According to OECD-FAO research, global agricultural production is estimated to grow at the rate of 1.5% a year over the coming decade compared with an annual growth of 2.1% between 2003 and 2012. The research also highlights that production shortfalls and a growing population will be driving commodity prices upward. In light of this research, let's see what companies that purchase agricultural commodities and process them to produce a wide array of packaged-food products have in store for them.

General Mills (NYSE:GIS) is the first name that comes to mind in the packaged-foods industry. General Mills competes directly with the likes of Kellogg (NYSE:K) and Mondelez International (NASDAQ:MDLZ). It started fiscal 2014 on a very strong note but failed to sustain the momentum. As a result, it reported weak second-quarter results. Let's take a look at the factors which have been responsible for General Mills' weakness and if it is a good long-term investment.

Disappointing performance
In General Mills' second quarter results, revenue was approximately $4.9 billion, and the company missed the consensus estimate on account of lower sales in the U.S retail business due to a 2% year-over-year decline in volume growth. In the international segment, there was growth of 2%, but this was a huge drop from the 14% pound-volume growth last year.

General Mills is also aware of the softness in the cereal business in the U.S., as health-conscious consumers are switching to organic-food products and are also displaying an adverse reaction to GMO food items. As a result, General Mills has started making its original Cheerios breakfast cereals GMO-free, which might help win back customers. In addition, the company is also adding some great natural and organic items to its snacks portfolio. For example, this month it will introduce new flavors to the successful Uber fruit and nut bars.

Flat revenue growth and high quarterly input-cost inflation resulted in margin pressure. As a result, General Mills missed consensus estimates on earnings, which came in at $0.83 per share. This represented a 3.5% year-over-year decline. However, it was not all doom and gloom as General Mills reiterated its earnings guidance of $2.87-$2.90 per share for fiscal 2014. That said, higher-than-expected currency headwinds could result in earnings at the lower end of guidance.

It is good to see that General Mills is shareholder-friendly, but it would be wise for the company to use more of its free cash flow to reduce its total debt rather than borrowing more money to pay for share repurchases. It has repurchased approximately 18 million shares of common stock this fiscal year for a total of $864 million, whereas its free cash flow was $680 million, thereby forcing it to borrow extra money to cover these shareholder payouts.

Are Kellogg and Mondelez better?
Kellogg has also been actively repurchasing shares, and the board authorized a $1 billion stock-repurchase program in April 2013 which expires in April 2014. Just like General Mills, Kellogg is also a dividend-growth stock. The company's third quarter witnessed softness in cereals, as in the case at General Mills. It posted estimate-beating third-quarter results, but revenue declined year-over-year by 0.1%.

The company recently initiated the $1.2-$1.4 billion 'Project K' restructuring program to lower its costs in the long term, and Kellogg is expecting to realize annualized savings of $425-$475 million by 2018. In addition, it is also concentrating on selling higher-margin products rather than maximizing sales volume. This, however, can be a risky strategy in the wake of weak consumer spending, so investors are better off keeping a close watch on the top line and margins.

Mondelez, on the other hand, stood out from its peers by reporting year-over-year growth in revenue during its previous quarter to approximately $8.5 billion. This was on the back of strong volume growth, which was the strongest in the industry, according to management.

Much like its peers, Mondelez's board authorized a $6 billion share-repurchase program in order to keep shareholders happy. Going forward, the long-term goals are set at 5% to 7% in organic revenue growth, an operating margin of 14% to 16%, and double digit earnings-per-share growth. For 2014, management projects revenue growth of 4%-5%.

Final thoughts
Clearly, General Mills is facing weakness in its business. The company is seeing a drop in volumes in certain segments while costs are rising. Hence, investors would be better off looking at the likes of Kellogg, which has an aggressive cost- reduction plan in place, and Mondelez, which is seeing robust growth.