SYDNEY (Reuters) - Australia's major supermarkets could face fines of up to A$10 million ($6.6 million) if suppliers and growers are not treated fairly, an independent government review said on Monday, as it proposed to make a voluntary grocery code of conduct mandatory.

Under the proposed rules, supermarkets with annual revenue of over A$5 billion will fall under the mandatory code. That list currently includes Woolworths, Coles, ALDI and Australia's largest independent grocery supplier Metcash ( MCSHF ).

For serious breaches, fines could be as large as A$10 million, 10% of annual turnover, or three times the benefit it gained from the breach, whichever is the biggest.

The interim government report did not recommend big supermarket operators should be forced to divest assets to improve competition.

"If forced divestiture resulted in a supermarket selling some of its stores to another large incumbent supermarket chain, the result could easily be greater market concentration," the report said.

Prime Minister Anthony Albanese called it "a very strong interim report", adding his government wanted fair prices for both farmers and families.

In a Senate inquiry last month, a fruit and vegetable farmers body said the antitrust regulator should be given powers to break up the supermarkets, weakening their hold on wholesale and retail prices.

Albanese has previously ruled out such moves, saying Australia has a private sector economy and that "we're not the old Soviet Union."

Woolworths and Coles, which together ring up about two-thirds of Australian grocery sales in one of the world's most concentrated markets, have reported stellar profits after two years of high inflation. Six separate inquiries into their operations have been announced this year.

Coles, Woolworths and Metcash ( MCSHF ) did not immediately respond to a request seeking comments on the review.

The interim report also proposed to strengthen protections for suppliers against possible retribution from supermarkets if they made a complaint to them.

Farmers say fruit and vegetable growers typically sell to supermarkets on weekly contracts and often accept uneconomic offers for their produce because of concerns about missing out on future sales due to the limited number of supermarkets.

Stakeholders can make submissions to the interim report by April 30, and the final report will be submitted to the government by June 30.

($1 = 1.5223 Australian dollars)

(Reporting by Renju Jose and Byron Kaye in Sydney; Editing by Lincoln Feast.)