Technological Catch-up and Indigenous Institutional Infrastructures in Latecomer Natural Resource-related Industries: An Exploration of the Role of EMBRAPA in

Brazil’s Soybean and Pulp and Paper Industries

Paulo N. Figueiredo

University of Brasília ,7 October 2014

RELEVANCE OF THIS STUDY In a world of seven billion people, which is expected to reach 8.5 billion by 2030, there has been an unprecedented demand for increase in resource generation and productivity, such as raw materials, food, renewable energy, water and new industrial inputs and a rising demand for agricultural products and natural resources.

However, worldwide agricultural productivity growth has been slowing down: it is expected only 1% annual growth over the next two decades, much slower than historical trends. To meet the 2030 food and fuel demand would require 175 million to 220 million hectares of cropland. By 2050 there will be a 35% increase in food demand coming largely from the developing economies, especially from China, India, other Asian countries and Africa (see IFPRI, 2012; FAO, 2014; McKinsey Global Institute, 2011, 2014).

Indeed, according to FAO and OECD, to maintain the world level food safety up to 2020, food production should grow by 20%: • EU could increase production by 4% • US and Canada, by 15% • Oceania, by 17% • China, India, Ukraine and Russia by 26% • Brazil could increase food production by 40%

World (Total)

Brazil

USA

10 Largest African countries

Evolution of soybean production (millions of tonnes) across countries

Source: faostat.fao.org

World (Total)

Brazil

USA

10 Largest African countries

Evolution of area harvested of soybean (Ha) across countries

Source: faostat.fao.org

Brazil

USA

10 Largest African countries

World (Total)

Evolution of soybean yield (Kg/ha) across countries

Source: faostat.fao.org

With regard to demand for industrial inputs and fuel, planted forests are renewable resources and sources for important industrial inputs and products such as pulp and paper. Using different types of biotechnological processes, planted forests have become an important source of biomass and function as a platform for new products such as fiber cement, biofuels, biochemicals, bio-plastic, bio-materials, and carbon fibers, in addition to services such as CO2 sequestration (Bracelpa, 2012; www.wbcsd.com).

• Brazil is a forest country, with more than 510 million hectares of forests (61% of its territory). This represents the world’s second forest area, after Russia.

• Brazil has 6.9 million hectares of fully certified planted forests, which represent only 0.8% of its territory.

• Planted forests for pulp and paper production involve 2.1 million hectares or 0.3% of Brazil’s territory.

• All the pulp and paper produced in Brazil, 100% is derived from planted forests, which are renewable resources.

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

1970 1980 1990 2000 2013

Canadá Finlandia Suécia EUA Brasil

Canada

Finland

Sweden

USA

Brazil

Evolution of quantity of pulp exports (1,000 toneladas)

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

1970 1980 1990 2000 2013

Canada Finland Sweden USA Brazil

Canada

Finlândia

Suécia

EUA

Brasil

Evolution of value of pulp exports of US$1,000.000)

Brazil ranks as the world’s 4th largest pulp producer and the world’s largest producer of hardwood pulp (‘eucapulp’)

However, among policy makers and academic researchers, particularly in natural resource-endowed developing and emerging economies, natural resource-related industries are, generally, encapsulated as mere ‘commodities’. In terms of importance for industrial and economic growth and development, natural resource-related industries are put in a lower position in relation the so-called ‘higher value’ manufacturing goods. These perspectives on natural resource-related industries seem to have been conditioned by approaches that go back to the 1950s – e.g., the ‘deterioration of terms of trade’ (Prebish, 1950; Singer, 1950).

Negative perspectives on natural resource-related industries have also been considered industries that associate them with low economic growth and poverty – e.g. the ‘resource curse’ argument (e.g., Sachs and Warner, 2001), with a low potential for creating links that develop skills and innovative activities with the rest of the local economy – the ‘enclave’ argument (e.g., Humphereys et al., 2007), with an obstacle to deepening innovative industrial capabilities (e.g., Cimoli and Katz, 2003) and with low knowledge content and low opportunities for innovation (e.g., Cimoli and Correa, 2005, Castaldi et al., 2009). Additionally, in conventional classifications of industrial innovative activities agricultural and natural resource-industries are reduced to ‘low-tech’ sectors with low knowledge intensity (see OECD, 1999; 2003).

