Water security is at the "forefront of challenges" for the Central West, according to Infrastructure Australia's new Regional Strengths and Infrastructure Gaps report.
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Without increased capacity, it's estimated the region would experience "a loss in economic uplift of $167 million on average per year", the report states.
As the Central West receives a lower volume and more fragmented rainfall than other regions in Australia, the baseline "risk for farmers in the region is significantly higher," the report states.
"As new industries emerge, water is increasingly being used for mining, lifestyle and urban development, driving competition for water throughout the Central West.
"The combined impacts of climate change and variability, as well as water regulation, have the potential to dislocate existing infrastructure, communities and sectors."
Lachlan Valley Water chair Tom Green says the concerns highlight the need to raise the Wyangala Dam wall.
It's now time for action by both state and federal governments, and bipartisan support should be provided to increase Wyangala Dam's capacity.
- Lachlan Valley Water chair Tom Green
Mr Green says the latest report backs up concerns that climate change is having a detrimental impact on the valley - and this is not just about water security but also flood management capability as seen last November when flooding wiped out crops right on harvest.
"It's now time for action by both state and federal governments, and bipartisan support should be provided to increase Wyangala Dam's capacity," Mr Green said.
"The study highlights what we have been seeing and going through for many years.
"A larger dam will protect the whole community in the Lachlan Valley as climate change continues to have a greater impact on the valley and its communities."
Feedback from consultation in the development of Infrastructure Australia's report indicated water security had been a constant and increasing challenge.
"As water availability has become less reliable, the growth of the agricultural industry has been constrained, however the region still produces a significant proportion of New South Wales' agricultural output," the report states.
"Farming practices have had to adopt to become smarter, more resilient and more efficient, and communities have had to effectively manage water usage demand. It is anticipated by stakeholders that improved water security will be vital to providing business confidence and attracting investment for agriculture, manufacturing and mining."
Infrastructure Australia says the impacts of drought and water security are expected to continue.
The report highlights existing Australian government commitments to deliver water projects including the Central West Industrial Park and Parkes water security project, and NSW Government investment in the Wyangala project.
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