The supermarket giant announced this week that it was cutting the price of some produce by up to 50 per cent, triggering a new price war with Woolworths, who say it would meet or beat many advertised Coles prices today. Last year a price battle erupted over cheap milk, bread, toilet paper and washing powder with concerns raised about the damage lower prices would do to farmers.

The Australian Food and Grocery Council said Coles' decision highlighted the need for the government to appoint a supermarket ombudsman to enforce a fair trading code of conduct.

National Farmers Federation president Jock Laurie said it was concerned that Coles was driving market signals back to the farmers with depressed prices.

Vegetable growers body Ausveg said that if the supermarkets became locked in a price war farmers faced potential financial ruin.

The opposition's shadow small business minister, Bruce Billson, said the long-term impact of the price cuts needed to be examined, with assurances it did not signal an aggressive approach by powerful interests to control the supply chain.

''The concern that the Coalition has is that there's an enormous power imbalance in the supply chain, between the big supermarkets and smaller suppliers and where that market

dominance is detrimental to suppliers in the longer term, consumers will also be disadvantaged.''

Mr Billson called for a review of competition laws and accused the Gillard government of being ''asleep at the wheel'' on competition management.

Prime Minister Julia Gillard yesterday said: ''We've always said that our big retailing chains should treat our farmers, vegetable growers, all of our farmers, fairly and appropriately.''

But the government's competition spokesman, parliamentary secretary David Bradbury, said it welcomed consumers being able to pay less.

''The government has confidence that farmers and supermarkets will continue to work together to ensure the long-term viability of primary production in Australia,'' Mr Bradbury said.

Outspoken Queensland independent Bob Katter, whose electorate covers at least 5 per cent of food growers, was more pessimistic in his assessment, saying local farming was on the brink. ''Clearly Coles intends that there be no fruit and vegetable growers in Australia. We are already a net importer of fruit and vegetables,'' Mr Katter said. ''Within four years the country will not be able to feed itself. Do you seriously think our farmers can work for less than they are working for now?''

Nationals Senate leader Barnaby Joyce said prices threatened Australia's food security.

''We have to make sure we maintain the capacity for Australia to produce food for itself, and one of the only ways you will ever do that is to make sure that a fair return goes back through the farm gate,'' Senator Joyce said. ''Otherwise the farmers will become truck drivers in mines and the farms will go to sale, some will fall into disrepair and some will be bought by people overseas.''

Yarra Valley apple grower Sue Finger, president of the horticulture group of the VFF, reacted cautiously to the Coles move.

''My take on it, and probably that of a number of people within the industry, is that as long as the supermarkets are basically paying a price that allows us to continue to produce sustainably, but giving us a return on our investments, we are happy that they're able to provide fresh produce to people at a lower price,'' she said.

Mrs Finger admitted some growers were likely to be concerned by the Coles move.

Woolworths chief executive Grant O'Brien played down a new price war, saying Coles' latest campaign was a promotion that was no different to what happened every week between the rivals.

''To say that it's a huge reduction and a market-changer, or game-changing, is in a way, to mislead,'' said Mr O'Brien.

Woolworths' fresh food general manager, Pat McEntee, said claims of massive price cuts by any retailer in fresh produce over the past 12 months should be critically examined, with a well-documented oversupply of stock pushing prices down.

Coles last night said the company had invested in lower prices at retail level, with its farmers welcoming the opportunity to sell excess produce.

''Coles is committed to sustainable farm production and is working with its growers to ensure a fair return as a proportion of retail prices in our stores,'' he said.

Consumer group Choice spokeswoman Ingrid Just said Coles and Woolworths controlled 80 per cent of the groceries market, which meant there was a potential long-term impact on smaller companies in the industry.

The Greens echoed concerns about farmers getting a fair price for their produce as did independent senator Nick Xenophon who claimed farmers were too scared to speak out against the big chains.

''If they can't keep up with the supermarkets' demands, they lose their contracts. This behaviour will ultimately force growers out of business and force Australia to rely on more imports.''

With COLIN KRUGER

-The Age