The government has followed through on its promise to stop buying water from farmers to meet the Murray Darling Basin Plan recovery targets, scrapping the Water Efficient Program (WEP).
The WEP gave farmers funding to upgrade their water infrastructure in exchange for water licences.
Water Minister Keith Pitt said he terminated the program because it had not lived up to expectations, recovering just 0.2 gigalitres of water since 2019, or 0.04 per cent of the 450GL target.
"The WEP has not worked as it was expected to - not for returning water to a healthy river and certainly not for communities who deserve as much water as possible to remain economically and socially productive," Mr Pitt said.
At the end of 2020, the government announced it would no longer buy water off farmers to meet the Murray Darling Basin Plan recovery target, and instead focus on off-farm efficiencies through a $1.33 billion fund for state-led projects, along with $150 million in direct grants.
"Off-farm water recovery means we can actually progress our river health targets and, unlike on-farm programs we do not reduce water availability in the consumptive pool," Mr Pitt said.
"We've been doing the legwork so we can get on with the job, identifying about 50 off-farm projects that can form the core of our work program."
NSW Farmers water taskforce chair Xavier Martin said the reform provided a greater level of certainty for farmers.
"The reinvestment of the $1.5 billion funding into off-farm water efficiency projects is a welcome refocus," Mr Martin said.
"We have long been advocating for recognition that any further on-farm water recovery through the Water Efficiency Program will have profound disruptions to regional communities, and local food and fibre production."
The Victorian Farmers Federation water council chair Richard Anderson also welcomed the policy switch to off-farm projects.
"The Productivity Commission only warned last week in its recent report that climate change will have major impacts on irrigators," Mr Anderson said.
"Farmers need to be keeping their water savings to ensure they have a buffer in dryer times ahead and not be forced to give them up to the environment."
The government will honour $60 million worth of projects already committed to under the WEP.