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The purpose of this paper is to examine the impacts of changing biotechnology and intellectual property rights (IPRs), institutions, and policies for Canadian crop development related to oilseed rape or “canola” as a case study. Implications for China as it considers regulatory and institutional change related to private sector incentives to invest in biotechnology are also discussed.

The authors assess the effects of introducing biotechnology and IPRs in the Canadian oilseed sector over time. Data on the rate of return on agricultural research in general are presented and then the focus moves to the impacts for farmers in Canada. New data are gathered to estimate recent gains in the benefit of biotechnology advancements for farmers. Furthermore, the evolution of agricultural research in China is briefly presented, and a discussion follows that considers Canadian evidence and the possible applicability of the impacts to China.

The results support earlier studies identifying gains from agricultural research and show that private sector investments in Canada are now much higher than public sector investments and thus institutional innovations have been a powerful trigger to improve productivity. The gains from biotechnology for farmers are now over CND 1 billion per year in Canada.

The research gains measured are for Canada so should be applied to China’s situation only as a potential for gains.

While more work is needed to identify reasonable institutional incentives to generate private investment in China’s biotechnology industry, the potential impact in the Canadian canola sector highlights the importance of continuing the investment in biotechnology, and the need for appropriate policies and regulations to spur private investment.

Biotechnology greatly improved the welfare of farmers in Canada. Much of the gain the authors find was in improved yields and lower herbicide costs that improved farmer profits. Privatization of breeding was a key step in this transformation.

The paper contributes an updated review of Canadian intellectual property institutions related to biotechnology, and an updated measure of gains at the farm level. It also begins the analysis of the applicability of these institutional changes for China.

The paper aims to examine how the theory of institutional economics is used to analyze and explain how the canola industry has developed and changed over the past 30 years, in order to highlight the important role of extra‐market institutions in innovation processes.

The theory of transactions and institutions is examined, specifically the concepts of rivalry, excludability and voice, in order to identify optimal institutions to address potential market failures in new product development.

In the pre‐biotechnology period, missing links in the supply chain and the absence of private property rights contributed to public good market failures; the resulting market failures and inadequate investment incentives were overcome by development of public research programs and new participatory institutions that managed research coordination, extension and market development. In the biotechnology‐phase, private property rights, vertical integration and contracting resolved many of the earlier market failures but failures in research coordination, enforcement of property rights and marketing have required new institutions.

The development of the highly innovative Canadian canola supply chain over the past 50 years – encompassing a period of public‐sector‐based, conventional plant breeding and, more recently, a privately‐directed biotechnology‐based phase – highlights the role that different institutional structures can play in product innovation.

This study of the canola chain offers insights into how different types of market failures arise at various stages of development, requiring new institutions to address these failures, and provides lessons on how to foster the development of other innovative agri‐food supply chains around the world.