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This paper applies an innovation system framework to analyze the development of a natural resource-based system of innovation within the wine cluster in the Niagara Peninsula in Canada. A variety of policies shape the parameters (financial, fiscal, legal) within which opportunities for innovation open or are constrained and choices are made. Two of these have led to inherited organizations that have created contradictory incentives for innovation and growth in the cluster. On the input side, it is often said that great wines are 'grown in the vineyard' and the demand for innovation in the grape sector, thus depends upon the relationship between clients, in this case, vintners and their suppliers of grapes. That relationship is a learned one and the interactions within the Ontario Grape Growers Marketing Board (OGGMB), now the Ontario Grape Growers (OGG) have had a powerful, and not always positive, impact on the innovation process. With regard to outputs, policies affecting the sale and distribution of wine as administered through the Liquor Control Board of Ontario have created a 'glass ceiling' that is a disincentive for growth and innovation among small wineries.
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