U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 20-F

          [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                       OR
              [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 2003
                                       OR
             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 TO 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 1-15184
                                   SADIA S.A.
             (Exact Name of Registrant as specified in its Charter)
                                       N/A
                 (Translation of Registrant's Name into English)

                          Federative Republic of Brazil
                 (Jurisdiction of Incorporation or Organization)

                            Rua Fortunato Ferraz, 659
                          Vila Anastacio, Sao Paulo, SP
                                05093-901, Brazil
               (Address of Principal Executive Offices) (Zip Code)

      Securities registered pursuant to Section 12(b) of the Exchange Act:

            Preferred Shares, no par value per share, represented by
     American Depositary Shares Name of each exchange on which registered:
The New York Stock Exchange Securities registered pursuant to
                           Section 12(g) of the Act:
                                      None
        Securities for which there is a reporting obligation pursuant to
                         Section 15(d) of the Act: None

         The total number of outstanding shares by Sadia S.A., by class,
                    as of December 31, 2003, was as follows:

                257,000,000 common shares, no par value per share
              425,695,712 preferred shares, no par value per share

     Indicate by check mark whether the Registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
        1934, during the preceding 12 months (or during a shorter period,
                during which the Registrant was required to file
                    such report, and (2) has been subject to
                    such filing requirements for the past 90
                                      days.

                                  Yes X No ____

       Indicate by check mark, which item of the financial Statements the
                        Registrant has elected to follow:

                               Item 17 Item 18 X .

    Please send copies of notices and communications from the Securities and
                            Exchange Commission to:
                                  Ross Kaufman
                             Greenberg Traurig, LLP
                                 200 Park Avenue
                            New York, New York 10166

<PAGE>

<TABLE>
<CAPTION>

                                    CONTENTS

<S>                                                                                          <C>
GENERAL.........................................................................................2
PART I..........................................................................................2
ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS..................................2
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE.................................................2
ITEM 3. KEY INFORMATION.........................................................................2
ITEM 4. INFORMATION ON THE COMPANY.............................................................10
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS...........................................32
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.............................................51
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS......................................57
ITEM 8. FINANCIAL INFORMATION..................................................................59
ITEM 9. THE OFFER AND LISTING..................................................................65
ITEM 10. ADDITIONAL INFORMATION................................................................69
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............................76
PART II........................................................................................79
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...............................79
ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES......................................79
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS..........79
ITEM 15. CONTROL AND PROCEDURES................................................................79
ITEM 16. [RESERVED]............................................................................79
ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT....................................................79
ITEM 16 B. CODE OF ETHICS......................................................................80
ITEM 16 C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................................80
ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES..........................81
ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS..............81
PART III.......................................................................................81
ITEM 17. FINANCIAL STATEMENTS..................................................................81
ITEM 18. FINANCIAL STATEMENTS..................................................................81
ITEM 19. FINANCIAL STATEMENTS  AND EXHIBITS....................................................81
</TABLE>

                                       1
<PAGE>

                                    GENERAL

Unless otherwise indicated, all references contained herein, to the "Company",
to "Sadia", or to "Sadia Group" are references to Sadia S.A., a corporation
organized under the laws of the Federative Republic of Brazil ("Brazil") and its
consolidated subsidiaries: Sadia International Ltd.; Sadia GMBH; Rezende
Marketing e Comunicacao Ltda., Rezende Oleo Ltda,Ez Foods Servicos Ltda. and
Concordia S.A. Corretora de Valores Mobiliarios, Cambio e Commodities.

Presentation of Certain Financial Information

References to "Preferred Shares" and "Common Shares" refer to the Company's
authorized and outstanding preferred stock and common stock, designated as
"acoes preferenciais" and "acoes ordinarias", respectively, each without par
value. All references herein to the "Real," "Reais" or "R$" are to the Real, the
official currency of Brazil since July 1, 1994. All references to (i) "U.S.
dollars", "dollars" or "US$" refer to United States dollars, (ii) "km" to
kilometers, and (iii) "tons" to metric tons.

