In a surprising move, Treasurer Hockey has this morning ruled against the proposed acquisition by US company Archer Daniel Midland (“ADM”) of GrainCorp Limited (“GrainCorp”). ​

The decision to reject the application, rather than to impose conditions on an approval, is in stark contrast to previous foreign investment decisions by former Australian governments on both sides of politics.
 
ADM has expressed disappointment that the government did not seek undertakings in relation to the proposal as many commentators expected. In his speech, the Treasurer referred to the fact that ADM had announced several commitments in respect to its proposed acquisition of GrainCorp. These included commitments to invest $200 million in GrainCorp’s grain storage and handling network, to improve rail infrastructure and to impose caps on grain handling and storage charges at silos and ports. Clearly, these were not sufficient to convince the Treasurer that the proposal was not contrary to the national interest.
 
The decision to reject the proposal has come after significant pressure on the Treasurer to do so from the National Party and farmers. During his speech this morning, the Treasurer noted the importance of ensuring public support for the foreign investment regime. This is a strong indication of a new criterion to be considered as part of the national interest test.
 
More broadly, the Treasurer affirmed that he will give substantial weight to the opinions of the broader community and stakeholders to foreign investment proposals when assessing if an application is contrary to the national interest.
 
While this decision represents a rejection, it is important to note that there have been several significant applications that have been approved. The Treasurer recognised the importance of foreign investment to Australia’s economy and further noted that this was the first rejection after this government has assessed 131 significant foreign investment applications. A notable recent approval in the agribusiness sector was the decision to approve the bid by Saputo Inc. for the Australian dairy company Warrnambool Cheese & Butter Factory Company holdings Limited.
 
During his statement to the press this morning, the Treasurer explained that the application was one of the most complex to date and that the Foreign Investment Review Board (“FIRB”) had not been able to form a consensus in its recommendations. While we had predicted a conditional approval, as we now know, FIRB was not fully agreed in its view, making it very difficult for the Treasurer to approve the proposal.
 
The Treasurer concluded that the acquisition of GrainCorp by ADM would be contrary to the national interest of Australia, ‘at this time’. In explaining this conclusion he noted the significant market share held by GrainCorp and that the proposal had sparked a high degree of concern by stakeholders and the broader community.
 
Interestingly, the Treasurer indicated that he would allow ADM to increase its share in GrainCorp from 19.85%, which it currently holds, to 24.9%. He indicated that this would provide a platform for ADM to build stakeholder support for increased involvement. This signals the crucial importance of obtaining broader public and stakeholder support for foreign investment proposals.
 
What the decision means
 
From this decision and the Treasurer’s speech this morning we can see several messages for the future of the foreign investment regime:
  • the Treasurer may consider an application is contrary to the national interest where the FIRB does not provide a consensus in its recommendation about a proposal;
  • the impact of a foreign investment proposal being approved on ‘public support’ for the foreign investment regime will be a key consideration in determining whether an application is contrary to the national interest in future;
  • broader public and stakeholder concerns will continue to be a crucial factor for the Treasurer in assessing whether an application is contrary to the national interest;
  • investments in the rural sector will be closely scrutinised, consistent with the government’s proposed reduction in notification thresholds under the FATA; and
  • the Treasurer is prepared to reject proposals that he deems contrary to the national interest, based on the factors described above.
This decision sends a strong message to foreign investors that agricultural investments will be closely scrutinised and that Australia has a robust foreign investment regime that does not discriminate.
 
​��​While this decision highlights several key factors that the Treasurer will consider when assessing if a proposal is contrary to the national interest, it is important to remember that applications will continue to be considered on a case by case basis. ​