STEVE CANNANE, PRESENTER: The chair of a federal parliamentary inquiry into the food industry has attacked a climate of fear which he says is stopping suppliers from publicly detailing alleged abuses of power by supermarket giants Coles and Woolworths.

The Senate committee has joined the Australian Competition and Consumer Commission, offering protection to anyone who comes forward with details about their dealings with the big supermarket chains.

This exclusive report from Lateline's Margot O'Neill.

MARGOT O'NEILL, REPORTER: This is not a story about biker gangs or police corruption or organised crime.

It's about supermarkets.

But after more than 100 phone calls, just one Australian supplier was willing to speak to Lateline about alleged abuses of power by Coles and Woolworths as long as we agreed to hide his identity, like this, (vision shows unidentifiable silhouette of man) and even hide the kind of product he supplied.

But after sleepless nights the supplier pulled out, leaving us to use only his words about why he's so scared.

ANONYMOUS SUPPLIER (male voiceover): "It's quite common for the majors to stop dealing with a supplier ... and suppliers to have little chance of a viable business unless they're serving the two major supermarkets, ... so it's too big a risk to expose myself. But I think the power of the big supermarkets is now too large for the proper functioning of our food supply."

MARGOT O'NEILL: With an 80 per cent share of grocery supermarkets, there are stories of bullying by Coles and Woolworths, of suppliers being forced to bear burdensome costs, of products being taken off supermarket shelves, of prices being slashed, of businesses shutting down, but so far no-one has been willing to step forward publicly with the proof.

RICHARD COLBECK, CHAIR, SENATE SELECT COMMITTE FOOD PROCESSING: There's a whole circle of fear that exists around the supermarket movement. What really concerns me is that people don't feel that they can come out and openly talk about the issues that they're having in their dealings with the supermarkets without some fear of retribution and there's no question in my mind that that fear exists.

NICK XENOPHON, SENATE SELECT COMMITTE FOOD PROCESSING: Without doubt there is a climate of fear when it comes to farmers and food processors speaking out about practices of the big two.

When farmers and food processors tell me that they feel a bit like medieval serfs, they're beholden to Coles and Woollies as their medieval landlords, then you know there's something seriously wrong.

MARGOT O'NEILL: A Senate committee looking into the issue is hearing the same story from industry groups representing processed food companies, to fruit and veggie growers, to wine makers.

SENATE COMMITTEE MEMBER: Are they prepared to, you know, ... ?

SENATE COMMITTEE WITNESS: They are definitely not prepared to say anything publicly. Categorically.

MARGOT O'NEILL: The committee's even struggling to find witnesses for secret in-camera hearings.

RICHARD COLBECK: What we would really like to be able to do is to get some of this on the record, but there is a fear to such an extent where I know that people would like to talk to us. At this point in time, I don't even know who those people are because they're not prepared to reveal themselves to us. They're coming to us through intermediaries.

MARGOT O'NEILL: Last month the Australian Competition and Consumer Commission offered protection to anonymous complainants in a bid to break industry silence. Few have come forward.

ROD SIMS, ACCC: This isn't like the FBI where we find them a safe house. We've had a couple of very large companies come forward, we've had a couple of smaller companies come forward and the producer organisations are trying to give us more detail.

So, look, we are building up a picture. So, we'd very much welcome more people to come forward, Margot. That would be great. But it would be wrong to say we're not getting anywhere with this.

MARGOT O'NEILL: But major industry bodies are sceptical. Kate Carnell speaks for Coke, Kellogg's, Nestle and scores of other brands all battling for supermarket shelf space.

KATE CARNELL, AUST. FOOD AND GROCERY COUNCIL: Look, if you give evidence in court and that's really where a complaint to the ACCC will end up going, so you'll have to stand up in court and give evidence against your major customer.

Now it doesn't take a genius to work out that's not a very good look and probably won't lead to a good economic outcome for that company.

MARGOT O'NEILL: Many players are now looking to bolster ACCC laws, in particular introducing a mandatory code of conduct for supermarkets overseen by an ombudsman.

KATE CARNELL: There has to be some changes to the law. Fundamentally at the moment we've got market failure, we've got all the power with Coles and Woolworths. I don't say that they're in any way operating outside the law. They're not. The fact is the law's simply not good enough to ensure that there's a level playing field.

MARGOT O'NEILL: Independent Senator Nick Xenophon believes the public wants to go much further.

NICK XENOPHON: The only way out of this mess is to actually pass US-style anti-trust laws that will require Coles and Woolworths to be broken up so that each of them can't control more than 20 per cent of the market share.

MARGOT O'NEILL: Rod Sims says people should wait for the ACCC to finalise its investigation, although he won't say when that will be. If there's been no breach of legislation, he'll make a public statement about what should happen next to respond to increasing community concern. The Senate committee is due to report in June.

Margot O'Neill, Lateline.

STEVE CANNANE: A spokesman for Woolworths says the company is extremely disappointed at having to again defend itself against unsubstantiated rumours, that it vigorously denies any claims of wrongdoing and that it has introduced an independence complaints hotline.

A spokesman for Coles says it's engaged in tough but fair negotiations to get lower prices for shoppers and has a formal dispute resolution process that can be used confidentially by suppliers.

And you can see both statements in full on our website.

Statement from Woolworths

As a retailer, we have to strike a careful balance between our customers' best interests and the sustainability of our supply chain. Woolworths vigorously denies any allegations of breaches of the Trade Practices Act.

Despite having regular dialogue with the AFGC and the ACCC, including a meeting with the new Chairman, not a single allegation has been put to us and we are extremely disappointed at having to once again defend ourselves against unsubstantiated rumours.

We had not materially altered our way of working with suppliers since the 2008 Grocery Inquiry which gave us a clean bill of health. We continue to have best practice compliance policies and have recently introduced Australia's first third party escalation procedure for managing vendor issues.

We can't speak for all supermarkets but Woolworths has always strived to have constructive, mutually beneficial relationships with our suppliers.

Statement from Coles

Coles engages in tough but fair negotiations with suppliers, in order to ensure our customers are not paying more than they should for groceries.

For the last three years, Coles has worked hard to lower prices for Australian shoppers, saving more than $500 million off their grocery bills last year alone. We have worked very successfully with many of our partner suppliers over this time, who have benefitted from the increased sales this strategy has delivered.

Coles has a formal dispute resolution process available for suppliers to report, confidentially if necessary, any concerns they may have. This is in addition to the external, industry wide Produce and Grocery Industry Code and Ombudsman process.