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Australian Treasurer Joe Hockey's decision to block U.S. food giant Archer Daniel Midland (ADM)'s bid for Australia's GrainCorp risks encouraging protectionists to lobby against foreign investment proposals even more strenuously in the future.
The Treasurer said the proposed deal, worth 3.4 billion Australian dollars (about 3.09 billion U.S. dollar), was contrary to national interest, citing concerns over the control of key infrastructure, such as ports, and the fact that it was still taking time for increased competition to emerge since the 2008 scrapping of the single desk for wheat exports.
The Foreign Investment Review Board (FIRB) was split and could not make a unanimous recommendation on the deal.
Under the Foreign Acquisitions and Takeovers Act - after the FIRB makes recommendations - it is up to the Treasurer alone, not the Cabinet, to decide if the deal is in the country's national interest.
In the last 12 years, only two business deals, Shell Oil for Woodside (2001) and the Singapore Stock Exchange for the ASX (2011) , have been rejected by the Treasurer following FIRB assessment.
Hockey said the deal was one of the most complex to come before the FIRB, and while Australia needed to attract strong inflows of foreign investment, the level of public concern about the deal meant allowing it to proceed could risk undermining public support for foreign investment.
He said concern in the community about the bid had been a " further significant consideration" for him.
This is notable because at present FIRB largely considers " community concerns" in economic rather than political terms and does not assess whether an investment is "popular" or how it will influence community attitudes to foreign investment more broadly.
Prime Minister Tony Abbott and Hockey said that among the 131 significant investment applications the government had dealt with, this was the only one that had been rejected.
However, this decision will likely send a message that it will be far less likely to approve complex or contentious applications.
It also indicates a policy win for the Nationals within the Liberal-Nationals Coalition. Most Liberal MPs are supportive of foreign investment but Deputy Nationals leader and Federal Minister for Agriculture, Barnaby Joyce told colleagues last month that his position on Abbott's front bench may prove "untenable" if the sale of GrainCorp proceeded.
Abbott promised that Australia was "once more open for business " after defeating Labor on the September 7 election. And in the face of criticism that his government had reneged on that commitment, the Prime Minister said on Saturday that he wanted to make it "crystal clear we are open for business ... We are open for foreign investment, but it has to be foreign investment that accords with our overall national interest."
However, Australian agriculture needs capital in massive quantities if it is to take advantage of the potentially vast opportunity as Asia's middle classes swell rapidly.
GrainCorp's Alison Watkins has said Australia could increase the amount of grain it produces by 50 percent by 2050 with improved investment-led productivity.
But GrainCorp has made the point that it has historically invested an average of only $17 million a year on growth initiatives in its storage and logistics business. Had ADM succeeded, the total capital expenditure within the Graincorp network would have been about 500 million AU dollars (454.8 million U.S. dollars).
Hockey has tried to soften the decision by 'allowing' ADM to increase its current shareholdings in GrainCorp from 19.9 percent to 24.9 percent. But this will not provide a conduit for large- scale capital investment and the opportunity is now lost to do so.
Hockey's decision to block the takeover bid is primarily political, because the community concern over reduced competition was not borne out by the Australian Competition and Consumer Commission inquiry into the deal. The Business Council of Australia has warned the decision to reject ADM's proposed takeover of GrainCorp could put at risk critical foreign investment in the future.
