In a 10-year study released yesterday, the National Water Commission also finds that without water trading the southern parts of the basin - including regional centres in NSW, South Australia and Victoria - would have been more severely affected by the recent drought.

One of the national water commissioners, Laurie Arthur, said yesterday that water markets had given irrigators ''much needed flexibility in how they run their farm businesses during tough times - helping them to improve cash flow, retire debt and manage risk''.

The study says the main beneficiary was Victoria, where trading creating $271 million in net production benefits in 2008 and 2009.

In NSW water trading generated $79 million of net production benefits, with $16 million in South Australia.

The report, The Impacts of Water Trading in the Southern Murray-Darling Basin, finds trade did not reduce the use of water more than 10 per cent in any agricultural region in 2007-08, and that agricultural production declined less in those regions than the reduction in water use.

Water trading was also crucial in supplying Adelaide, Ballarat and Bendigo with critical water needs over the past 10 years as the drought caused rivers to dry up across the basin states, the report says.

The report says caps in NSW and Victoria on the trading of water entitlement create uncertainty and are costly.

The 4 per cent Victorian cap is scheduled to be phased out by 2014, under an agreement with the federal government.

A South Australia legal challenge arguing the Victorian trading cap is unconstitutional is expected to be heard in the Federal Court next month.