Lost production as a result of water purchase is estimated to be small compared with other factors such as drought, according to the study by the Australian Bureau of Agricultural and Resource Economics.

However, water prices are expected to rise by up to 18 per cent in parts of the basin and small towns could be affected by the loss of production.

ABARE was asked to model the likely effects of the first $1.5billion of the Government's $3.1billion water purchase program.

It said the first half of the program, from 2008-09 to 2010-11, should pick up about 6 per cent of surface water entitlements.

The decline in gross value of irrigated agricultural production across the basin is expected to be modest, at 2.4 per cent, and is predicted to be fully offset by productivity growth.

Larger regional centres with a broad economic base will be cushioned from the impact of the decline in irrigated activity.

''Some of the smaller towns more dependent on irrigation could be less resilient to a decline in irrigation,'' the study said.

''The model results also suggest that the buyback will result in water prices being around 13 per cent higher in the northern basin and around 18 per cent higher in the southern basin than they would have been in the absence of the buyback.'' The study said rice production fell 70 per cent due to the drought, compared with a forecasted drop of 8 per cent under the buyback.

The slump in cotton production was 47 per cent from the drought, and an estimated 1.9 per cent under the buyback.

In March, the Productivity Commission suggested insufficient thought had been given to the buyback program.

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