Relevant previous research has shown that today’s natural resource-rich advanced economies have obtained relevant industrial, economic and social development by building proper institutional infrastructures to support innovative activities in their natural resource-related industries (e.g., Lederman and Maloney, 2006; Fagerberg et al, 2009). Resource-endowed developing economies may take advantage of the opportunities opened up by natural resource-related industries to achieve innovative performance and competitiveness (Perez, 2008; ECLAC, 2008) and industrial development diversification (Lorentzen, 2008). Indeed, an exclusive focus on the so-called ‘high technologies industries’ (e.g., aircraft, electronics) can be harmful for countries if innovation in other sectors are ignored (OECD, 2012).

However, there is a dearth of empirical studies, from an intra-industry perspective, that examine how developing and emerging economies have built institutional infrastructures to explore opportunities for innovation and international competitiveness from their natural resources industries. Brazil is a an emerging market economy in which agricultural and natural resources related industries have a significant weight in Brazil’s GDP. Over the past several decades, agriculture and forestry-based pulp and paper industries have been undertaking innovative activities that permitted them to achieve world-leading technological and commercial positions.

Previous research suggests that these achievements have involved industry-level efforts on technological capability building with the support of institutional infrastructures such as public research institutes – e.g., the Brazilian Corporation for Agricultural Research (EMBRAPA), related organisations and government policies (e.g., Ekboir, 2003; Mazzoleni and Nelson, 2007; Figueiredo, 2010).

Therefore, this paper will explore this central question:

What has been the role of indigenous institutional infrastructures – knowledge-related institutions such as EMBRAPA and government policies – in the

technological catch-up of the soybean and forestry-based pulp and paper industries in Brazil?

HOW TO ADDRESS THIS RESEARCH QUESTION?

This study adopts the perspective of technological catch-up of organizations based in developing/emerging economies (‘latecomers’) in association with the role of institutional infrastructures.

Technological Catch-Up: When latecomers narrow the innovative capability gap with global leaders. In natural resource-related industries latecomer cannot simply immitate existing technologies developed by global leaders. As a result, latecomers that engage in innovative activities in natural resource-related industries, tend to develop a path-creation technological catch-up process.

Technological Capabilities: What are they? Technological capabilities involve a stock of knowledge-related resources. This stock of resources permits organizations and countries to undertake technological innovation activities. These resources (capabilities) are accumulated in human capital, technical-physical systems and organisational and management processes.

A BROAD PERSPECTIVE ON INNOVATION

Technological capabilities are usually measured by: •R&D expenditure •gross domestic expenditure of R&D •individuals’ qualifications •investments in R&D personnel •US patenting statistics

However, such indicators and proxies are, in most cases, not relevant, when it comes to the measurement of innovative capability building in developing countries: they capture only one fraction of innovative activities.

Levels of innovative capabilities

LEVELS OF INNOVATIVE

CAPABILITIES

Illustrative examples

World leading

Overtaking incumbent innovators at the

international frontier

A substantial and varied body of internationally recognized R&D personnel with a number of

teams of highly specialized engineers and related professionals working on cutting-edge research,

design and development of products/services, production processes and new sources of raw

materials.

Advanced

Closing in on leading global incumbents,

perhaps with differing directions of

innovation

Various types of design and development engineers, researchers and other specialised

professionals in different functional areas within and outside the firm. Among these are those

with additional skills for new knowledge-sharing and external knowledge searching.

Incremental/ Intermediate

Relatively complex improvements and

modifications to products, processes

organisation, and systems

Increased number of specialised engineers and technicians allocated in different and dedicated

organisational units involved in product development, product re -design, process engineering and

automation systems.

