Broad attempts to break up the supermarket giants could give rise to unintended consequences, which means the Nationals will do a deal with the Liberals rather than the Greens.
As Coles and Woolworths record more than a billion dollars in profits, consumers are struggling to pay for groceries while farmers' prices are undermined.
The Greens' divestiture bill, which will go to the Senate on Wednesday, proposes powers to allow the courts and the consumer watchdog to break up supermarkets' businesses if they are found to be misusing their market power.
While the government and the Liberals have rejected the plan, the Nationals - who represent farmers complaining of underpayment by Coles and Woolworths - have supported its intent and appear to have formed an unusual coalition with the progressive party.
However, Nationals leader David Littleproud said there were issues with its design and his party had instead struck a deal with the Liberals to draft an alternative proposal that implemented safeguards around divestiture.
"The bill that the Greens put in place was deficient in design," he told Seven's Sunrise.
"We're very proud of the fact that Peter (Dutton) and the Liberals want to work through this to make sure there are no unintended consequences and there's fairness in prices from the farm gate to your plate."
The details of the agreement were still being ironed out as the Liberals finalised their position on the matter.
Mr Littleproud has said the coalition would target supermarkets specifically, whereas the Greens' plan addressed the economic architecture more broadly.
He said the opposition's proposal would explore real estate banking by big supermarkets and tens of millions in penalties to enforce codes of conduct.
Grocery retailers that engaged in "egregious" behaviour that removed competition could still be forced to sell off stores to smaller independents via divestiture powers, but safety tests must be applied to ensure there were no unintended consequences on competition, Mr Littleproud said.
"That makes sure that there is a smaller competitor that can come in and take that," he said.
Independent Bob Katter on Monday introduced a bill that proposed reducing the market share of any supermarket to no more than 20 per cent via enforced and progressive divestiture.
However, he rejected suggestions he would back the Greens' legislation.
The government has rejected divestiture proposals for the supermarkets, citing potential job losses at the nation's biggest employers as a major deterrent.
The Greens bill is set for debate in the Senate on Wednesday.
