Who buys and sells Australia's water will be the focus of a new study by the Australian Competition and Consumer Commission (ACCC).

Key points: The ACCC has 15 months to study Australia's $2 billion water trade

The ACCC has 15 months to study Australia's $2 billion water trade It will investigate who owns and trades water throughout the Murray-Darling Basin, including the role of investment funds and other "significant traders"

It will investigate who owns and trades water throughout the Murray-Darling Basin, including the role of investment funds and other "significant traders" Irrigators fear that non-farming investors have driven up the price of water, adding to drought pressures

Terms of the study, announced today, require the ACCC to investigate "the number of participants and sectors participating in" the Murray-Darling Basin's $2 billion water market.

The ACCC will have 15 months to report to the Federal Government on the role that water brokers, exchanges, investment funds and "significant traders" are having across the Murray-Darling Basin.

Irrigators claim that non-farming investors have driven up the price they must pay for water, subsequently driving up the price consumers must pay for their produce.

It must also consider market trends since 2012, including demand for water, water availability, and where and how much water is traded.

Treasurer Josh Frydenberg described water as the "lifeblood of communities in the Murray-Darling Basin".

"As with any market it is important to take a look at how it is performing, whether it is operating as intended and to the benefit of communities who rely on the basin," Mr Frydenberg said.

The terms of reference include consideration of how constraints, such as narrow parts of the river, and dams are managed and how water can be transferred between valleys and irrigation districts.

David Littleproud wants to be sure the Basin Plan is operating as intended. ( AAP: Richard Walker )

The ACCC must look at the use of carryover water — water that is held over from one season to the next — and the availability and accuracy of public market information, including price reporting.

Entry to and exit from the market will also be a focus, with some irrigators forced to pay fixed costs irrespective of whether they receive water.

Water Minister David Littleproud has flagged Government intervention in the water market, should the inquiry find an imbalance.

"It is important the market is operating as intended, our regional communities depend on it," Mr Littleproud said.

Australia's market has evolved rapidly since the 2004 National Water Initiative formalised plans to separate water rights from land titles, paving the way for water to be traded.

Drought has reduced the amount of water available for irrigation across the Murray-Darling Basin, with dams now at their lowest levels since the Millennium Drought.

At the same time a boom in high-value, permanent horticulture plantings like nuts, citrus and grapes, which require watering year-round, has added pressure in the market.

Now, traditional irrigators such as dairy and rice farmers are struggling to compete for water as prices near record highs.

Some farmers say that water trading is having a greater impact on their viability than the rollout of the Murray-Darling Basin Plan and that led the Coalition to promise a study of the southern market before the May election.

The terms of reference announced today extend across the entire Murray-Darling Basin.

The ACCC's interim report is due May 31, 2020, with a final report expected by November 30 next year.