Coles boss Ian McLeod has launched a spirited defence of its tactics to squeeze its suppliers, arguing that some enjoy higher profit margins than the supermarket chain does while selling Australian goods more cheaply abroad than they make available locally.

''What should we do?'' he asked. ''Challenge it, or turn a blind eye?''

Affordable options: Ian McLeod visits a Coles supplier in Werribee South. Credit:Luis Enrique Ascui

The key to Coles' turnaround over the past five years has been to hold prices down, Mr McLeod told a business luncheon on Tuesday.

''When Coles keeps prices down, competition, affordability, ethical sourcing, community support, farm sales, food manufacturing, jobs and job security all go up. We think that is a good thing, so we're going to keep on doing it,'' he said.