A commodity exchange, often known as produce exchange, is an organised market where agricultural commodities are usually transacted. It may be defined as an organisation or association of individuals which provides a place for trading in a commodity or commodities to be carried on under uniform rules, with facilities for the adjustment of disputes among members and for the collection and dissemination of market information, and which promotes the interests of those dealing in the particular commodity.
In the Commodity Exchanges the commodities are not themselves dealt in. The dealings are made by the members of the Exchange. They may buy and sell both for themselves and for non-members. If they deal in the commodities for the non-members, they receive a commission from the latter. It is a general rule of the Exchange that every transaction should pass through brokers, even though the ultimate buyers and sellers are present in the floor. The transactions in the Commodity Exchange are made for forward delivery. There is no ready delivery of goods.
A commodity in order to be qualified to be dealt in the produce exchange must be graded because a commodity is dealt in by reference to quality of goods only. Since the delivery is effected in a future date, the transactions in the Commodity Exchange are known as ‘futures”. The commodity or produce exchange is mainly concerned with marketing in the agricultural commodities, e.g., jute, rice, wheat, cotton, rubber, tea etc. Produce Exchange does not deal in manufactured goods.
Types of Commodity Exchange
Commodity Exchange may be of two types—
- (a) General Commodity Exchange and
- (b) Special Commodity Exchange.
(a) General Commodity Exchange—The general commodity exchange is one which deals with more than commodity. A number of commodities may be transacted in such exchange. For example, there may be one commodity exchange for Jute, rice, cotton and tea. If all these commodities are dealt in one organised market it will be regarded as general commodity exchange.
(b) Special Commodity Exchange—This exchange deals in only one type of commodity. That is, it is specialized in the dealing of one commodity only. For example, if only Jute is transacted in a commodity exchange it will be known as a special commodity exchange. In Jute Exchange or Cotton Exchange only raw jute (and semi–manufactured jute products) or raw cotton, as the case may be, are dealt in.
The commodity exchange is important in an economy for its valuable services. It stimulates the business of a country. “They provide highly developed facilities not only for the gathering together of buyers and sellers, but also for the fixing of prices, the grading of commodities and the publication at frequent intervals of market reports containing particulars of prices, quantity sold and other information.”
Mode of Sale in the Commodity Exchange
In the Commodity Exchange the mode of sale depends and the nature of the commodity. Generally the following methods of disposing of commodities in the Commodity Exchange are prevalent :
1. Sale by grade. 2. Auction sale. 3. Sale by private bargaining 4. Sale on fair average-quality. 5. Sale based on standard contracts.
(1) Sale by Grade : Sale by grade is by far the most important method of disposing of commodities. The graded goods are susceptible to sale by this method. This method is thus suitable only for those goods which can be graded and described. Although this method is popular in the advanced countries it is not common in our country, because the process of grading agricultural commodities in our country has not yet properly developed. This fact leads to the carrying on many transactions on the basis of sample handed over to the buyer. Sale by description is also in use in some cases but this type of transaction very often leads to disputes relating to the quality of the products supplied.
(2) Auction Sale : Since the grades recognized throughout the country have not developed, auction sale is adopted to dispose of them. In the case of auction sale, catalogs are distributed to prospective buyers and an opportunity for the inspection of the samples is provided.
(3) Sale by Private Bargaining : Some commodities are sold neither by auction nor by grade. They are sold purely by private bargaining. The parties sell and buy the commodities concerned through bargaining among themselves.
(4) Sale on Fair Average-Quality : This is a rough sort of grading done by the Arhatiya. He assembles together the commodities from different sources, mixes them up and thereby brings up a fair average-quality. This method is in vogue in the case of group-sale of lots of different quality at a flat rate.
(5) Standard Contracts : There is another method of disposing of produces in the Commodity Exchange known as sale based on standard contracts. Standard contracts are in use in the transactions of wheat, with the mill owners. The description of wheat, its quantity, price, origin, terms of delivery and payment are specified in the standard contracts.