Melbourne: 29 November 2013 - Senior executives of the US conglomerate Archer Daniels Midland (ADM) were given a bitter pill to digest with their traditional turkey dinner and other treats this US Thanksgiving Weekend by the announcement of Australian Treasurer Mr Joe Hockey on 29 November 2013 that he was making: ‘..an order under the Foreign Acquisitions and Takeovers Act 1975 (the Act) prohibiting the proposed acquisition by Archer Daniels Midland Company (ADM) of 100 per cent of the shareholding in GrainCorp Limited (GrainCorp)'. Given that in the US over the Thanksgiving weekend its financial markets, most government activity and the vast majority of its US businesses are closed, the timing of Mr Hockey’s announcement rejecting ADM’s bid for 100 per cent control of GrainCorp is unlikely to be coincidental, because the delay provided by the US holiday closure gives an additional release valve for likely adverse US reaction to the decision.

Nevertheless, there has been substantial hostile reaction in Australia to Mr Hockey’s decision.  Predictably, Opposition Shadow Treasurer Mr Chris Bowen led the criticism, claiming that Mr Hockey’s decision was not only ‘weak’ and ‘pathetic’, but also in the National Party interest rather than the national interest, (referring to the vehement opposition to the ADM bid by the junior partner in the Coalition Government the National Party), and that as a result of this single decision: ‘The claims by this government that they would lure back investment into Australia lie in tatters'. There is undoubtedly some political hyperbole in Mr Bowen’s remarks as to just how tattered Australia’s national investment policy is, but there is also little doubt that the National Party was hostile to the ADM bid.  For example, the criticism of ADM by Deputy Prime Minister and leader of the National Party Mr Warren Truss the night before Mr Hockey’s announcement: ‘They haven't been offering anything to Australian growers other than higher charges and potentially even an environment which would make agriculture in this country the captive of overseas boardroom'.

There is some political hyperbole evident in Mr Truss’s comments too and it should be noted that prior to Mr Hockey’s announcement the ADM bid had been largely supported by the financial press.  For example in The Australian Financial Review, ‘There is no rational thinking in much of the criticism of ADM'. Consequently it has been unsurprising that a number of business journalists have been queuing up to criticise Mr Hockey’s decision.  For example, Leonore Taylor: ‘…it is apparently no longer sufficient for foreign investment proposals to be economically in Australia’s national interest, they now also need to be popular..’; and Malcolm Maiden: ‘Joe Hockey’s decision to block Archer Daniels Midland’s $3.4 billion takeover of GrainCorp is nakedly political’.

Mr Hockey, again unsurprisingly, did not address the political dimension of the National Party opposition to the ADM bid when announcing his decision.  Instead he emphasised: that GrainCorp owns 280 up-country storage sites, seven of the ten grain port terminals in New South Wales and Queensland and so handles approximately 85 per cent of eastern Australia’s bulk grain exports; that many industry participants, particularly growers in eastern Australia had expressed concerns about the ADM bid; and that the Foreign Investment Board (FIRB) could not agree on a consensus recommendation regarding the ADM bid.  So, taking all these factors into account in Mr Hockey’s view the ADM bid: ‘..could risk undermining public support for the foreign investment regime and ongoing foreign investment more generally.  This would not be in our national interest’. Hardly a knockout blow in debating terms, but the reality of Australia’s foreign investment regime is that the Treasurer does not actually have to deliver a knockout punch in the biffo that can constitute the discourse surrounding foreign investment decisions.

