The middle of a drought is the worst time to make drought policy, the Productivity Commission says.
It has told the federal government there should be a comprehensive, "sober review" of assistance given to farmers - once the weather improves.
The commission's last review of drought support was a decade ago and it says little has changed since 2009.
"The basic thrust of the recommendations was to design drought assistance policy in a way that builds the resilience of farmers and farming communities," Commissioner Jonathan Coppel told AAP.
He says looking at policy during a period of natural disaster can lead to short-term thinking that may have unintended consequences.
"Often when you're in a state of emergency, in a period of drought or there might be a flood or some other form of natural disaster, you're preoccupied with response rather than thinking in terms of prevention or preparedness," he said.
"It's possible ... some of the measures that are taken in reaction to a natural disaster may bear on the longer-term sustainability of farming families."
The commission's annual trade assistance review, released on Wednesday, says the aid measures in place for farmers now are similar to those the commission criticised in 2009 as not helping self-reliance, preparedness or climate change management.
"Indeed, the expectation of government support acted like implicit insurance (without requiring a premium) and potentially altered the behaviour of some farmers," the review states.
After the 2009 review, the government ended an interest rate subsidy the commission criticised, but has now created new government-funded loan schemes for farmers.
The government also discontinued hardship payments available at that time, after the commission said support to farming families should be in line with income support for other Australians in need, but better taking into account asset levels of farmers.
But in the recent drought, the new farming household allowance has been extended to include cash grants out of step with support to other Australians.
"As the commission explained in its drought inquiry, such measures reduce the incentives for farmers to manage their properties well over climatic cycles and may also reduce the incentives to de-stock during periods of drought."
The Productivity Commission needs the government to give it a reference before it can start any inquiry.
Australian Associated Press