Lingering drought in parts of southern Australia is prompting farmers to consider moving to better-watered, but remote, areas, potentially helping rice and cotton plantings rebound from record lows.

"The widely reported and record breaking drought in south east Australia is creating renewed interest in the abundant water resources of northern Western Australia," a report from US officials in Canberra said.

Attention is being focused on the Ord River Irrigation Area, a site closer to Indonesia – Australia's second largest cotton export market - than the country's traditional growing areas in New South Wales and Queensland.

While total crop plantings, largely of sandalwood, in the irrigation area cover 13,000 hectares, the water available is in theory sufficient to support 440,000 hectares of rice, or twice that much of wheat.

However, other water requirements, plus the expense of developing land and infrastructure, mean that up to 150,000 hectares "could eventually be irrigated", sources have told US officials.

Importance of GM

The renewed interest in the irrigation area represents something of a change in fortunes after the failure of cotton plantings in the 1960s, which were lost to insect damage, and the ditching of sugar cane two years ago.

The region was unable to provide sufficient cane to feed a local sugar mill, which closed in 2007.

Hopes for better utilisation of water in the 47-mile long Lake Argyle, which feeds the irrigation area, depend on genetically modified cotton and rice crops.

"Local producers are optimistic that these crops could, with sufficient areas planted, form the basis of new field crop industries," the report said.