The Competition Commission has recommended the introduction of a 'competition test' in planning decisions for supermarkets as it published its final report following a two year investigation into the 120 billion pounds industry.

In the report, the commission concluded that, while UK grocery retailers are, in many respects, delivering a good deal for consumers, action is needed to improve competition in local markets and address relationships between retailers and their suppliers.

The commission said it has identified a 'significant number of local areas where larger grocery stores face limited competition and local shoppers lose out'.

'That is why we want to see the introduction of a competition test as part of the planning regime to prevent local areas developing like this in the future,' it said.

The commission also recommended action be taken to prevent retailers using restrictive covenants and other agreements to 'frustrate entry by competitors in such areas'.

In addition, it is advocating the creation of a new strengthened and extended Groceries Supply Code of Practice and the establishment of an independent Ombudsman to oversee and enforce the Code.

The commission said that some aspects of the way retailers deal with their suppliers could, if left unchecked, harm consumers.

'The changes to the existing Code of Practice, along with the recommendation of an independent Ombudsman to police the code, aim to improve the existing system by making it more robust and pro-active in tackling those practices which can damage investment by suppliers,' it said in the report.

The commission believes it 'would be in everyone's interest that a code governing retailers and suppliers enjoys the confidence of all those involved'.

'Retailers with good practices and relationships should have nothing to fear,' it added.

The publication of the report comes days after the Office of Fair Trading started its latest investigation into alleged price-fixing between supermarkets and their suppliers.

The OFT is reported to have visited the head offices of each of Britain's big four supermarkets -- Tesco Plc, J Sainsbury Plc, Wal-Mart Stores Inc's Asda, and William Morrison Supermarkets Plc.

The commission said it will continue to assist the OFT's continuing investigation but warned it would 'be quite wrong to jump to any conclusions on this at this stage'.

'The focus of our investigation has been different although we have looked critically at the conditions for coordination.

'Our conclusion that this is a generally competitive market is not inconsistent with the possibility of some occurrences of anti-competitive behaviour, either now or in the future, and it is quite right that such allegations are thoroughly investigated.'