Major supermarkets have been warned all options are on the table as a federal inquiry into rising grocery prices gathers pace.

Craig Emerson, who worked in several ministerial portfolios in the Rudd and Gillard governments, will head a review into the food and grocery code of conduct.

The review of the code comes as major supermarkets, which are bound to the conduct agreement, stand accused of price gouging customers.

Prime Minister Anthony Albanese said the probe was one of the ways the government was looking to bring down the cost of goods at the supermarket.

He said it would examine whether elements of the code of conduct would need to be made mandatory.

“We know that when we’ve seen a reduction in the cost to supermarkets, that hasn’t been passed on in an appropriate way to consumers and we want to make sure that happens,” Mr Albanese told ABC TV on Wednesday.

“Everything is on the table because we want to make sure that customers benefit.”

The review, announced in October, will examine whether the supermarket industry code – which regulates the conduct of retailers and wholesalers towards suppliers – is helping improve standards of business behaviour in the sector.

It may lead the government to strengthen consumer rights.

There are growing concerns about the gap between supermarket prices and what farmers earn as grocery giants posted billion-dollar profits in 2023.

Mr Emerson said the review would follow the evidence to come to the best solutions for the sector.

“Let’s see in detail, using data, what the problem is, whether it’s a delay, how long the delay is in passing on (reduced) prices and how extensive that pass on is,” he told ABC Radio.

“We want to make sure that if there is a reduction in farm gate prices, which has happened, then customers benefit from that, but we also want to make sure that our farmers have got a reasonable standard of living.”

The former minister said while more competition in the supermarket sector would be ideal, Australia was challenging for other companies to enter the market.

“We’re a small population, fairly remote from the rest of the world. We’re not like California, we’re not like the European Union,” he said.

“We could wish for more competition, that’s easier said than done.”

Agriculture Minister Murray Watt said supermarkets needed to be more open about their pricing arrangements.

“We do see supermarkets have a lot of market power when it comes to their negotiations with farmers and their other suppliers,” he told ABC Radio.

“The voluntary arrangements we’ve got in place may not be doing enough to ensure that supermarkets are being fully transparent.”

National Farmers’ Federation president David Jochinke called for the code to be made mandatory.

“We need to get to the bottom of why there’s a growing gap between what farmers get paid and what produce is being sold for on supermarket shelves,” he said.

“It’s not just supermarkets we need answers from, we need to know who else in the supply chain is clipping the ticket and sending food prices skyward.”

Deputy opposition leader Sussan Ley said consumers needed more immediate relief at the checkout.

“I don’t think as families are pushing their supermarket trolleys around filling up for the new year, wondering about those back to school prices … they’re going to be reassured by a review of a code of conduct,” she told Sky News.

Greens senator Nick McKim said the review needed to examine the market power of major players such as Coles and Woolworths.

“It is crucial that Labor’s review does not shy away from considering robust measures like divestiture powers … to dismantle monopolistic practices and ensure fair pricing for consumers,” he said.

By Kat Wong and Andrew Brown in Canberra