Population centres formed in the hospitable areas of the south, the southwest, and the Central Highlands. The marked difference in climate and topography required new techniques of cultivation. Though rice cultivation continued as an important activity, paddies had to be terraced, and the flow of water had to be regulated to suit the undulating land. These changes in agricultural methods demanded a different irrigation system that could not attempt to rival the scale of the Dry Zone schemes. Other grains amenable to the highland climate were grown as a supplement to rice, and garden cultivation—helped by excessive rains—became significant. Coconut, easily grown in the wetlands of the coast and the highlands, became an important food. Because of the abundance of land, shifting agriculture was practiced along the slopes of the hills. Farming was generally of a subsistence character.

Foreign trade

With the decline in agricultural productivity, trade became an important source of state revenue, and spices were the most important exports. Cinnamon, indigenous to the southwestern forests, became an export commodity in the 14th century, while pepper and other spices increased in export value. Trade in these items was monopolized by the royalty; kings entered into contracts with foreign merchants, fixed prices, and received the revenue. The people of the land were not involved in any aspect of this trade, nor did they benefit directly from it. Colombo and Galle became prominent ports of external trade; smaller ports in the southwest became centres of coastal and Indian trade. Almost all the traders were foreigners who settled in colonies in and around these ports.

The major international traders were the Arabs, who had been attracted by the luxury products of Sri Lanka since about the 10th century. Arabs were interested in cinnamon and spices, which began to fetch good prices in Western markets. In 1283 the Sinhalese king Bhuvanaika Bahu I sent an embassy to the Mamlūk sultan of Egypt to seek a commercial agreement.

Land control

Some significant changes took place in land relations and land control during this period. The grain tax—payable directly to the state in cash or in kind—that had been central to the land revenue system in the northern regions diminished in importance as the Sinhalese relocated southward. In part this was attributable to a breakdown in the administration; kings could no longer maintain a specialized machinery for the assessment and collection of the grain tax and other land taxes. The tax system therefore was replaced by a system of service tenure, under which a large proportion of the land was held on the basis of an obligation of service to the state. This service could be used by the state to various ends, including the cultivation of royal lands, the payment of officials (through assignment of service), and the maintenance of public utilities. Taxpaying lands and service lands were gradually merged. Each plot had a fixed service attached to it, and anyone who enjoyed that land had to perform a particular service. These services were extensively assigned to village and regional notables in order to attract their support. The commutation of tax for service also meant a decrease in the circulation of money; copper coins replaced those of gold and silver.

Cities

Capitals were now selected (and constructed) for their military defensibility; they were relatively small, located in difficult terrain, and somewhat isolated from populated areas. Communications between settlements were difficult, and excessive mobility was discouraged for military reasons. Moreover, the subsistence character of farming curtailed internal trade. Consequently, cities were not centres of economic life as in the past; they no longer attracted large groups of artisans, merchants, servants, and others dependent on the ruling groups. Rather, they were primarily of military importance.