Shopping basketLarge supermarkets that treat suppliers unfairly could be fined by a new watchdog under changes announced by the Department for Business.

Ministers initially proposed that the groceries adjudicator should have only the power to "name and shame" stores which breach the Groceries Code, with Business Secretary Vince Cable reserving the right to introduce fines at a later date if the system did not work.

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But farmers and other suppliers pressed for the adjudicator to have access to financial penalties as soon as the post is established next year, and Competition Minister Jo Swinson has agreed to change the legislation to give the watchdog more teeth.

The maximum fine will be set on the basis of a recommendation drawn up by the first adjudicator within six months of the legislation reaching the statute book.

The Groceries Code was introduced in 2008 following a Competition Commission report into suppliers' concerns that the big supermarkets were using their dominant market position to impose unfair conditions, such as varying supply agreements retrospectively, paying late and passing on the costs of marketing. It applies only to the 10 biggest supermarket chains, which each have a grocery turnover of £1 billion or more.

Ms Swinson said financial penalties are expected to be applied only in cases of serious breach, with naming and shaming used in most cases.

"Where supermarkets are breaking the rules with suppliers and treating them unfairly, the adjudicator will make sure that they are held to account," she said.

"We have heard the views of the stakeholders who were keen to give the adjudicator a power to fine, and recognise that this change would give the adjudicator more teeth to enforce the Groceries Code.

"We expect fines to be used as a last resort, but the fact that the adjudicator has the power to impose them will send a strong message to retailers that compliance with the code is not optional. I am confident that these changes will mean that the adjudicator is able to ensure fair play in the food supply chain and keep the industry growing."

Under the Groceries Code Adjudicator Bill, which is passing through Parliament, the watchdog will arbitrate disputes between retailers and suppliers, investigate complaints from direct and indirect suppliers, and hold to account retailers who break the rules.