Labor fell in line with the government after initially opposing the kitty because it repurposed a dormant fund for road and rail.

The Future Drought Fund will initially be worth $3.9 billion and is projected to rise to $5 billion over the next decade.

It will pay out $100 million a year, starting from July 1 next year.

Legislation passed the Senate on Wednesday with a Centre Alliance amendment ensuring the committee advising the minister about grants has diverse membership.

The government supported the SA-based party's push for a balance of gender, knowledge and skills, along with representatives from different drought-hit regions.

The bill will return to the lower house to be ticked off before becoming law.

Finance Minister Mathias Cormann told parliament the new revenue stream would not hurt the budget bottom line over the medium to long-term.

"This Future Drought Fund will give farmers in rural and regional communities, which have been suffering years of unrelenting drought, the tools they need to prepare for, manage and sustain their businesses," he said.

Greens leader Richard Di Natale warned the Nationals would use the drought fund to pork-barrel electorates and look after wealthy donors.

"This is about creating a slush fund for the National Party to hand out millions of dollars to their corporate irrigator mates," he said.

The Greens failed to make the fossil fuel industry pay for the fund through a 10 per cent royalty on projects subject to the petroleum resource rent tax.

Australian Associated Press