The A$2.8 billion ($2.6 billion) takeover bid submitted by US foods giant Archer Daniels Midland to acquire Australian grains handling company GrainCorp has been rejected.

Joe Hockey, Federal Treasurer, citing "national interest", said he turned down the proposal because the Foreign Investment Review Board (FIRB) of Australia failed to reach a consensus recommendation.

"For me to reject this proposal, I had to determine that the acquisition of GrainCorp by ADM is contrary to the national interest," he said. "Based on all the available information, I have now made that decision."

He also said that many industry participants, particularly growers in eastern Australia, expressed concern on how the proposed acquisition could reduce competition and impede growers' ability to access the grain storage, logistics and distribution network.

"If this sale proceeds, international companies will control our ports and our handling facilities, and, therefore, if we want to export grain to other parts of the world, grow our industry, that decision will ultimately be made in foreign boardrooms rather than in Australia," Warren Truss, Deputy Prime Minister, had earlier told Insiders.

GrainCorp and ADM both expressed disappointment with the decision. Expectedly, GrainCorp's shares tumbled upon the pronouncement, dropping more than 25 per cent after a delayed open on the stock exchange. Shortly after noon (AEDT), it traded down 20.6 per cent at a measly $8.89 each.

"Australian agriculture has been prevented from realising the potential benefits from the significant capital ADM would have invested in the long-term future of the industry," The Australian quoted GrainCorp Chairman Don Taylor.

Mr Hockey defended to the ground why government had to stamp down its approval: "The fact is we need foreign investment. We welcome foreign investment. But it has to be foreign investment that is not contrary to the national interest."

"In fact, of the 131 significant foreign investment applications we have dealt with, this is the only application we have prohibited," he said.

However, analysts believed otherwise.

"People will interpret this as maybe Australia is not so 'open for business'," Shane Oliver from AMP Capital Investors told Reuters.

"That is the way it will be interpreted, but I think it's a one off and will not set a precedent."