Primary Industries Minister Ian Macdonald says families in the city will also notice the effects of the drought.
"It’s going to impact our Sydney dinner tables over summer with higher prices in meat, poultry, dairy products, flour," he said.
"The shortages in these areas will be significant, basically because this is a national drought and our total production across the country will down dramatically."
Opposition Leader Peter Debnam has defended his call for a state of emergency in response to the worsening water shortage.
Mr Debnam says "bureaucratic paralysis" is hampering efforts to cope with the water crisis.
"My job is to talk on behalf of the people of New South Wales and push … the Government to do something," he said.
"Now on water they’ve done very little for 12 years.
"The innovative proposals are staring them in the face – they’re just not doing them.
"So the problem really is not the lack of innovative proposals, it’s the lack of action. Let’s cut through."
But acting Premier John Watkins says calling a state of emergency would be a short-sighted approach.
"The way to deal with drought is in an ordered national approach," he said.
"That’s what we need discussion and debate amongst ministers in cooperation with the Commonwealth Government.
"That’s the approach that NSW has taken. Long sustainable policies that will really assist people that are hurting."
New South Wales Farmers Association spokesman Jock Laurie says the prolonged drought in Australia is unprecedented.
Climatologists have told the Federal Government the Murray Darling Basin is drying up.
Mr Laurie says governments at all levels should be ensuring farmers and their local communities are given all the support they need to survive the drought.
"We’re starting to get into areas where I don’t think we’ve been before," he said.
"For agriculture as a whole this is an extended drought, there’s no doubt about that.
"I don’t think the Federal Government or the State Government has seen anything like this before.
"I think both governments have been handling the last four or five years reasonably well."
Councils in central New South Wales say they will not sit back and let the drought take its toll.
Parkes Shire and other councils have decided to make state and federal submissions to seek aid for farmers and businesses and will send out an email to all drought-affected communities asking for suggestions on what can be done.
Parkes Mayor Robert Wilson says the scale of the task is horrific.
"No governments have ever been confronted with the scale of disaster from a drought scenario ever before and of course the solution is going to cost squillions of dollars," he said.