Farmers and the regional towns that rely on them in the giant Murray-Darling Basin are suffering from a cruel, unprecedented combination of low rainfall and severe cuts in water allocations as the reservoirs dry up, leading to a population exodus in the worst-hit areas, including the southern Riverina.

"It's the first time there has been a real scarcity of irrigation water," said Peter Gooday, productivity and water manager for the agricultural research body, ABARE. The amount of water allocated to farmers has dropped by 20 to 30 per cent.

"The run of low inflow years is a low probability event and something we haven't seen before," he said.

This short-term drop had been far more calamitous than the CSIRO's climate change scenario that there would be 11 per cent less water available in 2030, he said. This state's Murray River country has officially been in drought for more than 1200 days and, west of Albury, rolling dust storms regularly hit empty paddocks and dry irrigation canals.

As Sydney was bathed in rain yesterday, blue skies prevailed in the southern Riverina.

The irrigation drought was "uncharted territory," the Productivity Commission's deputy chairman, Mike Woods, said when the commission released its draft inquiry report late last year. The federal Agriculture Minister, Tony Burke, received the final report on Friday and will table it within three weeks.

The news from the Murray-Darling Basin Authority's weekly River Murray report on Friday was bad. Hot, dry weather last month produced a record low inflow of about 40 gigalitres, 10 below the historic February minimum two years ago. The storage of usable water at the end of the month was 1170 gigalitres, well below February's long-term average of 4900 gigalitres. "It's snuck right under the radar," said the chief executive of the Horticulture Australia Council, Chris Newton, who believes soaring water prices have made many farms unviable.

The viability of most rice growers in southern NSW, who pay for water allocations even when they do not get a drop, is "on a knife edge," according to the executive director of the Ricegrowers' Association of Australia, Ruth Wade.

Zero or low water allocations in the past three years had meant most growers had not planted, Deniliquin and Coleambally mills were closed, there had been 185 redundancies across the business, and government drought support was now the only income for some growers, she said.

As South Australia mounts a High Court challenge to try to get more water further down the river to protect its environment and producers, further upriver 63 Riverina regional communities that rely on rice production have been hit, too.

In the past three years about 100,000 trees a year have been left to die in the Riverland region around Renmark, according to Kym Thiel, industry development officer for the Citrus Growers of South Australia. "They're sitting in the ground dead. No grower sees any point in paying money to bulldoze them."

A former manager of the Bombala Rural Lands Protection Board, Chris Philbrick, said he asked a road gang to stop using a 20,000-litre tanker to pump about 10 loads of water from a river that nine local properties relied on for domestic water.

"The drought doesn't only affect farmers. If the road gangs can't get water, the RTA [Roads and Traffic Authority] contractors can't work on the roads. Bombala shire is not doing any grading because there is no water," he said.

Meanwhile, Bushfire Co-operative Research Centre researchers report that stream flows into the lower Murray have fallen to 10 per cent of long-term averages as cotton farmers and other irrigators have taken big volumes during peak flow times as a buffer against dry times.

"In some seasons farmers have refused to allow firefighting agencies access to water as this commodity is now more valuable to them than the assets that the fire services are seeking to protect," they wrote in the latest Fire Australia magazine.

Pupil numbers at local schools were falling much faster than the Education Department had predicted, but governments did not seem to recognise the alarm signals, said Bruce Simpson, agribusiness director of Peppin Finance in Deniliquin.

Some families could not afford $2 or $5 for school excursions and schools were providing breakfast because young students were not having it at home. "The community are living hand to mouth," Mr Simpson said.

The combination of drought-engendered hopelessness and the prospect of climate change meant younger people did not want to step into the shoes of the ageing farm force, he said.

The president of the Ricegrowers' Association, Les Gordon, said: "The longevity of these industries and communities has to be a real issue. I'm watching farmers leave farms and get jobs ? sell water entitlements because the banks told them to, or make premature retirement plans."