The ongoing price war between Australian supermarket giants Coles and Woolworths has led some MPs to seek a major amendment to the country's competition law. The legislators warned that the short-term benefits shoppers get from a 50 per cent price reduction on fruits and vegetables sold by Coles could mean disaster for the agriculture sector.

The half-price sale on selected fresh produce such as tomatoes, peaches, carrots and rock melon is the latest salvo in the tag price battle between the two retail giants which last year marked down other popular consumer goods such as milk, bread, toilet paper and detergent.

The Australian Food and Grocery Council said the escalation of the price war through Coles' latest move highlights the need for a government-appointed overseer over supermarkets to ensure that grocers comply with fair trading rules.

"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," The Sydney Morning Herald quoted Opposition shadow small business minister Bruce Billson.

AusVeg , the industry association of vegetable growers, has aired concern of the impact of Coles' 50 per cent price off on the financial standing of farmers. The group fears that the price war would turn for the worse if Woolworths would match Coles' deep discount as the former did in 2011 for various consumer items.

Woolworths insisted that based on their internal price checks, prices of popular everyday fruit and vegetables in Woolworths are 30 per cent lower Coles'.

"Woolworths are known as the Fresh Produce People and, as such, our prices are always at least as good and usually better than prices advertised by any of our competitors and this is the case on this is the case on the items advertised by Coles," The Chronicle quoted a spokesman of Woolworths.

Besides price discounts made by retailers, the prices of fruits and veggies are also seasonal, retailers said.

Mr Billson sought a review of Australia's competition laws and necessary revision. He also accused the Gillard government of failing to manage competition in the retail sector.

On one hand, Australian Prime Minister Julia Gillard insisted on Monday that the government's policy is for large retail chains to treat farmers and vegetable growers fairly and appropriately. On the other hand, Parliamentary Secretary David Bradbury, who is also competition spokesman, said the government welcomes that consumers would pay less but it is confident that farmers and supermarkets would continue to collaborate to ensure the long-term viability of the agriculture sector in Australia.

Independent Queensland MP Bob Katter warned that local farming is teetering on the path to financial ruin.

"Clearly Coles intends that there be no fruit and vegetable growers in Australia. We are already a net importer of fruits and vegetables.... 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?" Mr Katter said.

Nationals Senate leader Barnaby Joyce agreed that the government must ensure Australia's capacity to be self reliant in food production is maintained.

"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," Mr Joyce warned.

Sue Finger, the president of the horticulture group of the VFF and an apple grower at Yarra Valley, said fresh produce growers are happy if supermarkets are paying them a price that allows farmers a return on their investments while providing at the same time the market with fresh produce to people at lower prices.

CommSec chief economist Craig James said the Coles-Woolworths price war would help keep inflation figures low, which in turn would be a key factor as the Reserve Bank of Australia (RBA) deliberates on the overnight cash rate in its Monetary Policy meeting on Feb 7.

"Whether it keeps inflation down partly depends on how long the protagonists want to extend the war and whether it is for a short term or for the long term," Mr James said.

He added that the only winner in the Coles-Woolworths price war is the consumer. Mr James pointed out that retailers are bringing down prices of commodities because consumers are holding on to their purses. He said these developments are indicators that the RBA would likely cut interest rates.

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