This study analyses the technological change in the aggregate tea sector of Sri Lanka, by contributing to an understanding of total factor productivity change with assessment of the extent and nature of such changes from 1960/61 to 1994/95. The total factor productivity measures are then used to define a conceptually sound measure of the production cost of land degradation, providing insight into the scarcity of soil in the tea sector. Total factor productivity in the tea sector, increased at an estimated annual rate of 1.82 percent during the study period. This resulted from an estimated annual rate of increase of 0.01 percent in total output and a considerably larger rate of 1.81 percent annual decrease in total input. Thus, the reason for total factor productivity growth was largely due to cost savings associated with decreased use of inputs rather than increased output. Land and capital inputs showed significant negative growth trends, confirming a lack of long-term investment in the tea sector. As expected, all the partial factor productivities showed increases over the study period due to lower use of those individual inputs; the most significant changes occurring in the partial productivities of land and capital inputs. The terms of trade and the returns to costs ratio, exhibited an annual rate of decrease of around 3.7 percent and 1.9 percent, respectively. The producer terms of trade growth rate of -3.7 percent, has been brought about by an estimated annual rate of increase in prices received of 10.6 percent compared with an increase of 14.3 percent in prices paid. The Sri Lankan tea industry, once pre-eminent in the world, has been going through intermittent crises for a long time due to problems related to low productivity and the high cost of production. The management of the nationalised plantations proved inadequate to meet the task of adjusting to the new challenges of raising productivity and remaining competitive. The contribution of the tea industry to the economy declined. Among other causes, stagnating crop productivity was found to be an important factor. Land degradation in the form of soil erosion, was found to be a serious problem for the entire tea sector. Careless and ecologically unbalanced agricultural practices, have over the years, led to varying degrees of degradation of the tea soils. However, these physical measures of land degradation do not necessarily reveal an economic or social problem. In the second part of the study, an attempt is made to quantify the impact that land degradation has on tea production. Based on the theoretical relationship of the impact of technological progress and land degradation on tea production, a regression model was fitted to deconstruct the total factor productivity variable. The objective of this approach is to find an economic value for land degradation by quantifying the extent of this impact on aggregate tea production in Sri Lanka. One of the key points to come out of this estimation exercise, is the difficulty of isolating the impact of individual factors on measured total factor productivity. On the basis of available data and the chosen model, it could be concluded that the impact of technological progress has outweighed the negative effect of land degradation in the tea sector, over the study period. Considering the fact that investment in tea research is mainly on developing varieties of vegetatively propagated clonal tea, and the associated very long gestation periods involved, a much larger lag length of the order of 25-35 years is recommended for the research investment variable, to enable calculation of the marginal internal rate of return to public investment in tea. Importantly, a larger set of data will become available over the next decade or so which will enable appropriate lags to be incorporated in future research on productivity in the tea industry.