FUNDS FOR AGRO BIO INDUSTRY

 

Dato’ Mohd Rosli Abdul Aziz

General Manager

Bank Pertanian Malaysia

 

 

1.    INTRODUCTION

The objective of this paper is to highlight the sources of funds available to encourage R&D in biotechnology and commercialization of research findings.

The scope of presentation covers four main areas :-

i.    Current status of agro biotechnology in Malaysia.

ii.    Government’s role in future development of biotechnology.

iii.    Government grants to R&D in biotechnology under the Eighth Malaysia Plan.

iv.    Forms of financing available for the commercialisation of research and development especially in agro biotechnology.

 

2.    AGRO BIOTECHNOLOGY IN MALAYSIA

Agricultural biotechnology is envisage as a potentially powerful tool to ensure food security for the country.  Furthermore, the implementation of the agreement under WTO and AFTA will create a greater competition for agriculture.  Application of biotechnology will offer more efficient and cost effective means to produce a diverse array of novel, value added products and tools.  It has the potential to increase food production, reduce dependency on imported food and lower the cost of raw materials.

Under the Third National Agricultural Policy (NAP3), biotechnology products has been identified as one of the new sources of growth to emerge in agriculture sector.

 

2.1    Current Status of Agro Biotechnology 

Background

Being an agriculture-based nation, agricultural and food biotechnology have received greater emphasis in Malaysia. Almost every research organisation and university in Malaysia has a biotechnology department or research group.

 

Plant Biotechnology

Tissue culture of several industrial crops (oil Palm, rubber, rattan & forest trees) together with food crops (rice, banana, sago, herbs & medicinal plants and ornamentals (orchids and pitcher plants) have been successfully carried out for some times. Several genetically modified crops and plants containing traits of value have been produced at the experimental stage.

 

Food Biotechnology

Food biotechnology is relatively new in Malaysia. Currently only food ingredients produced by traditional biotechnology like fermentation technology have brought to market products like soy sauce, yogurt, nata, tempeh, tapai and budu.  Food biotechnology has also yielded high quality clarified fruit juices.  Biotechnology processes in the production of monosodium glutamate, vinegar, yeast and syrups, are also being employed by the food industry in the private sector.

 

Animal Biotechnology

In animal biotechnology, several animal recombinant vaccines have been produced to assist the development of animal husbandry.  Marker assisted breeding strategies are also being practised to increase the efficiency of livestock breeding programs.  To reduce the costs associated with importing food and feed, research is also underway to generate livestock feed through biotechnology that can substitute for the imported corn currently used for animal feed.

 

Shortcomings

• Despite the many R&D activities that have been undertaken in Malaysia, the country has not experienced a significant growth in its biotechnology industry.  Global benchmarks such as the number of biotechnology companies founded or the number of biotechnology related patents that have been issued to Malaysian inventors all indicate that the considerable investment the country has made in biotechnology has not captured the opportunity to translate the nation biotechnological assets into the growth of the K-economy.

• The greatest causes underlying this unfortunate state of affairs are the lack of a critical mass of co-located innovators, lack of state of the art facilities and the lack of a strong entrepreneurial environment & mechanism for commercialisation.

 

Opportunities

• Given the current state of biotechnology in Malaysia, there is now a tremendous opportunity to capitalise on developments in biotechnology by addressing the major shortcomings in the Malaysian biotechnology industry.  The establishment of The National Biotechnology Directorate and the BioValley project has been designed specifically to do this.

 

2.2    Future Development

• A national biotechnology policy will be formulated for a more comprehensive and coordinated approach for the advancement of biotechnology as a strategic technology in the development of the economy.  In addition, consideration will be given to establishing a Bio-Valley to provide for more integrated development of the biotechnology industry.  The Bio-Valley is expected to create a conducive environment for the introduction and synergistic expansion of biotechnology industries along the various stages of the value chain.

