Food processing sector in India to log growth of 11-13% in FY26 and FY27

Rising demand for value-added dairy products is set to lift India's food processing growth to 11-13% in FY26-27, improving margins and credit profiles

Increasing demand for value-added products such as butter, ghee, paneer, curd and ice cream will help the food processing sector in India log a growth rate of 11-13 per cent in 2025-26 (FY26) and FY27, up from 10 per cent in FY25. The proportion of these products is expected to rise to about 45 per cent of the product mix by FY27, from 42 per cent in FY25. 

Operating profitability will also improve, driven by the shift to value-added products and the impact of price hikes from FY25.

In response to demand trends, food processing players plan to invest around ₹6,400 crore over FY26 and FY27 toward enhancing the share of value-added products, adding milk processing capacities, and strengthening the supply chain infrastructure. 

All the same, food processing in India remains quite underdeveloped relative to the country’s position as a major global producer of agricultural commodities. 

The availability of fertile land and vast experience in farming have enabled India to be the second-largest global producer of agricultural commodities such as grains, fruits and vegetables. In addition, its significant cattle and buffalo population also positions the country as the leader in the production of milk globally. 

Yet, according to a study conducted by the Ministry of Food Processing Industries in 2021, the processing levels for dairy products and oilseeds in India stood at 21 per cent and 49 per cent respectively, while those for fruits and vegetables were below 5 per cent. 

The overall level of food processing in India stands at 10 per cent across agricultural commodities, encompassing spices, meat and other cereals. 

The underdeveloped food processing sector in India has significant implications, including substantial post-harvest losses, limited farmer returns, and underutilisation of the country’s potential in the global processed food market. 

The challenges underscore the importance of investment in India's food processing sector to tap its full potential and address pressing issues. 

Overcoming the issues require interventions across the food value chain. Cognisant of this, the central and state governments have launched various initiatives to boost food processing and benefit companies in the sector, led by robust demand for processed food in the domestic and overseas markets. 

Credit profiles of key food processors  Despite debt-funded capital expenditure (capex), the debt metrics of players in key food processing segments are expected to be healthy, supported by improving cash flows. In FY26 and FY27, interest coverage and total outside liabilities to tangible net worth ratios are expected over 8 times and around 2.6 times, respectively. 

The credit profiles of dairy companies in our portfolio are expected to be stable, underpinned by healthy operating performance and strong balance sheets.  

Also, the credit profiles of fast-moving consumer goods (FMCG; food) companies in the portfolio are expected to remain stable supported by healthy cash accrual amid higher demand and premiumisation post goods and services tax (GST) rate rationalisation as well as strong balance sheets and sizeable liquid surplus. 

For the basmati rice players in the portfolio, healthy profitability next fiscal will ensure controlled reliance on debt to fund capex and incremental working capital requirement, thereby keeping credit profiles stable.