Defra should draw up a code of practice to regulate trade relations between farmers and processors, according to the Competition Commission's groceries inquiry.
The commission said it was making the recommendation after being advised by lawyers it didn't have the authority to extend the existing Supermarkets Code of Practice to cover farmers not directly supplying retailers.
In its remedies working paper , the commission said: "We have received a number of complaints from primary producers that intermediaries engage in trading practices that transfer excessive risk and unexpected costs to them. As such, we consider it is possible extending coverage of the code to intermediaries would benefit primary producers."
But, crucially, it added: "Any remedial action taken by the CC must be based on a 'feature' of the market/s referred to the CC by the OFT, in this case the supply of groceries by retailers in the UK.
"We are not satisfied that supply chain practices adopted by intermediaries in their dealings with primary producers could be described as 'features' of the reference market ... so it would not be legitimate for the CC to take remedial action as part of the current investigation to address these practices."
The commission said it believed Defra was "well-placed" to establish a code and was "currently minded to recommend it do so".
The comments show the commission is highly concern about the impact the behaviour of major supermarkets has on farmers via their direct suppliers.
"We looked very hard at whether farmers and other primary producers could be included in the code ," said a spokesman. "But our remit and terms of reference simply don't give us the powers to go further than direct suppliers to grocery retail."
In the light of these constraints, any attempt to force through an extension of the code could be met by legal action by retailers.
Nonetheless, the NFU said it would still try to convince the commission that farmers should be covered by the code, which is to be toughened and extended to cover any retailer with grocery sales of over £1bn a year.
Kevin Pearce, NFU head of food and farming, said the nature of modern-day category management meant processors had effectively become agents acting on behalf of the retailers. "The link is very direct," he said.
But the commission said it didn't accept this argument. "We're aware of the allegation about some intermediaries being virtual extensions of the retailer," said the spokesman. "But that's not enough to legally redefine them as retailers."
Processors gave a cautious welcome to the proposal. "We have nothing to fear from a code but the key thing is to ensure manufacturers are given the opportunity to contribute to its development," said Stuart Roberts, director of the British Meat Processors Association.