Supermarkets threatened with break-up for price gouging

Repeated price gouging at the checkout could lead to retail giants Coles, Woolworths and Bunnings being broken up under a coalition proposal.

Divestiture powers would be able to be used by the consumer watchdog as a last resort to address anti-competitive behaviour by major chains, if the opposition wins the next federal election.

Opposition Leader Peter Dutton said the plan would mean customers would be better protected at the checkout while also bringing Australia into line with similar powers legislated in the US and UK.

But the Albanese government rebuked the plan, saying it would do little to reduce the cost of groceries.

Mr Dutton said the divestiture powers was not walking away from the Liberals' free-market principles but would help small businesses and farmers get a fairer deal with major chains.

"The situation in Australia at the moment is that there's a massive concentration of market share within the two major companies, within Coles and Woolies," Mr Dutton told reporters in Canberra on Tuesday.

Safeguards would ensure jobs were not lost if companies were forced to break up, Peter Dutton says. (Lukas Coch/AAP PHOTOS)

"There are many complaints, and validly made by consumers as well, who are worried about what it means when they go to the checkout with ever-increasing prices."

He said safeguards would be put in place to ensure jobs would not be lost if the divestiture moves went ahead.

For the powers to be applied, a court would have to find that divestment would result in a substantial improvement in competition and be in the public interest.

The government has ruled out divestiture powers as a way to rein in the supermarket duopoly, with Prime Minister Anthony Albanese branding it a "Soviet-style solution".

The government will instead impose a mandatory code of conduct for how supermarkets treat suppliers.

Under the code, fines of up to $10 million would apply for breaches.

Treasurer Jim Chalmers said the opposition proposal was a "half-baked idea", referring to a review of the grocery sector that found it would not alleviate prices.

"When it looked at this matter, it said that the risk was that it could actually make things worse, not better," he told parliament.

"It found that forced divestiture resulted in a supermarket selling some of its stores to another large incumbent, or in forced closure of stores.

"We might see less competition, not more competition."

The Greens welcomed the coalition's push for divestment powers over retail giants such as Bunnings. (Dave Hunt/AAP PHOTOS)

The announcement comes after a Greens-led inquiry into supermarket pricing recommended breaking up the duopoly of Coles and Woolworths to prevent them abusing their market share.

Greens leader Adam Bandt welcomed the coalition push for divestment powers.

"(The government needs) to read the writing on the wall, understand that people are hurting at the supermarket checkout, and Labor needs to shift its position," he told reporters.

Nationals leader David Littleproud said the major supermarkets had been "cleaning up" at the expense of farmers and consumers, as evidenced by beef and sheep prices dropping by 60-70 per cent in June, while checkout prices only shrank eight per cent.

"This is a commodity that underpins all life," he said.

A separate review of the Food and Grocery Code by former Labor minister Craig Emerson advised against breaking up the supermarkets, warning it would lead to less competition and job losses.

Assistant Competition Minister Andrew Leigh said attempts to break up the supermarkets did not stack up.

"This is a power which is rarely used in other countries. We are focused on getting measures which will benefit Australian households," he said.

"We've got a policy which, like nuclear, is friendless among experts, which has been put together by hapless ministers looking for a headline rather than for serious policy reforms."