Basic

Minor adaptations and improvements, close-to-imitation adoptions

Groups of engineers and qualified technicians working informally on experiments and incipient or

informal R&D activities. Dedicated groups of engineers and qualified technicians and well trained

operators working on the implementation of minor adaptations in products, production processes

and organizational systems with good functional skills and technical skills.

Innovation capabilities

FUZZY BOUNDARY

Production Capabilities

Innovation capability accumulation: changing emphasis on ‘technological’ and ‘organizational’ dimensions

To address this research question, this article draws on long-term qualitative evidence from the standpoint of EMBRAPA, related institutions and government policies oriented to innovative activities in these two industries. This evidence has been gathered through different sources and techniques (e.g. interviews, consultations to archival records and published material from EMBRAPA and related organizations, Brazilian government and other sources.

Embrapa Acre

Embrapa Semi arid

Embrapa Agricultural West

Embrapa Agrosilvopastoral

Embrapa Amapá

Embrapa Western Amazon

Embrapa Eastern Amazon

Embrapa Livestock Southeast

Embrapa Cerrados

Embrapa Temperate Agriculture

Embrapa Cocais

Embrapa Mid North

Embrapa Pantanal

Embrapa Rondonia

Embrapa Roraima

Embrapa Coastal Tablelands

Embrapa Semi arid

Embrapa Technological Information

Embrapa Poducts & Market

Embrapa Coffee

Embrapa Plant Quarantine Embrapa Land

Management

Embrapa Rice and Beans

Embrapa Goats and Sheeps

Embrapa Forestry

Embrapa Beef Cattle

Embrapa Dairy Cattle

Embrapa Vegetables

Embrapa Cassava and Tropical Fruits

Embrapa Maize and Sorghum

Embrapa Fisheries and Aquaculture

Embrapa Soybean

Embrapa Swine and Poultry

Embrapa Wheat

Embrapa Grapes and Wine

Embrapa Cotton

Embrapa Environment

Embrapa Agrobiology

Embrapa Agroenergy Embrapa Food Technology

Embrapa Tropical Agroindustry

Embrapa Studies and

Training

Embrapa Agricultural IT

Embrapa Instruments

Embrapa Satelite Monitoring

Embrapa Genetic Resources and Biotechnology

Embrapa Soils

R&D Department

Department of Technology

Transfer

Finance Management

IT Department

Human Resources Department

Legal Advisory

Communication Secretariat

Strategic Management

President Office

International

Business Secretariat

Administration of Embrapa’s

Biologic Station

State and Supply

Department

Relations Secretariat

Eco

regi

on

al U

nit

s

Nat

ion

al P

rod

uct

Ce

ntr

es

National Thematic Units

Services Units

Executive Board Technology Transfer

Board of Administration

President

Labex Programme

Technical Cooperation

USA Europe (France, UK, Germany)

South America China Japan (Under construction)

Africa (Ghana, Mozambique, Mali, Senegal)

Latin America (Panama, Venezuela)

Centres more related to this article

Current Organisational Structure of EMBRAPA

Source: Own elaboration based on evidence from EMBRAPA

Federal universities and

research institutes

State universities and research

institutes

Other private organization

related directly or indirectly to

agriculture research

Other public organizations

related directly or indirectly to agricultural

research

State organizations

for agricultureres

research (OEPAS)

EMBRAPA

Brazil’s National System of Agricultural Research

Source: Own elaboration based on evidence from EMBRAPA

Technological Catch-Up in Brazil’s Soybeans Industry: The Role of EMBRAPA and related instutional infrastructures

This examination is centred on two cases of significant innovative activities: • The adoption of ZT in Brazil’s Cerrados

• The Development of New Soybeans Cultivars

Evolution of Zero Tillage Development Phases in Brazil (1974-2012)

Source: Adapted from Embrapa (2011); Embrapa Soja (2013)

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

1974 1980 1982 1986 1990 1994 1998 2002 2006 2012

Period 1974-1979

PHASE I

Period 1979-1991

PHASE II

Period 1991-2000

PHASE III

Period 2000-2012

PHASE IV

Mill

ion

s o

f H

a

32,000,000

2000

EMBRAPA develops a package of Brazilian PD, with the entry of the British company ICI

