Treasurer Jim Chalmers says the government backs “big penalties” for supermarkets that dud suppliers and farmers.

The call came in an interim review of the voluntary Food and Grocery Code, which governs how supermarkets interact with suppliers.

Led by former Labor minister Craig Emerson and released on Monday, the review said the code should become mandatory, with fines as high as $10 million or 10 per cent of a supermarket’s annual turnover in the previous year.

“What we’re talking about here is making the code compulsory, having big penalties for people who do the wrong thing, getting the dispute resolution right, so farmers and suppliers can’t be dudded,” Chalmers said on Monday.

“We know that this is an interim report, we know that there’s a few weeks of consultation to follow, but [Emerson has] made it clear about those eight firm recommendations.

“We support those in-principle subject to consultation that will happen over the next few weeks.

“A big motivation is to put downward pressure on prices … we want to make sure our businesses are more productive and competitive.”

Elsewhere, Prime Minister Anthony Albanese was adamant a mandatory code would lead to lower prices for shoppers.

“This work is all about how do we make our supermarkets as competitive as they can be, so that Australians get the best deal possible whether they be the providers, or of course the consumers at the checkout,” he told ABC Radio on Monday.

“What is happening at the moment is that the power of the supermarkets with just a voluntary code of conduct has seen a lack of confidence in the system.”

The interim review recommends the mandatory code apply to supermarkets with annual revenues of more than $5 billion. That would include Coles, Woolworths and Aldi, as well as wholesaler Metcash.

The findings do not recommend breaking up major supermarkets under divestiture powers, warning that it would lead to less competition and job losses.

“What do you do if there’s two supermarkets in a particular town or regional or community and one of them is Woolworths and one of them is Coles?” Albanese said.

“What do you do? Tell Coles to sell to Woolworths? That would lead to an increased concentration of market power as well or do you somehow get a foreign company to come in and have a presence in a regional town?”

Emerson said a mandatory code was a more effective way of cracking down on the major supermarkets.

“What I’m proposing is credible and it has been checked with the [consumer watchdog]. The supermarkets would be very mindful of the legislation if the government picks this up,” he said.

“The divestiture stuff is never going to happen.”

Emerson said he hoped major fines would not need to be imposed, but large penalties must be available to properly enforce the code.

“I hope and expect that wouldn’t be activated as a matter of routine but it would really focus the attention of management,” he told ABC Radio on Monday.

“You would hope and expect that sort of behaviour won’t happen, but just having the watchdog off the back porch … is designed to focus the attention of supermarket management so that they know exactly what their buyers are doing.”

Woolworths and Coles have been accused of price-gouging customers, stifling competitors and undermining suppliers, as many households struggle during the cost-of-living criss.

Coles said in a statement on Monday it was proud to be a founding signatory to the voluntary industry code.

“We remain committed to the objectives of the code in delivering value to our customers while maintaining strong, collaborative relationships with our valued suppliers. We will continue to work constructively as part of this review process,” a spokesperson said.

The Greens and the Coalition are working separately on divestiture powers. Nationals leader David Littleproud said the review’s findings were months away from becoming reality.

“Many of those recommendations were offers the National Party made to the government over 15 months ago,” he told ABC Radio.

“The government won’t be implementing this until the full findings come down in June … and unfortunately, we’ve got people making real decisions at the supermarket every day.”

Consultation is open on the interim report until April 26. The final report will be released at the end of June.

-with AAP