Grammar Review: There are three forms of the present tense: 1. Simple - he produces - used for habit, routine, repeated action, facts, universal truths 2. Progressive - he is producing - action in progress at this moment 3. Emphatic - he does produce - used to emphasize a condition when a contradictory statement is made. 1. The factory produces oil on weekdays. (routine) 2. The factory is producing oil today. (action in progress; factory is in operation right now) 3a. That factory doesn't produce oil! What does it produce then? (contradiction) 3b. You don't love me. I do love you! 3c. You don't understand. I do understand! 3d. Does this factory produce oil? Yes, it does (produce oil). Now let's look at your case: 1. What does produce it? (Only asked if previously contradicted. See 3e. 2. What produces it? (This is the normal question you would ask. No "do/does".) 3e. That factory does NOT produce it. If that factory doesn't produce it, then what DOES produce it?

'What does produce it' would only be used in very special cases, so is generally wrong, or at least not natural. 'What produces it' is correct. It's a common mistake by many non-native speakers. particularly speakers of germanic languages for some reason, to inappropriately add 'does'. The main reason you would use 'does' is to emphasise the lack of an answer, in response to a previous negative expression. Person A - This production line produces product X, it doesn't produce product Y. Person B - Then what does produce product Y? (or) It is clear therefore that that pollution does not come from the farms. So what does produce it? (A) It wasn't me! (B) So who did do it? There may be other cases where it is used, but that's the main one I can think of.

"What does produces it?" is not the same than say "What produces it?" since at the first one you are asking about the cause for that is being produced, then, at the second one you are assuming that thing already produces something and asking about that thing wich is produced. So, in regard to use "does", you should consider first you're going to refer causes that make something or someone to do what it/she/he does. For example, "What does he is singing?" means "What is the reason because he is singing?". And, in the other hand, when you're not going to use "does", you should see it as what is the thing it/she/he is doing. For example, "What is he singing?" means "Wich song is he singning?" I'm sorry if I wasn't very clear, I tried.