Fermentation is one of mankind’s oldest technological innovations, but it is also potentially the key to solving the evolving response to potential fossil fuel shortages.

A key “yeast technology” is at the heart of a takeover deal announced today by Dutch firm Royal DSM for fellow Dutch firm C5 Yeast BV from agricultural processing giant Royal Cosun. The C5 Yeast unit was part of Royal Nedalco, an alcohol unit divested by Cosun earlier this year.

The problem that the C5 technology is trying to solve is at the heart of the evolving multi-billion dollar ethanol and alternative fuels industry. Technologies that developed fuel from corn have come under widespread attack for being both inefficient in that they use more energy than they end up producing in the manufacturing process and for unintentionally boosting food prices by taking edible crops to produce fuel.

The challenge is to create effective, standardized and useful cellulosic ethanol, which can be sourced from agricultural waste products rather than food. Technology, energy and agricultural firms have found new common ground in trying to develop “second-generation” cellulosic ethanol manufacturing processes that are scalable, sufficiently competitive on price and contain enough energy to enter the fuel market and compete with oil.

“Turning agricultural surplus, such as corn stover or wheat straw, into biofuels is a key technology that will help us to move towards sustainable, renewable sources of energy that do not compete with the human food chain,” Marcel Wubbolts, Chief Technology Officer of DSM told Breaking Energy. “At DSM, we have already proven our second generation yeast and enzymes are able to convert 90% of biomass into ethanol. Through this latest addition, which will enable us to more effectively convert important C5 sugars, prospects for creating commercially viable second generation fuels will be enhanced even further.”

“This acquisition represents a key strategic step as we further strengthen our existing yeast platform and portfolio of bio-conversion technologies for second generation biofuels and biomaterials,” DSM Chief Innovation Officer Rob van Leen said in announcing the C5 Yeast acquisition. “We are bringing second generation biofuels closer to mass-scale production, reducing society’s dependence on fossil fuel stocks and avoiding the food versus fuel dilemma.”

DSM expects to have “several” commercial second-generation biofuel commercial demonstration facilities online in 2014.

The two firms did not disclose the financial terms of the transaction.

Royal DSM is in the middle of a multi-year transformation from a traditional refining and petrochemical firm to a materials and technology company focused on using agricultural and renewable products.

Company CEO Feike Sijbesma told Breaking Energy recently that 500 years from now people will look back at the current era as “the fossil age,” and that the future lies in a complete transformation of the energy and materials sector to renewable materials using often-emerging technologies.

See a recent Breaking Energy featured video about DSM.