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Australia is introducing tough new rules aimed at forcing Wilmar International to sell sugar through a marketing company owned by local cane growers and millers in a move to appease its powerful farming lobby.

The controversial decision, announced late on Wednesday by the government, follows a bitter two years dispute between sugar cane growers and Wilmar over who has the right to market Australian sugar sold into international markets.

In 2015 Wilmar said it would start to sell sugar that it milled at its plants in Queensland directly through in-house marketing, rather than selling it through Queensland Sugar Limited (QSL), a long established marketing body owned by the local industry.

Local cane growers objected, fearing it would lead to lower prices. They have been pressing the Liberal-National coalition to support their case by passing a mandatory code of conduct that would force Wilmar to deal with QSL.

In a late night announcement, Scott Morrison, Australia’s treasurer, said the government would introduce the mandatory code next week and it would cover millers, growers and marketers of sugar.

“I wouldn’t call it an expansive code,” said Mr Morrison.

“It’s not controlling prices, it’s not re-regulating the industry or anything like that.”

But the intervention by the government prompted the Australian Sugar Milling Council (ASMC), which represents Wilmar and other millers, to warn the Liberal-National government is “re-regulating” the A$2bn sugar industry, which was deregulated in 2006.

“There is no question that this unprecedented level of political intervention creates sovereign risk in our industry,” said Dominic Nolan, ASMC chief executive.

“Any appetite for investment in the sugar industry must be put under pressure by this decision to change the rules and re-regulate based on political opportunism,” he said.

The sugar dispute is the latest battleground in Australia over foreign investment following concerns about a flood of Chinese-based investment in infrastructure, housing and farming.

The issue has become a political headache for the government of prime minister Malcolm Turnbull over recent weeks following repeated threats by a backbench lawmaker to resign unless the coalition intervened on behalf of cane growers.

The plan to introduce the new rules was announced ahead of a critical vote on the government’s key economic reform of corporate tax cuts in the Senate, which the government could lose unless it can attract independent support.

Singapore-based Wilmar, which entered the sugar trade in 2010, has become a key player in a highly competitive market. The company earned US$125m in profit before tax from its sugar business last year, offsetting a steep decline in earnings in its oilseeds business, which has been hit by volatility in the soybeans market.

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