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Estonian startup company Äio has secured €6.1M (US$6.8M) to build a fermentation facility to produce food-grade fats and oils from forestry waste, Green Queen wrote.

Although the location for the new facility has not been finalised, the company was aiming for completion by 2026, the 27 September report said.

Äio uses specialised yeast to turn byproducts from the wood and agricultural industries – like sugars extracted from sawdust – into food-grade fats and oils.

Established in 2022 as a spin off from the Tallinn University of Technology (TalTech), the company was based on research conducted by founders Nemailla Bonturi and Petri-Jaan Lahtvee.

Using a ‘red yeast’ microbe created and patented by Bonturi, the industrial byproducts are fermented in a process similar to brewing beer or making bread, Green Queen wrote.

The resulting fats are rich in essential fatty acids and antioxidants, according to Bonturi.

To date, the company has developed three fats: encapsulated oil as an alternative to palm oil in the food industry; buttery fat as a substitute for animal fats, shortening and coconut oil; and RedOil as an alternative to fish oil and seed oils, which can also be used in cosmetics and household products.

The latest funding round came a year after Äio received a €1.8M (US$1.98M) grant from the Estonian Business and Innovation Agency (EISA) to develop a platform for semi-automated strain technology, in collaboration with the Center of Food and Fermentation Technologies. In addition, EISA provided €500,000 (US$551,000) to help the startup evaluate sidestreams.

Äio has been working with Estonian firm Fibernol to convert wood hydrolysates into microbial oils, the report said.

To date, more than 120 local and international partners have been providing Äio with industrial byproducts or testing its oils and fats, Green Queen wrote.

The company has also attracted interest from major food, cosmetics and household consumer packaged goods companies, which have agreed to co-develop products, the report said.

Älo has a separate Good Fat Wörks innovation centre to develop its yeast-derived fats and create pilot products, Green Queen wrote.

It has also been selected for a Circular Bio-based Europe Joint Undertaking (CB-EJU) project worth €7.5M (US$8.3M) to develop fat-based materials and cosmetics with other European companies and research bodies.

Despite the challenges, including high costs, faced by startups exploring fermentation methods, the alternative fat market is projected to reach US$4.5bn (€4.1bn) by 2032, according to the report.