Sounds like an interesting discussion! A couple of points that spring to my mind when reading the above:
It’s worth noting the cause of salinity in recycled water. Recycled water coming out of Melbourne west is more saline than the water coming out of Melbourne’s east, and this is partly due to the type of industrial inputs over on the west side.
In terms of treatment costs, there’s a huge amount of surplus Class A water that currently doesn’t get used for anything, so that cost at least is already being covered as part of processing waste and stormwater. The storage and infrastructure costs… definitely another matter!
And I’d question whether urban agriculture is the solution in terms of connecting good land and water access. It certainly plays a role, and rainwater capture for urban ag and to prevent the creation of excessive stormwater is really important, but most water is currently treated in peri-urban areas where there is even more good land for farming! So I think that’s an even more important relationship to support.
For anyone interested in how this plays out in Melbourne, you might enjoy the findings of one of the research projects I (and a few others here) worked on, the Foodprint Melbourne project: http://veil.msd.unimelb.edu.au/publications/how-much-water-is-needed-to-grow-melbournes-food and some of the reports at http://veil.msd.unimelb.edu.au/projects/current/foodprint-melbourne