* Carrefour, Systeme-U to favour French producers
* French firms looking to deal with challenge from Amazon
* Systeme-U had been expected to join Casino-Auchan alliance (Adds details on Systeme-U and Casino, analyst comment)
By Dominique Vidalon and Sudip Kar-Gupta
PARIS, April 25 (Reuters) - French retailer Carrefour has struck a five-year purchasing alliance with peer Systeme-U, stealing a march over rivals in a deal that will make Carrefour the biggest buyer in its competitive home market.
The companies said on Wednesday they were in talks to jointly negotiate purchases with their main, multi-national food and non-food suppliers, in a partnership that is also intended to favour French agricultural producers.
The deal is the latest alliance within the French supermarket industry, which has seen U.S. internet giant Amazon make inroads over the last year.
In January, Carrefour announced plans to cut costs and jobs, boost e-commerce investment and seek a partnership in China in an effort to lift profits and compete with Amazon.
Earlier this month, French retailers Casino and Auchan said they had begun talks on forming a partnership regarding the purchase of food and non-food items, as competition intensifies in France.
Systeme U had been widely expected to join that alliance.
"If Systeme U had joined that alliance, it would have made Casino the biggest buyer (in France). That competitive advantage now goes to Carrefour," said Bernstein analyst Bruno Monteyne.
Carrefour shares rose 0.3 percent in early trading.
Unlisted supermarket operator Leclerc has a 21 percent share of the French market, Carrefour has 20.7 percent and Systeme-U 10.2 percent, according to industry data from Kantar.
Analysts said the deal with Systeme-U would therefore give Carrefour an advantage in purchasing power over Leclerc.
Carrefour and Systeme-U said they would aim to offer "fair compensation" to French farmers, a powerful voice in the country's political system who have lobbied President Emmanuel Macron to do more to help them.
Macron has promised 5 billion euros ($6.1 billion) in agricultural investment as well as minimum farm prices to prevent producers selling at a loss.
Nevertheless, French farmers and their FNSEA lobby group remain concerned about issues ranging from trade talks with South America's Mercosur bloc to a land-buying spree by Chinese investors.
$1 = 0.8190 euros Reporting by Sudip Kar-Gupta, Pascale Denis and Dominique Vidalon; Editing by Jason Neely and Mark Potter