Climate change is eroding the price premium behind two of Sri Lanka’s most valuable exports, Ceylon Tea and Ceylon Cinnamon. Rising temperatures are threatening the very conditions that give both their quality and their price, and Sri Lanka’s banks have built financing to slow climate change but almost none to help the country adapt to it. Sri Lanka risks losing a century of brand value, and the financial tools to protect it, exactly when it needs them most.
Dilhan Fernando, Chairman and CEO at Dilmah Tea, has watched that premium come under pressure long before any harvest is lost. Sanath Manatunge, Managing Director and CEO at Commercial Bank of Ceylon, has watched his own industry’s lending model run into a problem it was never built to solve. Both spoke alongside other business leaders at the Ceylon Chamber of Commerce’s Climate Summit 2026 in Colombo.
The Tea Trade’s Quiet Crisis: The Climate That Built It Is Changing
Ceylon Tea is losing the one thing money can’t buy back: its terroir, the specific mix of soil, altitude and climate that gives it its taste. Sri Lanka’s tea industry built a century of premium pricing on that narrow band of conditions. Rising heat now threatens the band itself, before it threatens the harvest.
Sri Lanka has warmed 1.35 degrees Celsius and could reach 3 degrees, a level the planet has not seen in three million years. Growers are targeting 400 million kilos of tea this year, a goal Fernando calls impossible given the current swings between drought and heavy rain. Cinnamon, Sri Lanka’s other terroir-dependent export, faces the same exposure.
“Two leaves and a bud,” the plucking standard that has defined Ceylon Tea quality for generations, is “rapidly becoming a fiction,” said Fernando.
The stakes reach past one company or one crop. Sri Lanka cannot manufacture terroir or relocate it. If the climate that shaped Ceylon Tea’s flavour keeps shifting, the country loses more than a harvest. It loses the premium that lets a small island charge some of the highest prices in global tea.
The premium at stake is large. Ceylon Tea sold at the Colombo auction averaged close to $3 a kilogram in mid-2026, a price that already beats Kenyan tea’s roughly $2.30 a kilogram at the competing Mombasa auction. At the top end, the gap widens into a different order of magnitude. A single lot of Ceylon black tea sold for $860 a kilogram at a charity auction in Osaka last year, setting a Guinness World Record for the most expensive tea ever sold. That range, from $3 – $860, is the entire value of Ceylon Tea’s brand. It depends on the terroir holding steady.
Cinnamon shares tea’s exposure exactly. Ceylon Cinnamon earns its Geographical Indication status, and the price premium that comes with it, from the same terroir logic as tea. That premium is real money. Sri Lanka’s cinnamon exports fetched $12.66 a kilogram in late 2025, more than five times the $2.36 Vietnam earned for cassia, the cheaper substitute stocked on most supermarket shelves. Sri Lanka has spent decades building both crops’ reputations on that uniqueness. The same warming trend now threatens cinnamon’s claim to it.
Fernando frames the threat as a sequence. Quality decline, he said, is “a prelude to a collapse of quantity.” His answer is not to chase yield. “Volume is not a solution,” he said, advising Sri Lankan exporters to compete on value instead, since the country cannot win as a cost leader against larger producers with fewer climate constraints. That strategy only works if the terroir behind the premium survives. If it doesn’t, Sri Lanka loses the one advantage that lets a small island charge more for its tea than almost anywhere else in the world.
Climate risk is not the only threat closing in on Ceylon Tea. The European Union’s Green Claims Directive takes effect in September 2026, alongside new packaging waste rules the same month. The directive reaches far beyond marketing claims. It covers packaging, communications and any website language tied to good agricultural practices, and it requires independent validation for all of it.
Exporters who fail to comply lose access to the EU market. So do exporters who do comply, if their suppliers cannot validate where their raw materials came from, a risk Fernando called “a much greater” one than direct non-compliance. Fines reach $500,000 in some countries. Fernando expects “a lot of shocks for a lot of companies” once the roughly 100- page compliance document works its way through legal review. “It’s not been an easy journey,” he said.
Fernando does not frame this only as loss. Adaptation costs money, he said, but it should be seen as “the greatest growth opportunity ever since the industrial revolution,” borrowing a line from the economist Lord Stern. He points to a shift already underway among luxury consumers, who increasingly define prestige by proximity to nature rather than distance from it. Adrian Zecha, the hotelier who founded Aman Resorts and shaped much of modern luxury travel, opened a new farm-based retreat in Japan’s Iwate Prefecture this April, built entirely around agricultural experience and rural tradition. Fernando points to ventures like this as evidence that the market is moving towards exactly the kind of connection Ceylon Tea can offer, if its terroir survives.
