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The project will also measure the biodiversity benefits of farm dams and shelterbelts.
More than 7500 sheep farmers and 8000 cattle farmers in the South West Slopes between Orange, New South Wales, and Shepparton, Victoria, will be involved, including at farm field days and workshops.
Minister for Agriculture David Littleproud said putting native vegetation and entry points around dams meant stock grew faster on cleaner, cooler water - and this research would measure the benefits across 15,500 farms.
"Fencing, installing watering points and planting native vegetation around dams can increase farm productivity," Minister Littleproud said.
"Stock with access to clean, cool water produce better meat," he said.
According to the Department, the benefits of native vegetation include filtering out runoff from paddocks, which often contains sediment, faecal matter and other things.
Plants also keep the dam water cleaner, cooler and with less bacteria, which reduces the risk of stock contracting water-borne parasites.
Trees reduce surface temperatures and evaporation rates meaning the farmer's dam retains more water. Good dam management and shelter belt management helps with drought management.
ANU Vice-Chancellor Professor Brian Schmidt said the project will help farmers secure their livelihoods and wellbeing well into the future.
