The report warned that too few nursery workers are trained to deal with children with food allergies, which could lead to dangerous situations and even death.
Since 2006, foods high in fat and sugar have been banned from school dinners and junk food removed from vending machines and tuck shops.
The researchers asked 487 nursery employees and 1,772 parents about the food that children were served.
They found that out of 159 pounds a week spent by parents on the child as young as two, just three and six per cent of this amount is spent on food.
About three per cent of nurseries spend as little as 25p a day feeding each child.
"Until now, everyone has overlooked the quality of food given to children in nurseries," the Telegraph quoted Peter Melchett, policy director at the Soil Association, as saying.
"Sadly we have in many cases been overlooking a scandal.
"Children under five are at their most vulnerable. It is then they really need healthy food," he added.
"It is important that children receive good nutritious food at this crucial time in their development, when they are growing rapidly," said Ursula Arens, a registered dietician and spokesman for the British Dietetic Association.
"It is also good to introduce them to healthy food at this age, as we know that children who eat badly at a young age tend to continue to eat badly," Arens added.