A parliamentary inquiry into supermarket prices handed down its final report on Tuesday, backing divestiture laws for the grocery sector.
Among 14 recommendations from the Greens-led inquiry were calls for supermarket specific divestiture laws, which would be used if grocery chains were found to have misused their market power or "engaged in unconscionable conduct".
But the federal government has distanced itself from the proposal, with Labor senators not supporting the recommendation.
Government senators Glenn Sterle and Louise Pratt, who served on the committee, said plans to break up major supermarkets would not deliver reform that would benefit customers at the checkout.
"Divestiture powers could lead to unintended consequences that have the potential to make Australian consumers and farmers worse off," they said.
"We are particularly concerned about the impact that disruption to thin supply chains may have on regional communities."
In a dissenting report, the coalition said divestiture laws were not needed, but powers should be targeted to sectors of concern, with safeguards for regional jobs and services.
"The coalition is not opposed to the principle of divestiture, however, any divestiture power needs clear guidance on how and when it can be applied," it said.
In addition to the proposal targeting supermarkets, Greens Senator Nick McKim, who led the inquiry, said similar powers should be extended to other industries with high market concentration.
"Australia has one of the most concentrated supermarket sectors in the world, with Coles and Woolworths together holding 65 per cent share of the market," he said.
"However, market concentration is not an issue unique to the supermarket sector, with many industries across the Australian economy becoming increasingly concentrated, including in the banking, airline, energy and telecommunications sectors."
The inquiry also recommended laws that would ban price gouging and give greater powers to the consumer watchdog to investigate unfair trading practices.
It also called for the Food and Grocery code of conduct, which governs the relationship between supermarkets and suppliers, to be made mandatory.
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