They fear the Westminster Government will not act on the Competition Commission’s recommendation to install an ombudsman with tough new powers to protect suppliers from abuses by retailers.

James Withers, chief executive of the National Farmers’ Union Scotland, said the failure of Business Secretary Lord Mandelson to agree to appoint a watchdog within the agreed 90 days of the commission’s referral, which came after a two-year investigation into the grocery supply chain, was a “major disappointment”.

Mr Withers, who was at Westminster last week to lobby politicians, said: “The continued growth of supermarkets in Scotland, together with unprecedented demand for Scottish produce, means that the need for a supermarket ombudsman to protect Scottish suppliers is greater than ever.

“Apart from Waitrose and M&S, other retailers Asda, Morrisons, Sainsbury’s and Tesco have been consistently reluctant to sign up to having an ombudsman. We’ve never been given a reasonable explanation as to why. So by failing to follow the commission’s advice, the Westminster Government is admitting, by omission, that the major retailers have a huge influence over it.”

Under the proposal, supermarkets would be obliged to pay for the ombudsman, dubbed OfShop, which could cost up to £4 million a year.

Some 70% of all food produced on Scottish farms is sold though supermarkets, a statistic that gives retailers unprecedented power over who they choose as their suppliers, how much they pay them and effectively over how much time and money can be invested in creating new and innovative Scottish products – all of which directly affects the consumer.

Sales of Scottish brands across the UK have increased by 21% since the launch two years ago of Scotland’s National Food and Drink Policy. Rural Affairs Secretary Richard Lochhead supports the idea of having an ombudsman, as do members of all Scottish political parties.

While there are many excellent relationships between retailers and suppliers, Mr Withers claimed there were some “horror stories”. These include supermarkets demanding up-front lump sum payments from suppliers at the risk of having their

contracts torn up; of buy-one-get-one-free promotions being introduced on products without consultation with the supplier, who is then told they have to bear the cost; or of a supermarket suddenly changing its mind about a supplier after the farmer has put the crops in the ground, with no compensation.

A direct result of the low price paid to dairy farmers for milk had resulted in the number of dairy farms in Scotland shrinking from 2000 in the year 2000, to 1200 in 2009.

Supermarkets pay the farmer 23p per litre, although it costs 28p per litre to produce. They sell it at around 70p per litre, with none of the profit going back to the farmer.

“We’re now at the lowest level of milk production for 40 years,” said Mr Withers. “Supermarkets have enormous buying power. But at its worst, that power is in danger of restricting choice.”

There is no guarantee of anonymity if a supplier complains about a retailer.

And the fear of being blacklisted has created a culture where nobody wants to put their head above the parapet. An independent ombudsman who could arbritrate over disputes involving farmers who feel they are being treated unfairly would ensure fair play, the NFUS believes.

Several attempts to encourage retailers to agree a voluntary scheme have failed. Mr Withers said the supermarkets’ 2003 voluntary code of practice is “not worth the paper it’s written on”, with only one case ever coming to an acceptable resolution.

“All major retailers are dragging their heels on this issue,” he said.

“They need to accept that a more open approach to how they go about the business of securing food for their stores will reassure those farmers who produce that food and those customers who buy it.

“If the supermarkets have nothing to hide, they should be in front of the queue to sign up. The fact that they are not sadly speaks volumes. What is it they are afraid of?”