Federal Treasurer Joe Hockey has taken the surprise decision of blocking a $3.4 billion foreign takeover of GrainCorp.

The federal opposition has labelled Joe Hockey “weak” for caving into his Nationals coalition partners and blocking a US corporate takeover of GrainCorp.

A key business group has also questioned the surprise decision that ended Archer Daniels Midland’s $3.4 billion offer for Australia’s largest grains handler, saying it risks undermining the government’s own statement that “Australia is open for business”.

But Prime Minister Tony Abbott stood by his treasurer, calling him the “guardian of our national interest”.

“We are open for foreign investment but it has to be foreign investment that accords with our overall national interest,” he told reporters in Adelaide on Friday.

Mr Hockey said his decision came after “long and careful” deliberations.

“For me to reject this proposal, I had to determine that the acquisition of GrainCorp by ADM is contrary to the national interest,” Mr Hockey told reporters in Sydney.

“Based on all the available information, I have now made that decision.”

The surprise announcement comes after months of vocal opposition to the sale from the Nationals and rural Liberal MPs.

Mr Hockey says the Foreign Investment Review Board was split on the takeover and ultimately unable to make a consensus recommendation on whether it should proceed.

The treasurer decided “now is not the right time” for a 100 per cent takeover because the transition towards more robust competition is still continuing, although he has allowed ADM to increase its shareholding to 24.9 per cent from 19.85 per cent.

He also felt the takeover risked undermining public support for foreign investment more generally.

ADM was disappointed by the outcome.

“We are confident that our acquisition of GrainCorp would have created value for shareholders of ADM and GrainCorp, as well as grain growers and the Australian economy,” ADM chairman and chief executive Patricia Woertz said in a statement.

GrainCorp shares ended 22 per cent lower at $8.75 having initially slumped 26 per cent.

Agriculture Minister Barnaby Joyce, a Nationals MP, said grain growers were “dead against” the takeover proposal.

But National Farmers Federation chief executive Matt Linnegar said while the decision was welcome, the competition issues in the grain sector remained unresolved.

“The second part to that is, where is the money going to come from, the capital to invest in the infrastructure that is so clearly required,” he told ABC television.

Shadow treasurer Chris Bowen launched a scathing attack on Mr Hockey, calling it a “pathetic” response from a weak treasurer faced with a divided government.

He said foreign investment decisions are “controversial and difficult”, but the national interest is not about blocking something because it is not popular.

“The claims by this government that they would lure back investment into Australia lie in tatters,” Mr Bowen told reporters in Sydney.

But Mr Hockey rejected suggestions his decision would send a message to investors that Australia is closed for business.

“Of the 131 significant foreign investment applications we have dealt with, this is the only application we have prohibited,” he said.

Business Council of Australia chief executive Jennifer Westacott said it was crucial the government provide further details of the competitive issues that it was concerned about so it is clear to global investors what were the unique circumstances of this case.

“We need to look carefully at the reasons for this decision, and transparency in the national interest test is key to understanding the relevant issues,” she said in a statement.