THE supermarket price war is costing local producers dearly, writes KATE CARNELL

Batlle lines have been drawn in the supermarket war after Coles recently slashed some fruit and vegetable prices.

Alarmingly, these cut-price specials are not being driven by lower costs of production or seasonal supply variations.

It is simply another escalation in the never-ending price war between Coles and Woolworths.

While consumers may benefit in the short-term, the discounting raises serious concerns about the viability of primary producers and food manufacturers as price pressures go right along the supply chain.

We've already seen the impacts on farmers and manufacturers from Coles' "Down Down" campaign, which started with $1-a-litre private label milk and expanded to other everyday essentials such as bread, eggs, olive oil and toilet paper.

The latest fresh produce discounting will be another blow to suppliers already struggling with higher costs of power and wages, and the challenge to compete with cheap imports.

One of the major problems is Coles and Woolworths having a stranglehold on almost 80 per cent of the Australian supermarket trade.

Australia and New Zealand have the highest levels of supermarket concentration in the world, delivering significant market power to the major players and making it increasingly difficult for suppliers to negotiate reasonable trading terms.

Manufacturers are also finding it hard to compete with growing levels of private label products, forecast to rise in Australia from 25 per cent to more than 40 per cent by 2020.

Private-label products are increasingly being sourced offshore to get lower prices.

Suppliers and farmers simply cannot afford not to deal with the major two and because of this power imbalance, farmers and manufacturers have become "price-takers".

Supermarkets are expecting manufacturers in all categories to accept no or small price increases to subsidise their new low prices.

One retailer recently told suppliers they would accept no price rises as a result of the carbon tax power cost increases.

Manufacturers are also under pressure from a "perfect storm" of rising input costs such as energy, wages and water, higher transport costs, near-record high global commodity prices and carbon tax.

The problems surrounding retail concentration have been championed by Manufacturing Minister Kim Carr, who has repeatedly expressed concern about the market dominance of major supermarkets.

To ensure a fairer trading environment, industry has urged the Government to appoint a supermarket ombudsman, who would enforce a legislated Fair Trading Code of Conduct.

The ombudsman would help create a more level playing field for primary producers and manufacturers in their dealings with major supermarkets.

The ombudsman would also ensure that branded products we know and trust would continue to have fair access to supermarket shelf space on a fair and equitable basis and have reasonable access to market.

They would have the power to fine or "name and shame" if a supermarket abused their power by not complying with the code.

Australians don't want to be increasingly reliant on imported food - they want choice and the option to buy Australian-grown and manufactured products. A "do-nothing" approach is no longer acceptable.