In some ways, it’s tough to believe that General Mills (NYSE:GIS) isn’t printing money at the same rate that it’s raising cereal prices. In last week’s fourth-quarter earnings report, General Mills reported a 13.4% increase in net sales, with pricing and product mix contributing 8 points toward revenue growth. I guess people aren’t quite ready to move to generic Cheerios yet, no matter what the economy looks like.

Not all is rosy in the land of food, though, Yes, General Mills plans to increase prices more than it already has, but its profit did drop by 17.4% last quarter on a 22.6% jump in cost of goods sold (imagine how much worse it can get as corn prices grow and grow). And situations like this are the prevailing story across the food-producing industry right now, with higher food pricing leading to minimal, if any, gain in profits. ConAgra (NYSE:CAG), for example, grew fourth-quarter revenue by 15.5% on continued pricing power, but that still was only good enough to buy a 1.3% bump in operating profits with a 19.6% increase in cost of goods sold (COGS). However, ConAgra does foresee enough growth in the future for a planned $900 million stock buyback in the first half of 2009.

So, the foodies aren’t going under, but they are struggling to keep up with rising commodity costs. How do they plan to satisfy their hunger for higher profits? International growth looks to be the answer.

Stocking up on global goodies
Kellogg (NYSE:K), for one, is looking toward China for some sweet treats, purchasing most of the assets of Chinese cookie and cracker producer Zhenghang (aka Navigable) Foods. Tyson (NYSE:TSN), meanwhile, has decided to expand operations in India, purchasing a 51% stake in India’s Godrej Foods Ltd, which specializes in fresh chicken, chicken patties, and chicken nuggets (who knew chicken nuggets were an international delicacy?).

American food producers aren’t the only ones with an international shopping list. Del Monte Foods (NYSE:DLM) has found a South Korean buyer for Charlie the Tuna and StarKist tuna, while pork producer Smithfield Foods (NYSE:SFD) saw almost 5% of its stock purchased by the COFCO Group, China’s largest food importer and exporter. Both Del Monte and Smithfield Foods are lingering at 52-week lows in the difficult economic environment. Smithfield Foods has been hit especially hard by skyrocketing feed prices and lower live-hog prices. Fourth-quarter Smithfield Foods sales increased by 20% but were accompanied by a 26.6% increase in COGS. The company cited the growth in ethanol production (and increase in feed costs) as drivers for continued margin losses.

While things are lukewarm for Smithfield Foods and others, Campbell Soup (NYSE:CPB) is heating up. The company has just acquired the upscale Wolfgang Puck soup business and has updated profit guidance to be at the top end of its estimates, nearing 7% growth for the year, along with plans for a $1.2 billion stock repurchase. Campbell Soup plans to not only target international growth, but also introduce new domestic products such as Campbell’s V8 soups. Campbell is also playing up how soup is a relative bargain in today’s market compared to rising prices for eggs and milk. Since soup is such a staple (not to mention a cheap dinner), Campbell is certainly an interesting foodie play in a struggling economy.

Will desperate times call for generic food?
It’s definitely a mixed bag right now for the foodies. With no end in sight for rising commodity costs, food producers must continue to look for new growth markets. Whether the growth comes internationally or domestically, these companies will continue to balance major cost jumps with revenue expansion. The bigger question is whether companies such as General Mills and ConAgra will continue to wield pricing power. Times aren’t so bad that folks are going to the generic Wheaties right now, but you have to wonder whether that time will come.

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