The Growth Area: Plant a bamboo shoot on the mud block.

Containment: Surround the bamboo with glass blocks so that when it breaks, the item falls straight down into the mud (and hopper) rather than flying sideways.

The Piston: Place a piston facing the bamboo at the second block height. A Solid block will also need to go behind the piston with a redstone on top to power it when the observer detects growth on the bamboo plant. 

The Observer: Place an observer facing the bamboo spot directly above the piston. The observer watches for the bamboo to grow; when it detects growth, it signals the piston to break the bamboo.