The pursuit of cheap food coupled with the buying power of the big supermarkets is putting farming livelihoods at risk, the Church of England has told the Competition Commission.

Making farmers pay for supermarkets' own promotions is just one of a number of invisible and pernicious practices squeezing farm-gate prices.

While welcoming the broad findings in the Competition Commission's recent interim report, the Church argues that a wider debate is urgently needed on the effects of retailers extracting 'below cost' supply agreements from farmers and their effect on a sustainable and flourishing agricultural sector.

"The business practices of the major food retailers have placed considerable stress on the farming community through the use of methods which we believe to be unfair and of which consumers seem to be unaware," said the Rt Rev Michael Langrish, Bishop of Exeter, who chairs the Church's Rural Strategy Group.

"Farmers seem to be unwilling to complain or to expose these practices for fear that their produce may be boycotted by the major retailers. It is clear that the Supermarkets Code of Practice is not working."

The call for wider debate comes in the report Fairtrade begins at home: Supermarkets and the effect on British farming livelihoods submitted to the Competition Commission by the Church's Ethical Investment Advisory Group (EIAG).

It was researched and produced in response to concerns from members of the General Synod, the Church's 'Parliament', about the doubtful viability of many farming enterprises given the squeeze on farm-gate prices.

The report identifies a number of "invisible and pernicious practices" that the consumer is largely unaware of and which have been accepted by farmers as a fait accompli as part of the price of doing business.

Products labelled as British are often only processed or packaged here, obscuring the country of origin of the primary ingredients. The Church of England also criticised flexible contract terms that "seldom work to the advantage of the farmer", and said that flexible payment terms were subject to arbitrary change that "often put farmers to an increased cost or financial loss".

The Church also claimed that facilitation payments, deductions and a range of financial inducements were being paid to the retailer or processor at the farmer's expense and that there was "little evidence that retailers share the benefits of promotions with farmers, and much evidence that farmers, in the main, bear the costs".

The report looks particularly at the dairy industry and notes that retailer price competitiveness for a staple product has led to a significant reduction in the number of dairy herds, placing many of those remaining at the margins of economic viability. It recognises there have been some recent positive signs of change.

"The Church is well-placed to speak up for those who are not being heard and propose practical change to those with influence," said Neville White, Secretary to the EIAG and joint author of the report.

"It is an investor in the food retail sector and has a role to play in putting the concerns of the wider Church to the companies in which it invests. It is also a significant landowner throughout England and has witnessed at first hand the pressures being felt by its tenants and the economic vulnerability many face in producing below cost."

EIAG Chairman John Reynolds said: "Farmers are asking for no more than a fair price for a fair product and for the benefits and costs of in-store and special promotions to be fairly shared by producer and retailer alike. Ministers, agencies and others should debate the worst abuses as that is beyond the brief of the current competition enquiry regime.

"The Supermarkets Code of Conduct is not working, and has not acted to reduce fear of reprisals for 'speaking out'. The appointment of an independent ombudsman with arbitration and regulatory powers should be urgently considered."

The report also calls on supermarket groups to examine their buying practices and provide greater clarity and transparency to suppliers and consumers; root out the worst abuses of buying practices; publish a buying code of how they do business with local producers or expect middle-men to conduct business relationships through the supply chain with producers; and avoid arbitrary changes and termination to contracts without considered notice.

The report welcomes an emerging consensus that more of the retail price in the dairy chain needs to return to producers but argues for constant vigilance to prevent slippage should commodity prices ease.

It encourages consumers to question the true nature of special promotions in store and calls for a genuine fair trade "mark" for food, reared, grown, produced and processed in Britain, offering consumers and suppliers a fair product for a fair price.

"As bishops of a church which is a major investor in the retail food industry and which is also the landlord to many tenant farmers, we have a duty to consider the relationship between these two areas of business," said Bishop Langrish.

"In particular we have to ask whether this relationship is fair and whether it operates within what we consider to be the principles of Fair Trade. Are human beings treated with dignity and respect, or is there some exploitation of one group of people for the unfair gain of another?

"The low inflation which the British population has enjoyed for a number of years appears to have been generated, at least in part, at the expense of the livelihood and well-being of the farming community. We are moving towards a situation where we will be unable to be self-sufficient in basic foodstuffs, such as milk, and have to rely on imports."

Fairtrade begins at home: Supermarkets and the effect on British farming livelihoods, published by the Church of England's Ethical Investment Advisory Group, is the report of a research project carried out on behalf of EIAG by the SRI Unit at CCLA Investment Management Ltd during the first half of 2007 including a series of one-to-one and group meetings with farmers around England.

It can be read at: http://www.cofe.anglican.org/info/ethical/