Supermarket heavyweights Woolworths, Coles, ALDI and Metcash could be facing substantial fines under a new mandatory food and grocery code of conduct but are unlikely to see a forced sell-off of assets, called for by some.

The recommendations come from former Labor minister Craig Emerson, following the release of the interim food and grocery code of conduct review report today. The report advocates for stronger regulation and punishment for supermarket chains to address market power concerns.

The report includes eight final recommendations and three draft recommendations, supporting the empowerment of the Australian Competition & Consumer Commission (ACCC) to impose strict penalties for breaches and facilitate arbitration to resolve disputes. The mandatory code includes provisions protecting suppliers against retribution and includes severe penalties for rule breaches.

Emerson said: "It would be able to seek penalties for major or systemic breaches of up to $10m, 10 per cent of a supermarket’s annual turnover, or three times the benefit it gained from the breach, whichever is the greatest.”

Emerson further highlighted the need for an enforceable code of conduct, stating, “a heavy imbalance in market power between suppliers and supermarkets in Australia’s heavily concentrated supermarket industry necessitates an enforceable code of conduct”. He believes that “An effective code of conduct would benefit smaller suppliers and consumers by enabling suppliers to innovate and invest in modern equipment to provide better products at lower cost.”

Emerson criticised the existing food and grocery code of conduct, stating: “The existing food and grocery code of conduct is not effective. It contains no penalties for breaches and supermarkets can opt out of important provisions by overriding them in their grocery supply agreements." He strongly recommended that the code be mandatory and apply to all supermarkets with annual revenues exceeding $5bn, which currently includes Coles, Woolworths and ALDI, and wholesaler Metcash.

The interim report does not support a forced divestiture power to address market power issues in the supermarket industry. Instead, it suggests that a mandatory code and tougher penalties “constitute a far more credible deterrent to anti-competitive behaviour than forced divestiture laws”.

The review will open to consultation until April 26 with a final report due by June 30.