Technology PD spread in the Midwest and

Cerrado

Expansion of PD in large-scale farms Expansion of PD in

small-scale farms

2008 2009 2010 2011 2012 Total

Database, software biologic

collection and scientific

methodologies

10 7 4 8 9 38

Cultivars generated/launched 5 20 15 10 15 65

Cultivars tested/recommended 7 11 16 11 9 54

Agricultural feedstock,

aAgricultural practice/process

6 1 9 4 2 22

Total 28 39 44 33 35 179

Development of technologies, products and processes at EMBRAPA Soybean

Source: Embrapa Soybean (2013).

Examples of developed new cultivars and productivity increase

Source: Own elaboration based on EMBRAPA’s evidence.

Southern Brazil 1

Parceria- Embrapa e Fundação Meridional

South-western Brazil Parceria- Embrapa e

Fundação Vegetal

North/Northeastern Brazil 2

Parceria- Embrapa e FAPCEN

North/Northeastern Brazil 1

Parceria- Embrapa e Fundação Bahia

Southeastern Brazil Parceria- Embrapa,

Epamig e Fundação Triângulo

Central Brazil Parceria- Embrapa,

Agência Rural e CTPA

Southern Brazil 2

Parceria- Embrapa e Fundação Pró-Sementes

Keys: Brazilian states

1970s 1980s 2003+

Planted areas- soybeans

Partnerships for new soybean cultivars in Project Alpha

Activities/participants

Crops

2002/2003 2003/2004 2004/2005

Demonstration units 92 78 89

Field days 77 69 84

Number of participants 68,552 84,554 97,859

Evolution of Field Days for soybean in Southern Brazil

Source: Embrapa Soybean

Technological Catch-Up in Brazil’s Eucalyptus-based Pulp and Paper Industry: The Role of EMBRAPA and related instutional infrastructures

The Genolyptus Project

The Genolyptus project network

Source: Adapted from Grattapaglia (2010).

Organisational arrangement for the EMBRAPA-led Genolyptus research network

The innovative activities examined in this article have been implemented on the basis of technological capabilities accumulated and catalysed by EMBRAPA with its network of partners. These technological capabilities have a technical dimension centred on human resources, skills, and knowledge bases, and an organizational dimension. As EMBRAPA’s innovative capabilities increased, its organisational structure developed from a centralised approach towards more networked research capabilities. The accumulation and strengthening of this organisational basis over time has been decisive to support innovative activities in these two industries. The accumulation of these innovative technological capabilities have been influenced by intra-organisational efforts and changes in government policies, especially since the 1990s.

SUMMARY OF MAIN FINDINGS

1- In the soybean industry, EMBRAPA has played a significant role in the implementation of innovative activities ever since the early stages of this industry’s technological capability building process. In the forestry-based pulp and paper industry, EMBRAPA has played a more significant role after leading firms had accumulated world-leading innovative capabilities. 2- An important feature of EMBRAPA’s role in these two industries refers to its application-oriented research, linked with industry’s demands and problems. This evidence has important implications for policy makers in developing/emerging economies because they tend to allocate funding to inventive and innovative activities that are disconnected from demands and needs from the industry and economy.

Specifically, the study suggests that:

Three major phases in the organisational model to support innovative activities at EMBRAPA: Phase I (1960-1980s): creation and organisational concentration Phase II (1990s): organisational decentralization Phase III (2000-2012): distributed research networks

3- The role of EMBRAPA in the innovative activities of these two industries was not based on a linear perspective on innovation (in which innovative activities would trickle down from public research institutes to industry). Neither has EMBRAPA operated individually. Instead, EMBRAPA’s activities have increasingly been undertaken on the basis of a ‘system’ involving extensive partnerships with other public and private research institutes and universities and firms. EMBRAPA thus has operated on the basis of a network of partners. In the soybean industry, specifically, there has been a growing interaction with subsidiaries of multinational enterprises (MNEs), which has increasingly been an important aspect of innovation in the world seeds industry.

