A group of Victorian farmers will be offered recycled human wastewater to boost production.
If the trial works, more schemes to utilise sewerage and industrial waste might be tried across the state.
Barwon Water plans to supply 450 megalitres of of low salinity, recycled water each year to new and existing agricultural and horticultural customers.
It would nearly double the amount of recycled water already used on the Bellarine Peninsula south-west of Melbourne and adjacent to Geelong.
The downside of recycled water use has been cost, it is expensive to clean and governments need to subsidise it to make it affordable to use.
The Victorian government said high quality recycled water would unlock new agricultural and horticulture production opportunities including wineries, cellar doors, and farm gate tourism.
Extra funding has been promised towards Barwon Water's $11.1 million Water Reclamation Plant.
The project will secure the future of key local industries and create dozens of local jobs, the government says.
Bellarine farmers graze livestock on smaller acreages and also grow hay, and other horticulture crops like peas
The wastewater will go through ultra-filtration and an reverse osmosis plant to produce usable water at a much lower salinity than the existing high salinity Class C water.
The upgrade will save more drinking water for Barwon Water customers and allow its Portarlington plant to reuse 100 per cent of its recycled water.
The government is contributing $1.97 million with $5.53 million from the Commonwealth and $3.56 million from Barwon Water.
Minister for Water Lisa Neville said the government had been working with Bellarine Peninsula farmers and Barwon Water over the past fours to solve the problem of providing secure year-round access to water.
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