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Essay on Produce Exchange

Essay Contents:

  1. Essay on the Meaning and Definition of Produce Exchange
  2. Essay on the Characteristics of Produce Exchange
  3. Essay on the Objects and Functions of Produce Exchange

Essay # 1. Meaning and Definition of Produce Exchange:

A commodity or produce exchange is an organised market where commodities or produce are purchased and sold on wholesale basis. Like stock exchange, it is a specialised market having established rules and regulations.


According to Pyle, “Commodity Exchanges are specialised organised markets which provide for future delivery under established rules and regulations.”

According to Phillips and Duncan, “A commodity exchange is an organisation or association of individuals which provides a place for trading in commodity or commodities to be carried on under uniform rules, with facility for adjustment of disputes among members and for the collection and dissemination of market information and which promotes the interests of those dealing in a particular commodity.”

A produce exchange deals only in commodities which are used as raw materials such as agricultural products and forest products. Besides dealing in such products, a commodity exchange deals in manufactured goods also.

Essay # 2. Characteristics of Produce Exchange:

All commodities cannot be bought and sold on produce exchanges.


Generally, products which possess the following essential features are dealt in at these exchanges:

1. Homogeneity:

The product must be homogeneous. Homogeneity here means that the different units of the product should be identical in quality so that it means the same thing to all the parties concerned.

2. Durability:


The commodity to be dealt in should be sufficiently durable. Perishable goods are not fit for future contracts as they deteriorate in quality.

3. Gradation Possible:

The commodity should easily lend itself to grading so that trading in such commodities may be conveniently done.

4. Large Number of Transactions:


The trading volume of produce exchange must be sufficiently large to justify the cost of facilities provided by the exchange.

5. Steady Demand:

A large number of transactions necessitate steady and regular demand. In other words, the commodity to be dealt in must have a steady demand.

6. Uncontrolled Supply:


The supply of the commodity must be free and uncontrolled, so that the forces of demand and supply may have free play. In other words, the supply should not be regulated by the government or monopolised by a few persons.

7. Proneness to Price Fluctuations:

The commodity to be dealt in must be prone to frequent fluctuations in price. It is because the fluctuations in prices lend an incentive to the operators to speculate in it and, speculation is an integral part of these exchanges.

Essay # 3. Objects and Functions of Produce Exchange:

The main services or functions of a produce exchange are listed below:


1. Convenient Market Place:

The produce exchange provides a convenient market place for its members. It is an organised market which provides place and opportunity for buyers and sellers of a certain commodity according to set rules and regulations.

2. Grading and Standardisation of Commodities:

The commodities dealt in a commodity exchange must be capable of grading according to type and quality. Grading is easier in case of manufactured goods as compared to agricultural products. Grading and standardisation assure quality and facilitate the work of those dealing in produce exchanges. Thus, produce exchanges facilitate transactions through grading and standardisation.


3. Stability in Prices:

Speculative activities at the produce exchange tend to iron out violent fluctuations in prices through the free play of the forces of demand and supply. This brings about stability in commodity prices over a long period of time.

4. Shifting of Risks to Speculators:

The produce exchange helps in shifting the risks of probable fluctuations in prices to the specialised risk bearers (i.e., to the speculators who operate in the market). Thus, the traders and producers are saved from such risks.

5. Collection and Dissemination of Information:

The produce exchange collects the necessary information about business conditions and publishes it in periodical reports for the benefit of traders and manufacturers all over the country. The market reports which are a daily feature of newspapers is the result of this activity of these exchanges.


6. Settlement of Disputes:

The produce exchange provides a uniform machinery for the settlement of trade disputes through arbitration. To this end, all exchanges have their own arbitration committees which settle the disputes of their respective members.

7. Barometers of Market Conditions:

The produce exchange serves as the ‘barometer of market conditions’. It is, in fact, a true reflector of the pulse of the market which constantly registers every change in the total demand and supply of various products. The dealers in the market determine market values for indifferent commodities on the basis of information provided by these exchanges.