Economic impacts of climate change on perennial plantation tree crops: the case of tea production in Sri Lanka

Abstract

Agriculture is one sector of the economy which is highly vulnerable to climate change because of the natural relationship between environment, particularly temperature and water availability, and agricultural productivity. Changing climate is increasingly affecting high-value perennial plantation crops such as tea, rubber, coconut, palm oil, and coffee which generate significant export revenues and provide a major source of employment for rural populations in developing countries. Many studies in the literature have focused on climate change impacts on major annual crops; however, to date, there have been very few assessments of the economic impacts of climate change on perennial plantation agriculture. This thesis therefore seeks to estimate the impacts of climate change on two important aspects of plantation agriculture - crop production and labour demand - for the case of the tea plantation sector in Sri Lanka, as an example of a high-value perennial plantation crop in a developing country. The thesis also aims to identify enablers and barriers of adaptation to climate change for this sector of Sri Lanka’s economy. The impacts of climate change on production in Sri Lanka’s tea plantations are studied at estate-level (the primary decision making production unit) across all of the country’s tea growing regions using monthly resolution primary data for the period 2000-2014. The study employs a novel two-stage panel data approach to analyse weather and climate change effects on tea production and then to estimate production impacts for the short-, medium- and long-term future under three different global emissions scenarios. These analyses indicate that a hotter and wetter climate will have a detrimental effect on production. In high, medium and low emissions futures, the predictions show a negative proportional impact on production from increased rainfall and increased average temperature. On average across the data sample, a 12% decline in annual tea production is predicted under a high emissions scenario by 2050. The impacts of climate change on labour demand in tea plantations in Sri Lanka are investigated by implementing a panel structural model of profit maximisation based on a normalised quadratic functional form. The analysis uses historical primary data on estate profits, input prices and output prices, together with monsoonal rainfall, temperature and wet days for years between 2002-2014 to quantify climate impacts on estates’ demand for labour. Anticipated changes in rainfall are predicted to reduce annual labour demand by 2.6% across the tea plantation sector. This could have considerable social and welfare implications, particularly for the Indian Tamil women who comprise the majority of the sector’s workforce. Plantation agriculture is likely to be highly vulnerable to climate change because of its reliance on rain-fed production, long economic life span and the inability to easily switch crops due to high upfront capital costs. These distinct differences between annual and perennial agriculture, and the important role which plantation cropping plays in developing world agriculture, suggest that it is important to identify factors which affect choice of climate adaptation options in perennial crop production. Comprehensive knowledge of available adaptation options is of utmost importance if Sri Lanka’s tea estate managers are to counteract production losses from climate change and maintain their competitiveness in the international market. This is also vital for efficient and effective channeling of society’s resources to address the consequences of climate change. Employing data derived from face-to-face interviews with 50 tea estate managers in Sri Lanka, this study examines factors affecting choice of preferred adaptation options, barriers to adaptation and associated policy implications for tea production in Sri Lanka, as an example of a perennial tree crop system in a developing country. Tea estate managers are already adapting to a changing climate; however, particular adaptation methods are only adopted in some situations and locations. Multinomial logit analysis of data from estate manager interviews indicates that availability of information on climate change, company size, tea growing elevation, and observed increases in temperature and rainfall are key factors influencing the choice of preferred adaptation option. Analysis also finds that barriers such as a lack capital, inadequate access to near-term and medium-term climate knowledge, and poor governmental and institutional support may prevent estate managers from experimenting with new adaptation options. Policies should, therefore, be aimed at promoting new adaptation options through information exchange between stakeholders and integrating climate change adaptation with Sri Lanka’s national sustainable developmental goals. The primary message of the adaptation analysis in this study is that governmental and institutional support and involvement are critical requirements for facilitating effective adaptation. Findings from the thesis will help inform decision makers of the likely impacts of climate change on plantation cropping systems, and provide insights into barriers to adaptation and potential policy responses to improve the effectiveness of adaptation.