FORWARD-LOOKING STATEMENTS

This Annual Report contains certain forward-looking statements as defined in
Section 21E of the U.S. Securities Exchange Act of 1934 with respect to the
financial condition, results of operations and business achievements/performance
of Sadia and certain of the plans and objectives of management of the Company
with respect thereto. These statements may generally, but not always, be
identified by the use of words such as "should", "expects", "estimates",
"believes" or similar expressions. Such statements include, but are not limited
to, statements under the following headings: (i) Item 4. Information on the
Company; and (ii) Item 5. Operating and Financial Review and Prospects. This
Annual Report also contains forward-looking statements attributed to certain
third parties relating to their estimates regarding the growth of markets and
demand for products. By their nature, forward-looking statements involve risk
and uncertainty because they reflect the Company's current expectations and
assumptions as to future events and circumstances that may not prove accurate:
the factors discussed in Item 3. Key Information -- Risk Factors, among others,
could cause the Company's actual financial condition, results of operations and
business achievements/performance to differ materially from the estimates made
or implied in such forward-looking statements.

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. SELECTED FINANCIAL DATA

U.S. GAAP Presentation

The selected financial information for the Company included in the following
table should be read in conjunction with, and is qualified in its entirety by
reference to, the U.S. GAAP financial statements of the Company and "Operating
and Financial Review and Prospects" appearing elsewhere herein. The consolidated
financial data for the Company as of December 31, 2003, 2002, 2001, 2000 and
1999 are derived from the audited U.S. GAAP financial statements.

                                       2
<PAGE>

<TABLE>
<CAPTION>

                                    SADIA S.A
                   CONSOLIDATED STATEMENTS OF OPERATIONS Years
               ended December 31, 2003, 2002, 2001, 2000 and 1999
  (In thousands of Reais - R$, except numbers of shares and per share amounts)

<S>                                                                           <C>             <C>            <C>
                                                                              2003            2002
                                                                      -------------------------------
Gross operating revenue                                                  5,717,525       4,654,752

Value-added tax on sales                                                  (535,337)       (417,280)
Sales deductions                                                           (41,345)        (50,337)
                                                                      -------------------------------

Net operating revenue                                                    5,140,843       4,187,135
Cost of goods sold                                                      (3,673,011)     (2,903,152)
                                                                      -------------------------------

Gross profit                                                             1,467,832       1,283,983
Operating expenses:
  Selling                                                                 (975,797)       (876,755)
  General and administrative                                               (54,207)        (49,133)
  Other operating expense, net                                             (36,819)        (12,773)
                                                                      -------------------------------
Total operating expenses                                                (1,066,823)       (938,661)
                                                                      -------------------------------
Operating income                                                           401,009         345,322

Interest expense                                                          (450,198)       (317,755)
Interest income and other, net                                             459,750         266,462
Foreign currency exchange loss, net                                         60,970           2,701
                                                                      -------------------------------
Income  before  equity  income  (loss) of  investees  and  minority
   interest                                                                471,531         296,730

Income tax benefit (expense):
  Current benefit (expense)                                                (39,072)         34,631
  Deferred tax benefit (expense)                                            40,099         (46,786)
                                                                      -------------------------------
                                                                             1,027         (12,155)
Income  (loss)  before  equity  income of  investees  and  minority
   interest                                                                472,558         284,575
Equity income (loss) of investees                                              361            (650)
Minority interest                                                              349             337
                                                                      -------------------------------
Income (loss) before cumulative effect of accounting change                473,268         284,262
Cumulative effect of accounting change, net of tax                            --              --
                                                                      -------------------------------
Net income (loss)                                                          473,268         284,262
                                                                      =============================
Net income (loss) applicable to preferred stock                            305,564         183,533
Net income (loss) applicable to common stock                               167,704         100,729
                                                                      -------------------------------
Net income (loss)                                                          473,268         284,262
                                                                      =============================
Basic and diluted earnings (loss) per thousand shares in R$:
   Preferred                                                                717.80          431.14
   Common                                                                   652.54          391.94

Weighted average number of shares outstanding:
   Preferred                                                           425,695,712     425,695,712
   Common                                                              257,000,000     257,000,000
Dividends paid per thousand shares in R$:
   Preferred                                                                170.08          106.89
   Common                                                                   154.61           97.18


                                                                              2001            2000            1999

                                                                      -------------------------------------------
Gross operating revenue                                                  3,977,137       3,257,944       2,972,066

Value-added tax on sales                                                  (293,280)       (316,919)       (281,978)
Sales deductions                                                           (81,387)        (59,749)        (52,032)
                                                                      -------------------------------------------
Net operating revenue                                                    3,602,470       2,881,276       2,638,056
Cost of goods sold                                                      (2,322,691)     (2,167,016)     (1,855,737)
                                                                      -------------------------------------------
Gross profit                                                             1,279,779         714,260         782,319
Operating expenses:
  Selling                                                                 (720,761)       (563,025)       (493,907)
  General and administrative                                               (54,029)        (51,603)        (52,765)
  Other operating expense, net                                             (17,136)         (9,174)        (10,707)
                                                                      -------------------------------------------
Total operating expenses                                                  (791,926)       (623,802)       (557,379)

