Shopping bags from Asda and Sainsbury's are seen in Manchester, Britain April 30, 2018. REUTERS/Phil Noble/illustration

LONDON (Reuters) - British supermarket group Sainsbury's SBRY.L proposed takeover of rival Asda could lead to a further price squeeze for farmers and reduce the choice and innovation of products available for shoppers, the National Farmers' Union (NFU) said on Tuesday.

Sainsbury's agreed in April a 7.3 billion pounds cash and shares takeover of Walmart's WMT.N Asda - a combination that could overtake Tesco TSCO.L as Britain's biggest supermarket group if it is approved by the competition regulator.

The Competition and Markets Authority (CMA) is currently probing the deal and seeking views from interested parties.

In oral evidence to the CMA, the NFU’s head of food and farming Philip Hambling said farmers were concerned whether the combined group could deliver its proposed 10 percent saving for shoppers without passing the pressure on to farmers.

“At a time when farms are already facing intense price pressure, the prospect of a further squeeze on price leaves farmers concerned about the potential impacts on their businesses,” he said.

“Continually squeezing margins can take away the ability of the food and farming industry to invest and improve quality, range and sustainability,” added Hambling.

Sainsbury’s and Asda’s key argument is that the deal would lower prices and improve the customer offer of both brands, while allowing suppliers to grow their businesses.

Both grocers have said they believe the CMA will not insist on a level of store disposals that will make the deal, announced in April, unpalatable.

The CMA said last month it expected to issue provisional findings early next year, ahead of a final report in March.