The federal government will hand down the interim report of its review of the Food and Grocery Code on Monday, which is a voluntary scheme and governs how supermarkets interact with suppliers.
The review, led by former Labor minister Craig Emerson, called for the code to be made mandatory.
Dr Emerson said fines for breaches of the code could be as high as $10 million or even 10 per cent of a supermarket's annual turnover in the previous year.
"I hope and expect that wouldn't be activated as a matter of routine but it would really focus the attention of management," he told ABC Radio on Monday.
"You would hope and expect that sort of behaviour won't happen, but just having the watchdog off the back porch ... is designed to focus the attention of supermarket management so that they know exactly what their buyers are doing."
The interim review recommends the mandatory code apply to supermarkets with yearly revenues exceeding $5 billion, which would take in Coles, Woolworths and Aldi.
However, the findings don't recommend the break up of major supermarkets under divestiture powers, with Dr Emerson warning that would lead to less competition and job losses.
"(Divestiture) is one of these, frankly, populist ideas ... who do you sell the stores to?" he said.
"Let's say it's Coles who gets hit by forced divestiture, they're going to sell to Woolworths? What does that do for market concentration?"
Dr Emerson said a mandatory code was a more effective way of cracking down on the major supermarkets.
"What I'm proposing is credible, and it has been checked with the (consumer watchdog) the supermarkets would be very mindful of the legislation if the government picks this up," he said.
"The divestiture stuff is never going to happen."
The code should also be strengthened to better protect suppliers.
The review found a heavy imbalance in market power between suppliers and supermarkets in Australia. (Joel Carrett/AAP PHOTOS)
Treasurer Jim Chalmers said the government wanted a "fair go for families and a fair go for farmers".
"This work is all about making our supermarkets as competitive as they can be so Australians get the best prices possible," he said.
As households struggle to pay for groceries due to high food prices, Woolworths and Coles are accused of price-gouging customers, stifling competitors and undermining suppliers.
Both the Greens and the coalition are working separately on divestiture powers.
Farmers say they are paid substantially less than the price charged by supermarkets at the checkout. (Glenn Campbell/AAP PHOTOS)
The interim report warned if forced divestiture resulted in a supermarket selling some of its stores to another large chain, the result could be even greater market concentration.
A lack of interest or inability to buy from smaller chains could cost workers their jobs as stores would be forced to close.
This would also inconvenience local shoppers who would need to find somewhere else to buy their groceries.
Labor is opposed to the forcible break-up of supermarket chains, with Prime Minister Anthony Albanese previously declaring Australia wasn't "the Soviet Union".
Dr Chalmers will deliver a speech in Sydney on Wednesday, where he will announce the government's plans for reforms designed to boost competition in the economy.
The interim report also proposed enforcement of competition laws by the Australian Competition and Consumer Commission and policy reforms to planning and zoning.
Dr Emerson's final recommendations will be handed down by the end of June.
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