Sea region 1.2. To ensure strategically-oriented 1.2.2. To monitor the implementation of the Lithuanian Bioeconomy Strategy, assigning this development of bioeconomy 1. To pursue sustainable function to the National Bioeconomy Council and strategically-orien- 1.2.3. In accordance to the deadlines set, to carry out detailed assessments of the Bioeconomic ted development of Strategy implementation and to adjust the strategy bioeconomy 1.3.1. To create and implement a system for publicising the National Bioeconomy Council’s work and its results as well as for receiving a feedback 1.3.2. To create and implement a coherent system of bioeconomic statistical information 1.3.3. To publish the summary reports of the implementation of the Lithuanian Bioeconomy 1.3. To inform and educate the Strategy and other results of the implementation of this Strategy Lithuanian business sector and 1.3.4. To create a specialised website for discussing the problems of strategic development of the society on bioeconomy is- the bioeconomy, to promote new biotechnologies, circular economy and other innova- sues tions in the bioeconomy, to reveal and analyse food waste problems 1.3.5. To publish financial instruments for the development of the bioeconomy sector and the creation and implementation of new innovations 1.3.6. Through modern means of communication to educate the society on sustainable use of bioproducts, avoidance and reduction of food and other biowaste 2. To increase the effi- 2.1.1. To carry out the analysis of abandoned land areas, to evaluate the possibilities of using 2.1. To increase the volume of de- ciency and sustainability them for biomass production taking into account soil quality, agro-ecological and other manded biomass production by of biomass production peculiarities using the resources suitable for and recycling as well as 2.1.2. To create favourable legal and economic preconditions for long-term and sustainable this production biowaste utilisation production of biomass in abandoned land areas

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2.2.1. To support financially an investment in bioenergy through the introduction of innovative bioenergy technologies and use of local (forest waste, manure, straw, sewage sludge, and etc.) 2.2. To increase the production and 2.2.2. To support financially an investment in biofuel production by using new types of bio- use of bioenergy mass (algae and etc.) 2.2.3. To support financially an investment in heating systems in residential areas through the development of local biomass energy supply chains on the basis of local partnerships 2.2.4. To establish mandatory conditions for the use of biofuels in urban public transport 2.3.1. To develop a feasibility study on the assessment and development of a biomass logistics 2.3. To increase the efficiency of system biomass logistics 2.3.2. To support financially the development of territorial bioenergy clusters in order to reduce transport costs and transport GHG emissions 2.4.1. Through tendering procedure to prepare and organise joint research programs for the new knowledge and technologies on which the bioeconomy is based and to develop bioproducts 2.4.2. To support financially the establishment and operations of a Bioeconomy Knowledge Centre that is needed to manage the supply, demand and transfer of bioeconomy 2.4. To develop R&D for creating knowledge to stakeholders new innovations 2.4.3. To increase the companies‘ innovative capacity of product development and preparation for market through pre-commercial procurement (government orders for R&D) to address social challenges 2.4.4. To support the production or demonstration of new test batches of bioproducts 2.5.1. To support financially the launch of bioeconomy start-ups and spin-offs, partially covering the development and operation costs 2.5.2. To promote the provision of advisory and acceleration services to small and medium- 2.5. To intensify the development sized companies, operating in the field of bioeconomy and implementation of prototy- 2.5.3. To create favourable legal, organisational and financial conditions for the creation of pes of innovative technologies biomass-value-chain-based bioeconomic clusters, with a large number of innovation- (especially biotechnology intensive companies and a strong scientific potential in the sector methods and processes) and 2.5.4. To create favourable conditions to develop an international partnership for bioeconomy bioproducts clusters – to engage in the development and implementation of innovative biotechnology and bioproducts 2.5.5. To provide special social or economic status to high-level biotech specialists, including favourable tax and social contribution schemes.

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2.5.6. To encourage the creation and maintenance of R&D jobs in bioeconomic sector through a favourable tax system 2.6.1. To order investigations to assess the economic, social and environmental impact of cascading use of biomass and to determine the priorities for cascading use of biomass through tendering procedure 2.6. To increase the use of biomass 2.6.2. Sukurti ir įgyvendinti verslo subjektų, taikančių biomasės pakopinį naudojimą, skati- for producing higher value- nimo sistemą added products, to manage biowaste more efficiently 2.6.3. To initiate a stakeholder platform based on the avoidance and reduction of biowaste 2.6.4. To create a system for promoting biowaste management, including legal, financial and administrative measures 3.1.1. To support financially the development of short supply chains for higher value-added bioproducts and other innovative methods for direct sales 3.1.2. To establish and carry out a system for promoting the exports of higher value added bioproducts 3.1.3. In accordance to the established procedure, partially to cover the costs of business orga- 3.1. To improve the conditions for nisations, that have been experienced when in mesmerizing ways promoting higher selling bioproducts value-added bioproducts, comparing to their substitutes and indicating the advantages 3. To increase the de- 3.1.4. To determine the objectives for green procurement, prepare a plan for reaching these mand of bioproducts and objectives and approve a list of products for which environmental criteria are applicable to improve their con- to public procurement sumption 3.1.5. To promote innovation through public procurement by increasing the public sector demand for innovation and motivating business to market new bioproducts 3.2.1. To regulate the food waste management system, collection of food waste, conditions of its use for animal feeding, biogas production and other purposes 3.2.2. To review the conditions of food labelling in order to provide clearer, more comprehen- 3.2. To reduce food waste sive information for consumers about the definitions of food consumption terms 3.2.3. To review the conditions governing food donation, including hygiene standards, requirements for retail chains and etc.

*The measures presented in the Plan are primary and will need to be specified and supplemented, linked to the other EU and national programs in line with the approved Bioeconomy Strategy and the Action Plan for its implementation.

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Study supervision panel Prof. dr. Vlada Vitunskienė, Aleksandras Stulginskis University (chief researcher)

Prof. dr. Astrida Miceikienė, Aleksandras Stulginskis University (researcher)

Prof. dr. Vilija Aleknevičienė, Aleksandras Stulginskis University (researcher)

Virginija Kargytė, Aleksandras Stulginskis University (researcher)

Prof. habil. dr. Vaclovas Miškinis, Lithuanian Energy Institute (researcher)

Dr. Vidas Lekavičius, Lithuanian Energy Institute (researcher)

Evaldas Serva, Aleksandro Stulginskio universitetas (researcher)

Knut Øistad, Norwegian Institute of Bioeconomy Research (researcher)

Prof. dr. Irina Pilvere, Latvia University of Agriculture (researcher)

Editor: JSC „Vertimo namai“

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