• Government support and commitment for a strong R&D programmes at various research institutions and universities in agri biotechnology will be enhanced to exploit potentials from biotechnology.

• The current incentive framework will be continued to accelerate the establishment and development of agro-bio industry.  This will includes provision of new and additional funding for research facilities and the setting up of more incubation centres.

• Public sector-driven joint venture programmes and projects involving the private sector will be intensified to expedite the commercialisation of research findings and new innovations.

• Under the Eighth Malaysia Plan, the National Biotechnology Directorate had proposed to the government the establishment of National Institute for Agro-Biotechnology.

 

3.    FUND FOR AGRO BIOTECHNOLOGY

Sources of fund for agro biotechnology can be distinguished under 2 categories:

i.    Government funds particularly to encourage R&D and commercialisation of research findings.

ii.    Funds provided by specialised Development Financial Institutions and venture capital companies to promote the commercialisation of R&D.

 

3.1    Government Allocation for Biotechnology

Biotechnology research and development has received strong governmental support and commitment through financial support in the Seventh and Eighth Malaysia Plan.

 

3.1.1    Development Allocation Under The Seventh Malaysia Plan

A.    Public Sector Expenditure on R&D Programme (1996 – 2000)

The government continued to place emphasis on R&D as reflected by the increase in the total budgetary allocation for the public sector involvement in R&D.  A sum of RM935 million was allocated under the Seventh Malaysia Plan as compared with RM629 million in the Sixth Plan.

The break up of allocation on R&D programme during the Seventh Plan period is as follows :-

• RM 755 million was allocated for direct public sector involvement in R&D through the Intensification of Research in Priority Areas (IRPA) programme.

• For the development of biotechnology, a sum of RM35 million was allocated for the partnership programme with the Massachussetts Institute of Technology (MIT).

• The balance of RM145 million was provided for the funding of three new schemes to enhance private sector R&D.  These schemes included the Industrial Research and Development Grant Scheme (IGS), MSC Research and Development Grant Scheme (MGS) and the Demonstrator Applications Grant Scheme (DAGS).

 

IRPA Programme

Under the IRPA programme, a total of 3,705 projects valued at RM 698.3 million was approved, as shown in Table I.  In addition to competitive bidding, a targeted approach for technology development was undertaken for the advancement of strategic technologies such as biotechnology and photonics.

Table  I

IRPA Programme Approvals By Area of Research

1996 – 2000

Area	Projects Approved		Value
	Number	%	RM million	%
Agro Industry Contruction Energy Environment Information & Com. Tech. Manufacturing Medical Material & Geoscience Science Engineering Services Socio-Economic Biotechnology Photonics	1,255 95 134 164 110 321 548 37 725 66 212 32 6	33.9 2.5 3.6 4.4 3.0 8.7 14.8 1.0 19.5 1.8 5.7 0.9 0.2	178.67 23.76 37.27 46.97 34.95 71.77 96.99 14.97 114.5 14.97 16.08 28.84 18.54	25.6 3.4 5.3 6.7 5.0 10.3 13.9 2.1 16.4 2.1 2.3 4.1 2.7
Total	3,705	100.0	698.28	100.0

            Source :  Eight Malaysia Plan 2001-2005

An assessment of the benefits and effectiveness of the research funded under IRPA indicated that the extent of commercialisation of R&D findings remained low across all sectors.  There were few takers of potential technologies and products as the private sector wanted to minimise their risks on untried and untested technologies and products in the market.  In addition, linkages with industry through joint or collaborative R&D were still negligible, thus reflecting the need to coordinate closely with the private sector to generate more market-oriented R&D projects.

 

B.    Commercialization of Research and Technology

While public sector R&D activities contributed to technical improvements, the progress on the commercialisation of such output were limited.  This was largely due to problems related to the lack of industry-relevant R&D projects and finance to fund the various stages of commercialization from the laboratory to the market place.  A survey of 5,232 projects implemented by the public research institutions and universities during the Sixth and Seventh Plans revealed that 14.1 per cent of these projects were identified as potential candidates for commercialization while only 5.1 per cent was commercialized.  However, a recent assessment of R&D undertaken in the primary commodity sub sector indicated that the percentage of commercialization of R&D in industrial agricultural commodities was 8.9 per cent.  In this regard, the palm oil sector contributed the highest commercialization rate of 12.1 per cent.

