The collapse in negotiations could leave both sides without a deal for the foreseeable future as Europe enters domestic election cycles.
Federal Trade Minister Don Farrell held talks with European counterparts on the sidelines of the G7 trade ministers' meeting in Osaka, but there were not enough concessions Australia could agree to.
A key sticking point had been the use of geographical indicators, which would stop Australian producers being able to use terms such as feta and prosecco.
The National Farmers' Federation welcomed the trade minister's decision to walk away from the deal that would have left the agriculture sector worse off.
"(The) decision was a hard one, but ultimately it was the right one," NFF president David Jochinke said.
"What was on offer would have hard-wired protectionism into our trading relationship with Europe for another generation."
The Australian Chamber of Commerce and Industry also backed the decision, saying the standard hadn't been reached by the European offer.
“There are opportunities to expand goods and services trade and to boost investment in the interests of both sides, but it will require a genuine partnership,” CEO Andrew McKellar said.
“We hope that further progress can be made in the future towards a mutually beneficial outcome.”
Federal Agriculture Minister Murray Watt said it was unlikely a trade deal could be negotiated before the end of the current term of federal parliament, due to expire in 2025.
"It may be that we can resume negotiations, but I think that will be some time away," Senator Watt told ABC Radio on October 30.
"The EU elections will be next year, I can't see them being in a position to resume negotiations before that."
NSW farmer Chris Stillard, who exports some of his horticulture produce, commended the government for not signing the agreement and said farmers would have been giving up too much.
"We can't get better access for our exports to the EU and yet we're supposed to bend over backwards with compliance," Mr Stillard said.
"If we do sign it we're locked in for 30 to 50 years — we're better off not signing a bad deal.
"We've suffered in the past with bad trade deals. We might as well wait it out a bit longer to get a better deal than signing a bad deal that locks us in for a very long time."
The government has said previously it would be willing to walk away from negotiations if it was not in the national interest for Australian producers.
Another sticking point was over new, commercially meaningful access to the European market for Australian agriculture, Senator Watt said.
"That hasn't happened," he said, adding Australia had made a number of concessions.
Opposition trade spokesman Kevin Hogan said it was unfortunate the trade deal had collapsed, but the offer wasn't good enough and geographical indicators had been too restrictive.
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