Britain’s supermarkets are to be investigated for the third time in seven years after the Office of Fair Trading referred the grocery market to the Competition Commission.

The OFT said there was evidence to suggest that the increased buying power of the big retailers and some aspects of their pricing behaviour – such as below-cost selling and price flexing – could distort competition.

The investigation will take up to two years and will focus largely on whether shoppers are getting a fair deal.

But the commission will also examine other aspects of the grocery sector, including the impact of supermarket buyer power on farmers.

Since the last inquiry reported in 2000, the commission has been granted power to act on its findings.

Supermarkets which fall foul of the investigation could be forced to sell some stores or change the way they do business.

The NFU said it would be submitting detailed evidence to the investigation.

President Peter Kendall urged farmers to come forward with examples of their supply chain relationships with retailers.

“The Competition Commission will get the opportunity to investigate these examples in more detail and we must find a mechanism which allows suppliers to speak freely without fear of losing valuable business contracts.”

Confidence

Kenneth Sharkey, president of the Ulster Farmers’ Union, agreed.

“A new investigation into competition between retailers must allow suppliers to provide evidence in confidence.

Tough new controls are needed to ensure a fair trading environment is created for farmers and food processors.”

John Kinnaird, president of NFU Scotland, called for more trust and transparency.

“At the moment farmers’ margins are being squeezed at the same time as supermarket profits are increasing.

Consumers will ultimately pay the price.”

But supermarket giant Tesco – which last month reported underlying annual profits of 2.25bn – said it was confident the commission would conclude that consumers had benefited from falling prices, an increased product range and better service.

“Up and down the country, millions of ordinary consumers vote with their feet when they go shopping,” said chief executive Sir Terry Leahy.

“They have a choice and it is one they exercise every day.”

fwnews@rbi.co.uk