                                                                      -------------------------------------------
Operating income                                                           487,853          90,458         224,940

Interest expense                                                          (201,210)       (187,268)       (175,450)
Interest income and other, net                                             144,635         190,519         228,019
Foreign currency exchange loss, net                                       (171,377)        (72,775)       (174,892)

                                                                      -------------------------------------------
Income  before  equity  income  (loss) of  investees  and  minority
   interest                                                                259,901          20,934         102,617

Income tax benefit (expense):
  Current benefit (expense)                                                (38,895)           (867)         (3,088)
  Deferred tax benefit (expense)                                           (12,161)        (20,954)        (14,590)

                                                                      -------------------------------------------
                                                                           (51,056)        (21,821)        (17,678)
Income  (loss)  before  equity  income of  investees  and  minority
   interest                                                                208,845            (887)         84,939
Equity income (loss) of investees                                               43          (5,093)         (8,746)
Minority interest                                                              439             496             282

                                                                      -------------------------------------------
Income (loss) before cumulative effect of accounting change                209,327          (5,484)         76,475
Cumulative effect of accounting change, net of tax                          (5,843)           --              --

                                                                      -------------------------------------------
Net income (loss)                                                          203,484          (5,484)         76,475

                                                                      ===========================================
Net income (loss) applicable to preferred stock                            131,378          (3,420)         49,480
Net income (loss) applicable to common stock                                72,106          (2,064)         26,995

                                                                      -------------------------------------------
Net income (loss)                                                          203,484          (5,484)         76,475

                                                                      ===========================================
Basic and diluted earnings (loss) per thousand shares in R$:
   Preferred                                                                308.62           (8.03)         115.54
   Common                                                                   280.56           (8.03)         105.04

Weighted average number of shares outstanding:
   Preferred                                                           425,695,712     425,695,712     428,227,595
   Common                                                              257,000,000     257,000,000     257,000,000
Dividends paid per thousand shares in R$:
   Preferred                                                                 69.75           38.50           57.86
   Common                                                                    63.41           35.00           52.60

</TABLE>

                                        3
<PAGE>


<TABLE>
<CAPTION>
                           CONSOLIDATED BALANCE SHEET
                          (IN THOUSANDS OF REAIS - R$)

                                             DECEMBER 31,   2003      2002      2001      2000      1999
-------------------------------------------------------------------------------------------------------------
<S>                                                       <C>       <C>         <C>       <C>        <C>
Cash and cash  equivalents  and  investments  in debt and 1,957,753 1,249,783   346,354   220,814    363,318
held-to-maturity securities
Total Current Assets                                      3,726,386 2,817,467 1,598,128 1,335,843  1,477,596
Investments in debt and held-to-maturity securities       1,158,586   760,857   609,767   745,471    701,882
Property, plant and equipment, net                          829,003   860,070   857,653   889,436    838,845
TOTAL ASSETS                                              6,149,453 4,975,627 3,325,305 3,202,793  3,308,850

Total Current Liabilities                                 2,969,833 2,591,383 1,335,176 1,699,863  1,816,601
Short-term debt and current portion of long term debt     2,030,752 2,052,068   910,386 1,381,123  1,414,566
Long-term debt                                            1,366,836 1,205,160   889,767   526,413    494,059
TOTAL SHAREHOLDERS' EQUITY                                1,521,585 1,057,759   967,181   853,778    872,583
</TABLE>

The exchange rates of Real amounts into U.S. Dollars for the years ended
December 31, 1999, 2000, 2001, 2002, 2003and January through May 2004 and most
recent exchange rate, are shown in the table below:

