Some Territory cotton farmers have been operating at a financial loss due to the need to transport cotton bales thousands of kilometres to gins in south-east Queensland.

The aim of the new Katherine gin operation is to save costs and time.

However the progress of the Tarwoo Station proposal has Katherine residents concerned about possible impacts on their water supply.

The gin development body and NT Farmers have said that dryland growing was preferred - although the final decision was up to growers.

"Our water systems are already fully allocated, there is no more room left to allocate more water for irrigation. People come here and just see lots of water, they don't understand the water budget is already accounted for," Environment Centre NT ecologist, Jason Fowler said.

"We're going to end up with a very unhealthy river system and that's going to impact everyone who uses those rivers including the Aboriginal people who live on the river.

"For them, it's their supermarket and food supply."

Northern Gin Development Group chairman, David Connolly said that dryland farming was preferred, however the decision of which method will be used is up to those who will grow the crop.

"We've always said and promoted the dryland or rainfed industry, and largely what's going on is rainfed but what happens in the future will be up to those individual farmers and what methods they want to use," he said.

"For us, the method is dryland and it's working very well.

"The rain we get and the soil type is very advantageous for a rain-fed crop."

He said with the start of the gin's building in sight that "we feel fantastic, this was our goal. Everything is working in full and on time".

NT Farmers CEO Paul Burke echoed Mr Connolly's thoughts and confirmed that dryland cotton was preferred.

"We're looking at a dryland cotton model. What water is available is licenced, you can't just go and do something, there's a whole lot of constraints on what you can and can't do," Mr Burke said.

If dryland is to be used, growers will solely rely on wet season rains, but Katherine local Shirley Crane said while she's lived in the area rainfall has been far from 'reliable'.

"They talk about how reliable our wet seasons are, well I've been here for 12 years and reliable is the last word I would use about our wet seasons," she said.

The NT Government plans on releasing a Surface Water Harvesting Policy later in the year which will address concerns over cotton growing and floodplain harvesting.

"This policy would allow station owners and farm owners to build big dams on their properties and dam water during the wet season so it doesn't flow into the river, and then use that water to irrigate their crops in the dry season," Mr Fowler said.

The Tarwoo Station cotton gin is to be built and operated by New South Wales-based company RivCott Ltd.

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