In 1997, the Commercialization of Research and Development Fund (CRDF) was launched with an allocation of RM100 million.  The focus of the Fund was on the commercialization of R&D findings undertaken by local universities and research institutions as well as companies and individual researchers and inventors.  During the Seventh Plan, 38 projects with a value of RM32 million were approved.  Out of this, 12 projects had completed the commercialization process and their products were available in the market.

 

3.1.2    Development Allocation Under The Eighth Malaysia Plan

The global economy is undergoing rapid development into a knowledge-based economy where technology, skills and innovation will be the determinants to enhance competitiveness and efficiency.  Taking cognizance of this, the government will continue to accord high priority on innovation-driven and technology-led development.

 

A.    The Thrust for S&T Development

The thrust for S&T development under the Eighth Plan will be to meet the objectives of productivity-driven growth and competitiveness of the economy.  The focus will be to provide an enabling environment for technology development through :-

 

i.    Adopting an Integrated National Approach in the use of R&D Resources.

The country will support R&D and technology that will promote growth, enhance industrial efficiency, productivity and competitiveness, generate home-grown technology with own brands of goods and services and improve the quality of life.  Within this context, public sector funding of R&D will focus more on the potentials for commercialization of research findings.  For the Eighth Plan, a sum of RM1.6 billion will be allocated for R&D and commercialization of technology compared with RM1 billion during the Seventh Plan.

To ensure that research projects will contribute more to the needs of the country, the Intensification of Research in Priority Areas (IRPA) funding mechanism will be realigned and fine-tuned to place more emphasis on the development of innovations and further improve the commercial relevance of R&D projects.  Priority setting will be increasingly used in project identification and implementation.  In this regard, 35 percent of the IRPA budget will be allocated to prioritized research in manufacturing, plant production and primary products, ICT, health as well as education and training.  The focus will be on development of home-grown products, processes and related services for commercialization.

Apart from the prioritized national projects, the on-going competitive bidding process by R&D institutions will be continued.  This is to ensure that resources for research are utilized more efficiently and generate maximum socio-economic benefits.  The R&D resources under IRPA will also provide for selected prototyping and pilot-scale testing.  This will facilitate and accelerate the process of commercialization of research findings in the areas of agriculture and food security, natural resources and environment as well as manufacturing and services.

In addition, government research departments, research institutions and universities will proceed with their mission-oriented R&D.  an allocation of RM100 million will be provided to universities to undertake basic R&D for knowledge advancement and build-up of fundamental strengths to handle core technologies such as biotechnology, advanced materials and microelectronics.

 

ii.    Accelerating The Rate of Commercialization of R&D Findings

To generate more R&D projects that can be commercialized, research institutions and universities will be encouraged to place more emphasis on research related to product and process development for the industries.  In this regard, the incentive scheme in the commercialization of R&D findings will be reviewed.  The existing grant schemes for private sector R&D such as the Industrial Research and Development Grant Scheme (IGS), MSC Research and Development Grant Scheme (MGS) and Demonstrator Applications Grant Scheme (DAGS) will be reviewed to strengthen the commercialization potential of the projects.  To facilitate commercialization of the R&D findings and technology, a sum of RM610 million will be allocated.  In addition, fiscal incentives will be provided to encourage venture capital funds to invest in start-ups involved in indigenous technology.

 

iii.    Promoting Development of Indigenous S&T Capabilities in Strategic and Key Technologies

Global trends indicate that innovation in biotechnology is one of the key technologies for the 21^st century.  Modern biotechnology brought about by developments in genomics and molecular biology will provide the catalyst for the production of novel products for commercial application in areas such as medicine, fuel production, farming and food preparation.