Innovative capability accumulation catalysed by EMBRAPA for soybean and pulp and paper industries in Brazil

EMBRAPA’s distributed

innovative technological

capabilities

Public and private

international research institutes

and speciliased laboratories

Multinational

enterprises

(MNEs)

Training centres specialised

in technical, organisational

and anagerial skills

development

International

universities

Federal-level and state-level

universities in Brazil

Internal R&D units and

related areas

Other public organisations

related directly and/or

indirectly to agricultural

research

Other private organisations

Related directly and indirectly to

agricultural research

4- The study indicates that innovative activities that generate significant impact on productivity do not necessarily reflect only sophisticated R&D efforts. There are other types of non-R&D innovative activities which are also relevant. The implementation of the zero-tillage (ZT) technology in Brazil’s soybean industry represents an effective creative imitation; there were several inventive activities during the imitation/adaptation to local soil and climate conditions. This evidence supports previous studies about the importance of non-R&D innovative activities to innovative and competitive performance of latecomer organisations. It has implications for the potential emulation of EMBRAPA’s experience by other developing economies: policy makers should adopt a comprehensive perspective on innovation based on a spectrum of activities: from duplicative copy, creative imitation to progressive levels of change and novelty.

5- In addition to EMBRAPA’s efforts and related knowledge-based institutions, government policies have played an important role in the technological catch-up of these two industries. In the soybean industry, there were the support to agricultural expansion (1970s) and intellectual property rights (1990s). In both industries, other policies involved the opening-up of the economy (early 1990s), which brought competition to Brazilian economy and favoured innovative efforts, and the creation of government arrangements for innovation funding. 6- Although well-designed institutional infrastructures are obviously necessary for the achievement of industrial innovation and leadership, a large part of this achievement depends, on the one hand, on the functioning of these institutional infrastructures; on the other hand, such achievements depend on the nature and dynamics of the industry’s own strategic choices and related innovation efforts. Although this appears to be well known, the role of industry -level innovation efforts seems the ignored or underestimated in the design and implementation of industrial innovation policies.

7- The article challenges common generalisations that encapsulate natural resource-related industries in one single category characterised by ‘low knowledge content’ and ‘absence of innovation opportunities’. Instead, by drawing on evidence of the technological and commercial achievements of Brazil’s soybean and forestry-based pulp and paper industries, this article demonstrates a wide range of opportunities for technological innovation and international competitiveness that can be achieved in natural resource-related industries with technological capability building.

Some Implications for other resource-rich countries The emulation of the EMBRAPA’s experience by other resource-rich developing and emerging economies, such as those of Africa, may depend on at least two factors. The first refers to the building indigenous technological capabilities to absorb external knowledge and to implement local production-based and innovative activities. In relation to the development of technological capabilities two components deserve careful attention: the formation of a human capital basis and the formation of an organizational basis.

The building of these capabilities involve deliberate and effective efforts by government, cooperatives, farmers and other private firms, rural extension organisations and other stakeholders. The building of technological capabilities does not depend only on availability of funding but mainly on the effectiveness of learning mechanisms. The second factor relates to the building of and/or improvement of components of the institutional framework – involving supporting knowledge-related institutions to provide human capital but also to support innovative activities. They would also involve the design of specific government policies.

Finally, one aspect of the EMBRAPA’s experience seems to have particular relevance to the context of sub-Saharan Africa: it refers to the experience of achieving centralised, or large-scale, coordination and ‘critical mass’ in application-oriented research, while at the same time fostering a decentralised engagement with producers to understand the diversity of problems faced by farmers in different areas.

There is some evidence that African governments are attempting to achieve bigger markets and a pooling of technical resources, through the formation of regional trading areas. These include: SADC (Southern African Development Community); EAC (East African Community) and ECOWAS (Economic Community of West African States). Some of the aspects of the functioning of EMBRAPA, and also its problems and challenges, could perhaps contribute to shed some light on the on how these regional bodies tackle the technical aspects of natural resource management and policy strengthen agricultural research in Africa