The research will focus on camelina sativa — a type of oilseed plant that can survive with little water and fertilizer on marginal land.
Agriculture Canada says such properties make this type of oilseed plant attractive to farmers as a rotation crop.
The residual meal can also be used to feed livestock.
The project will involve two companies — Linnaeus Plant Sciences and Soy 20/20.
Canadian-grown canola contributed $8.2 billion to the economy in farm cash receipts last year and was the largest agricultural export sector.