To intensify biotechnology R&D, the national biotechnology programme will continue to emphasize on prioritized and experimental research.  In this regard, a sum of RM100 million will be allocated for research in the fields of agro-biotechnology, health care, and environmental and energy management.

 

iv.    Allocation

The Federal Government development allocation and expenditure for the period 1996-2000 and allocation for the period 2001-2005, are shown in Table II below :-

 

                                         Table  II

                        Development Allocation For

               Science And Technology, 1996 – 2005

                                      (RM million)

Programme	7MP		8MP
	Allocation	Expenditure	Allocation
IRPA Malaysia-MIT Biotech.Progrm. Technology Development for SMIs Technology Acquisition Fund Commercialization of Technology -         IGS -         MGS -         DAGS -         CRDF S&T Infrastructure & Development	755.0 35.0 58.0 118.0 208.0 50.0 65.0 30.0 63.0 2,413.3	718.1 33.3 41.2 118.0 203.9 45.9 65.0 30.0 63.0 1,496.7	1,000.0 - 30.0 250.0 610.0 200.0 200.0 100.0 110.0 2,818.9
Total	3,587.3	2,611.2	4,708.9

Source  :   Eighth Malaysia Plan 2001-2005

 

The Government will increase the funding for R&D and commercialization of technology to RM 1.6 billion, while RM 2.8 billion will be provided for related infrastructure facilities and services.  To promote S&T awareness, an allocation of RM 14.7 million will be provided.

 

3.2    Other Sources of Financing

3.2.1    Venture Capital (VC) Financing

Venture Capital has been recognised as an important alternative source of financing for high-risk ventures as well as knowledge-intensive and technology-intensive start-up enterprises where only ideas (intangible collateral) are principal assets.

Currently there are 33 venture capital companies and 221 VC backed investee companies operating in the country.  These VCCs provide funding for all stages of financing, from early stage to the pre-IPO stage and financing all economic sectors, particularly the high-growth activities identified by the Government.

Investments by VCCs for the year 2000 are as follows :-

Number of investee companies	1999	2000
	56	64
Investment during the year        By sector ·         Manufacturing ·         Life Sciences ·         Others	(RM million)
	104.1     31.9 6.4 51.8	117.1     17.9 5.2 26.0

            Source  :   Bank Negara Malaysia – Annual Report 2000

 

3.2.2    Bank Pertanian Malaysia

Agro biotechnology Projects are eligible for financing under the Fund for Food (3F) under the administration of Bank Pertanian Malaysia (BPM).  Terms and conditions of the fund are as stated in Appendix A.

Beside the Fund for Food scheme, BPM also provides financing of agro biotechnology projects under the normal project term loan and Venture Capital Financing.  The Government has agreed to allocate RM44.7 million to BPM to launch the Venture Capital scheme under the Eighth Malaysia Plan The proposed Venture Capital scheme is to provide financing to emerging agro biotechnology companies at the start-up and mezzanine stage.  Priority will be given to the commercialisation of research findings of public research agencies particularly from Malaysian Agricultural Research and Development Institute (MARDI), Marditech Corporation Sdn. Bhd., Malaysian Palm Oil Board (MPOB) and Rubber Research Institute, Malaysia (RRIM).

 

4.    CONCLUSION

The government will continue to provide financial assistance to fund R&D in biotechnology and create a conducive enabling environment to accelerate the commercialisation of R&D findings.  However, in view of the imminent implementation of the agreement under WTO and AFTA,  the government may consider to allocate special funds specifically for the commercialisation of agro biotechnology to enable the agriculture sector to remain competitive. 

Under the Financial Master Plan, Bank Pertanian Malaysia (BPM) is expected to play a crucial role as the leading financier in the development of agriculture.  In this regard, BPM is envisage to provide adequate funds to foster the development and commercialisation of R&D in agro biotechnology.