Economic Utility and Importance of a Produce Exchange

Produce (Commodity) Exchange

Produce (or Commodity) Exchange refers to that organized market where the sale and purchase of agricultural produce, minerals, and industrial raw materials take place under predetermined rules and controls. The Chamber of Commerce, Merchant Chamber, etc. are the names by which Produce Exchanges are known in India.

Economic Utility and Importance of a Produce Exchange

A Produce Exchange is a very important organization for any country. Various parties benefit from the services provided by it. The importance of Produce Exchange is clear from the following advantages or utilities.

Advantages to the Business Community

The business community gets the following benefits from Produce Exchange

1. Convenience in Selling and Purchasing

   All the products sold and purchased in the Produce Exchange are standardized and categorized. That is why; both the seller and purchaser have convenience in their sale and purchase.

2. Publication of Market Reports

   The Produce Exchange collects information relating to all its transactions and publishes it. This information is very useful for the businessmen.

3. Settlement of DisputesThe arising of disputes among the traders in any business is quite normal. To settle these disputes the Produce Exchange arranges for ‘Panch Nirnay’ (tribunal). This makes the settlement of disputes easier.

4. Lesser Possibilities of Fraud

   The sale and purchase of goods in a Produce Exchange is done under predetermined rules. Due to this, the possibility of fraud to both the seller and the buyer is lesser.

5. Stability and Uniformity in Prices

   The Produce Exchange performs the function of bringing uniformity in the prices of goods, transacted by it, thus, the traders are benefited.

6. Uniform Policies and Practices of Trade

   The Produce Exchange is controlled and directed by uniform rules, in the whole country. These rules relate to the methods of trade, conditions of contracts, mode of transfer, etc. This brings uniformity in the trade of the whole country.

7. Financial Assistance

   Produce Exchange helps. in providing loans to traders from financial institutions, like – banks, etc. Moreover, the Produce Exchange itself provides financial assistance to traders, on the basis of the godown slips.

Advantages to the Industries

The industrialists derive the following benefits from the Produce Exchange

1. Easy Availability of Raw Material

   A Produce Exchange is an organized, expanded, and continuous market of agricultural products. That is why, it is easier for industrialists to attain raw materials (like – cotton, jute, oil seeds, etc..

2. Hedging Contracts

   The Produce Exchange has the facility for hedging contracts, which provides security against losses due to fluctuations in prices to industrialists. On one hand, the industrialists make future contracts to purchase raw materials and on the other hand, also make another future contract for the sale of finished goods, made by the same raw material and escape from possible losses.

Advantages to the Society and the Country

Society and the country receive the following benefits from the Produce Exchange

1. Development of Agricultural Produce

   The Produce Exchange makes the sale and purchase of industrial and agricultural produce easier and makes a valuable contribution to the development of agricultural industries.

2. Availability of Agricultural Produce at Reasonable Prices

   The Produce Exchange establishes equilibrium between the demand and supply of the goods produced, to bring uniformity and stability in their prices. This makes available, agricultural produce in sufficient quantity, to the society and the country, at appropriate prices.