The Australian regime under which foreign companies can invest in businesses and purchase Australian property comprises three main documents: the Foreign Acquisitions and Takeover Act 1975 (Cth) (FATA); the Foreign Acquisitions and Takeovers Regulations 1989; and Australia’s Foreign Investment Policy (AFIP). The Australian Federal Treasurer has ultimate responsibility for decision-making under Australia’s foreign investment regime and has a broad discretion to decline any foreign investment applications that he or she considers to be against the national interest. The Treasurer receives recommendations on specific foreign investment proposals from the FIRB which is an advisory not a policymaking body that administers the FATA and the AFIP. Once a review is triggered, chief consideration is given by the FIRB to whether the proposed investment will be contrary to the national interest, but the Treasurer is not required to act on or publish the advice from the FIRB.  It is the Government of the day which decides and expresses the AFIP and which provides guidance on national interest in relation to foreign acquisitions through that Policy. Thus, Australian inward foreign investment and politics, and on occasion unfortunately, populism, can be linked.

It is important to note that only a very small number of cases generate controversy and this is clear in the data contained in the FIRB’s Annual Reports.  For example, as the 2010-2011 Annual Report states, the proposed $8.4 billion takeover by the Singapore Stock Exchange (SSE) of the Australian Securities Exchange (ASX) was the first business proposal that the Treasurer found to be contrary to the public interest since April 2001, when the proposed takeover of Woodside Petroleum Limited by Shell Australia Investments was rejected. The ADM bid is the first outright rejection since former Labor Treasurer Mr Wayne Swan blocked the proposed takeover of the ASX by the SSE.  Indeed in terms of the ADM application, Mr Hockey was at pains to emphasise that of: ‘..131 significant foreign investment applications we have dealt with, this is the only application we have prohibited.’  Mr Hockey went on to offer the grain (pardon the pun) of comfort to ADM that he is: ‘..inclined, based on current circumstances, to approve any proposals from ADM to increase its shareholding in GrainCorp up to an interest of 24.9 per cent'.

ADM which currently owns 19.85 per cent has been remarkably restrained to date in its response.  Choking back no doubt Thanksgiving turkey as well as its likely annoyance, ADM’s official statement expressed ‘disappointment’ at Mr Hockey’s decision, asserted that throughout the process it had: ‘..worked constructively to create an arrangement that would be in Australia’s best interests and made substantial commitments to address issues that were important to stakeholders..’ and as: ‘..owner of 19.85 percent of GrainCorp, we will look to work with them to maximize returns on our investment and create value for both companies’. GrainCorp’s chairman Mr Don Taylor said that: ‘..it was extremely disappointing that the transaction would not be proceeding as planned’. So, unsurprisingly there does not to be a lot of support for Mr Hockey’s decision from the parties most directly affected.

The issue of foreign investment in Australia, and decisions about such investment, have always carried the potential for controversy, confusion, obfuscation and political manipulation.  Given on-going rising global demand for food, as both the global population and food consumption levels inevitably rise, it seems likely that such controversy may be become even more pronounced when foreign actors seek to invest in Australian agriculture and agri-business.  The National Party was the prime mover when the Liberal/National Coalition, (then in opposition), released its own White Paper, advocating placing additional restrictions on farm sales. For example: ‘The ‘creeping cumulative acquisition of agricultural land may be inconsistent with both the national interest and the interests of local communities, even though foreign acquisitions of discrete land holdings will generally not of themselves be a matter of concern for the FIRB.’  That White Paper also calls for the creation of a national register to track foreign ownership and suggests that accountability and public confidence could only be assured by having representatives of the agricultural sector on the FIRB.  Rural-based Coalition Senators went further, calling for a more substantive definition of the national interest test under the AFIP.

Now that the Coalition actually is the Australian Government it is unclear how much of that White Paper will become formal national policy in Australia.  Similarly, it is unclear whether expanding the pool of experts within the FIRB would provide greater accountability and clarity, or whether it is indeed possible to codify the parameters of what constitutes the national interest with the aim of increasing public confidence.  It is within this context that the ADM decision announced by Mr Hockey should be evaluated even if it may be difficult for some to understand or accept.  However, on one of the most important and cherished US national holiday weekends, what the ADM decision does show is that there is no reason to give thanks that increased clarity on the national interest in Australian foreign investment policy and decision-making is coming any time soon.