Tea’s exposure is not unique among Sri Lankan crops. In the eastern region, floods and cyclones have already destroyed farmland by raising soil salinity to the point where it cannot be cultivated for years afterward, said Sanath Manatunge, Managing Director and CEO at Commercial Bank of Ceylon. The country’s fisheries face a parallel threat: Vimlendra Sharan, FAO Representative for Sri Lanka and the Maldives, said the agency is preparing a $100 million proposal to climate-proof Sri Lankan fisheries and has piloted a new fishing-boat hull that cuts fuel consumption by 30%. Neither crop carries tea’s global brand recognition. Both show the same pattern of climate risk translating directly into lost income.
None of this reaches the people who grow most of Ceylon Tea. Smallholders produce 70% of Sri Lanka’s tea, according to Fernando, and most have no access to a climate summit, let alone the financing or technology being discussed there. Fernando’s own framing is a plea more than a policy point: treat smallholders “as a partner,” not “an asset.” The distinction matters, because the industry’s entire adaptation strategy, competing on value instead of volume, depends on quality control that begins at the smallholder’s own plot of land. If they cannot adapt, neither can the brand built on top of them.
The tools that could help these smallholders barely exist, especially the financing to adapt to climate shocks.
There’s Money to Slow Climate Change. Not Enough to Adapt to It.
Banks fund climate mitigation, actions cutting the emissions driving climate change. Hardly any funding is directed towards climate adaptation, action that helps people and industries survive a climate that has already changed. Manatunge said the difference comes down to cash flow. A solar or wind project generates one, so a loan officer can underwrite it like any ordinary business risk. A farmer switching to drought-resistant crops, or a village relocating off land prone to flooding, generates none, so standard credit assessment cannot see it, and standard financing does not reach them.
Sri Lanka adopted a national Green Bond Framework in 2023, and Commercial Bank issued its first green bond under it in 2025, said Manatunge. But the numbers show how small that effort remains. The bank’s green finance portfolio grew 85% last year, reaching Rs71.2 billion, against a loan book of Rs2.03 trillion, roughly 3.5% of everything the bank lends. Its latest annual report mentions a target of Rs100 billion in green financing by 2030, which would leave it under 5% of a loan book likely to have grown larger by then.
Manatunge described the gap in his own words, “The transition in financing for brown industries,” which refers to heavier carbon-emitting sectors, exists, “But if you look at adaptation or resettlement kind of financing, the banking business model won’t deeply understand, because unlike a renewable energy project, adaptation financing will not see a cash flow. Or preventing a disaster, or making an agricultural project resilient, will not see a credit perspective.”
This is not a Sri Lanka-specific quirk. Fernando put the country’s position bluntly at the same summit: “We are paying for things, sins that we did not commit. Roughly $2 trillion in green climate funding exists globally, available in principle to any country working to cut emissions or build resilience. Sri Lanka, among the countries most exposed to climate shocks and least responsible for causing them, still cannot reach enough of it, and what it can reach follows the same pattern its own banks do: money for tomorrow’s emissions, far less for today’s damage.
Sharan, who is preparing that same $100 million proposal for climate proofing fisheries, argues the obstacle isn’t funding. It’s a shortage of what he calls “a pipeline of bankable projects.” “Institutions, especially the government, know what they want,” he said, “but it is not always in their capacity, or within the country’s capacity, to convert those wants or needs into bankable projects.”
The gap, he said, is “in our capacity to really prepare these projects,” not in demand for them or funding available to meet it.
Rohan Cooray, a climate risk and adaptation specialist who spoke at the summit, points to the other side of the same transaction. While banks have capital but receive few proposals for green projects because “Borrowers don’t understand climate finance,” he said.
A few tools already exist. The National Trading Guarantee Institute guarantees loans that banks make to riskier borrowers, seeded by a $50 million loan, and has drawn in private banks and finance companies to back adaptation finance. Green bonds, for climate projects, issued by several Sri Lankan banks, and one gender-focused orange bond, raised by a local company, have also started appearing. Debt-for-climate swaps, where a creditor forgives part of a country’s debt in exchange for climate spending at home, are under discussion too, floated through the UNDP’s Climate Finance Strategy 2030. But Cooray points to a hard limit. “Remember, Sri Lanka’s debt is in billions,” he said, meaning the portion realistically eligible for a swap is small, closer to $20 million than to the scale of the country’s actual debt, so it’s unclear which investor would even absorb one.
Manatunge names the one instrument still missing entirely. “We don’t have index-based insurance,” he said, the kind of policy that would pay out automatically once rainfall, drought or wind speed crosses a set threshold, rather than requiring a lengthy claims process after the damage is done. He believes banks could take the lead in building it, for agriculture and for the small and medium enterprises that make up more than half of GDP, but which climate finance conversations still largely ignore. For now, the tool that could most directly protect a flooded farm or a smallholder’s tea plot does not exist. Sri Lanka’s climate finance system remains built for the risk it can price, and silent on the risk it cannot.