Supermarkets north of the border are bullying suppliers into making lump sum payments and routinely selling products below cost in a bid to squeeze the competition, the Competition Commission heard in Edinburgh this week.

The Commission held face-to-face hearings in the Scottish capital on Tuesday and Wednesday with key industry organisations as part of its investigation into the UK's grocery market.

Scottish Grocers' Federation chief executive John Drummond told the inquiry there was clear evidence that supermarkets were selling goods at a loss, to the detriment of smaller competitors. He cited a recent deal offering two £16 cases of beer for the price of one. His members, he claimed, would have had to pay £12 per case wholesale. The federation asked the Competition Commission to ban below-cost selling.

NFU Scotland, meanwhile, told the panel that it had conducted a confidential survey of 14 major direct suppliers to supermarkets, which demonstrated that abuses of power by retailers were widespread.

Suppliers alleged that they received demands from customers to make lump sum payments, and were forced to fund deep-discount promotions such as two-for-ones. They also complained that there was little or no negotiation between suppliers and supermarkets in general.

James Withers, NFU Scotland deputy chief executive, said: "The dominant position of supermarkets has allowed these developments to occur. Somewhere along the line tough business negotiations became an abuse of power.

"The code of practice has failed so far - but it is a good idea. Fear of reprisals has restricted its effectiveness. There is a need to strengthen ambiguous terms such as 'reasonable', as what is reasonable to a supermarket is unlikely to be reasonable to a supplier. There is a need to establish an adjudicator to enforce a strengthened supermarkets code."

The Competition Commission also heard from representatives from the Scottish Executive and the Scottish Parliament.