A Ministry of Agriculture and Forestry briefing paper for incoming ministers has identified water allocation and management as one of the biggest challenges facing the new Government.
The ministry said the agricultural sector uses about 80% of all water allocated in New Zealand, mostly for irrigation.
However, it says the availability of freshwater is becoming a pressing issue, with resources becoming over-allocated or close to being fully allocated in some regions.
It says exploring ways of reallocating or trading water permits should be a priority.
The ministry also identifies water storage as essential to any further irrigation development.
In Canterbury, where most irrigation occurs, just 1% of allocated water comes from storage.
The ministry considers the development of water infrastructure holds the key to integrated and sustainable water management in many parts of New Zealand.
Agriculture minister David Carter said Cabinet will look at irrigation infrastructure, and see there are projects which would quickly lift agricultural production, and provide a speedy return on some of the infrastructure spend.
But the Ministry of Agriculture and Forestry warns that further development needs to go hand in hand with effective policies to mitigate the potential adverse effects from more intensive agriculture.
It says the agriculture sector already generates some of the biggest environmental impacts on water, mainly through nutrients leaching into waterways, and it identifies improving the primary sector's water management as an urgent priority.