Australia’s supermarket(Supermarket Display) giants have signed up to a voluntary code of conduct to protect their smaller suppliers, but the federal government has warned them it will intervene if they fail to abide by it.

The new code, agreed to by Coles, Woolworths and the Australian Food(Food Display) and Grocery Council (AFGC), will restrict the major supermarkets from using their market power against their suppliers. But its voluntary nature has raised questions about how effective it will be in stopping food producers being squeezed by the retailers.

The small business minister, Bruce Billson, said the "historic" agreement would be subject to a regulatory impact statement, to ensure the code had "tools and teeth" to manage how supermarkets(Supermarket Display) treat their suppliers. It would be "pretty vivid and clear" if the retailers weren't abiding by their own rules, he said.

"And if that's the case, we've made it clear that the government will act," he said. "We will ensure that there are proper working and commercial relationships that are fair and mutually respectful."

Non-compliance would result in government intervention to develop an "effective" code, he said.

The code, announced on Monday, sets out restrictions to "retrospective and unilateral variations" to grocery supply(Acrylic Display) agreements.

"It is hoped other retailers and industry groups agree to the code," a statement from the AFGC said.

Billson's Coalition colleague Andrew Broad was sceptical about the voluntary code, saying "it's probably been brought there kicking and screaming".

"Let's see how it works out," the Nationals MP and former head of the Victorian Farmers Federation said. "At the end of the day, Australians deserve good healthy food, they deserve to be able to go to the supermarket(Supermarket Display) and buy food that they can afford, but they don't have a God-given right to cheap food at the expense of the Australian producers."