Adaptation to Climate Change in Tea Plantations: A Heckman’s Two-stage Model

Tea is an important sector of Sri Lanka’s economy, serving as the main source of foreign exchange and employment. However, climate change and low profitability have adversely affected the sector, affecting its sustainability and economic viability. Therefore, the tea industry requires appropriate adaptation strategies to cope with ongoing climate change and low profitability. Although crop diversification has long been proposed as an adaptive strategy for combatting climate change and low profitability, the literature indicates that achieving complete transformative change against climate change and price volatility is extremely challenging for tea plantations due to conspicuous differences between annual and perennial crops. To the best of authors’ knowledge and as far as literature is concerned, no study has been conducted on the effects of climate change and price on crop diversification in tea plantations. Therefore, this paper, was aimed to contribute to the literature by analyzing the effects of climate change and price on crop diversification based on the secondary data-monthly panel data from 49 tea estates representing all the tea growing regions in Sri Lanka from 2004 to 2018. For this purpose, the Crop Diversification Index and Heckman’s two-stage model were employed for empirical analysis. The mean Crop Diversification Index value shows a notable deficiency in diversity among Sri Lanka's tea estates. Results from Heckman's two-stage model show that climate variables have a statistically significant association with crop diversification in tea plantations, indicating the influence of climate variability on crop diversification at 5% and 10% confidence interval levels. Results further show that the price of tea has a positive influence on the decision to diversify. Moreover, the analysis revealed that the real price of rubber, tea yield, elevation, field labor, and cropping area significantly influence the decision for crop diversification, whereas the only the latter three variables affect the extent of diversification.