The profits of supermarkets are out of sync with the rising costs of food, Prime Minister Anthony Albanese says.
As the government prepares to examine the conduct of supermarkets, he said major chains have a responsibility to ensure that their customers are not ripped off.
Craig Emerson, a former Labor minister, has been appointed to head the review.
It will look into the gap between what the retailers pay to farmers and what consumers pay.
During a press conference on Thursday, Mr. Albanese noted that despite the tough economic times, the profits of major supermarkets were still out of sync with the rising prices of food.
He said the government would take action to ensure that the customers are not ripped off.
For instance, in the 2022/23 financial year, the profits of Woolworths were $1.6 billion, while that of Coles was over $1 billion.
According to Mr. Albanese, major chains need to pass on the savings they make to their customers.
Although the voluntary code of conduct is only an industry-led initiative, the government is considering mandating it.
Allan Fels, a former chair of the consumer watchdog, said it was a small step toward ensuring that supermarkets are compensating farmers fairly.
According to him, evidence has shown that supermarkets were able to raise their prices faster than they could lower them.
For instance, the price of lamb had gone down earlier this year, and it took a long time for the supermarkets to pass on the lower prices. The Senate will also be examining the issue of supermarket prices.
The hearings of the inquiry will begin in February, and a final report will be released in May.
According to Angus Taylor, the supermarkets need to be more competitive in order to provide consumers with lower prices.
He said the government would support any measures that would help improve the competitiveness of the sector.
The government would also support policies that would help reduce the prices of essential items for Australian consumers.