<TABLE>
<CAPTION>

COMMERCIAL SELLING EXCHANGE RATES (R$/US$)
                                     HIGH                LOW              AVERAGE          END OF PERIOD
<C>                                  <C>                <C>                 <C>                 <C>
1999                                 2.0648             1.6607              1.8514              1.7890
2000                                 1.9847             1.7234              1.8295              1.9554
2001                                 2.8350             1.9320              2.3536              2.3204
2002                                 3.9552             2.2709              2.9309              3.5333
2003                                 3.6623             2.8219              3.0715              2.8892
DECEMBER/2003                        2.9434             2.8883              2.9264              2.8892
JANUARY/2004                         2.9409             2.8022              2.8518              2.9409
FEBRUARY/2004                        2.9878             2.9042              2.9303              2.9138
MARCH/2004                           2.9410             2.8752              2.9055              2.9086
APRIL/2004                           2.9522             2.8743              2.9048              2.9447
MAY/2004                             3.2051             2.9569              3.0982              3.1291
JUNE 14, 2004                        3.1651             3.1119              3.1349              3.1651
Source: Brazilian Central Bank
</TABLE>

B. CAPITALIZATION AND INDEBTEDNESS

Not Applicable.

C. REASONS FOR THE OFFER AND USE OF PROCEEDS

Not Applicable.

                                       4
<PAGE>

D. RISK FACTORS

RISKS RELATING TO BRAZIL

THE BRAZILIAN GOVERNMENT HAS EXERCISED, AND CONTINUES TO EXERCISE, SIGNIFICANT
INFLUENCE OVER THE BRAZILIAN ECONOMY. BRAZILIAN POLITICAL AND ECONOMIC
CONDITIONS HAVE A DIRECT IMPACT ON THE COMPANY'S BUSINESS AND THE MARKET PRICE
OF THE PREFERRED SHARES.

The Brazilian government frequently intervenes in the Brazilian economy and
occasionally makes drastic changes in policy. The government's actions to
control inflation and affect other policies have often involved wage and price
controls, currency devaluations, capital controls, and limits on imports, among
other things. The Company's business, financial condition and results of
operations may be adversely affected by changes in policy including tariffs,
exchange controls and other matters, as well as factors such as currency
fluctuations, inflation, price instability, interest rates, tax policy, and
other political, diplomatic, social and economic developments in or affecting
Brazil.

Prior to 1995, Brazil experienced extremely high rates of inflation. Inflation,
along with governmental measures to combat inflation, has had significant
negative effects on the Brazilian economy in general. Beginning in December
1993, the Brazilian government introduced an economic stabilization plan called
the Real Plan. The primary objectives of the Real Plan were to reduce inflation
and develop an environment for sustained economic growth.

On July 1, 1994, the Brazilian government introduced the new currency, the Real.
Since the introduction of the Real, Brazil's inflation rate has been
substantially lower than in previous periods. The annual rates of inflation, as
measured by the General Price Index (IGP-M) of Fundacao Getulio Vargas, were:

    Year                                               Rate of Inflation
    1993...............................................2,567.34%
    1994...............................................1,246.62%
    1995...............................................15.24%
    1996...............................................9.20%
    1997...............................................7.74%
    1998...............................................1.78%
    1999...............................................20.1%
    2000 ..............................................9.95%
    2001 ..............................................10.38%
    2002 ..............................................25.30%
    2003 ..............................................8.71%

    Source: Fundacao Getulio Vargas (FGV)


There can be no assurance that recent lower levels of inflation will continue.
Brazil may experience high levels of inflation in the future. Future
governmental actions, including actions to adjust the value of the Real, may
trigger increases in inflation. Accordingly, periods of substantial inflation
may in the future have material adverse effects on the Brazilian economy, the
Brazilian financial markets and on the Company's business, financial condition
and results of operations.

FLUCTUATIONS IN THE VALUE OF BRAZIL'S CURRENCY AGAINST THE VALUE OF THE U.S.
DOLLAR MAY RESULT IN UNCERTAINTY IN THE BRAZILIAN ECONOMY AND THE BRAZILIAN
SECURITIES MARKET, WHICH MAY ADVERSELY AFFECT THE COMPANY'S FINANCIAL CONDITION
AND RESULTS OF OPERATIONS AND, CONSEQUENTLY, THE MARKET VALUE OF THE PREFERRED
SHARES AND ADSS.

Because of inflationary pressures, the Brazilian currency has been devalued
periodically during the last four decades. Throughout this period, the Brazilian
government has implemented various economic plans and has taken several exchange
rate policies, including sudden devaluations, periodic mini-devaluations during
which the frequency of adjustments has ranged from daily to monthly, floating
exchange rate systems, exchange

                                       5
<PAGE>

controls and dual exchange rate markets. Although over long periods,
devaluations of the Brazilian currency generally have correlated with the rate
of inflation in Brazil, devaluations over shorter periods have resulted in
significant fluctuations in the exchange rate between the Brazilian currency and
the U.S. dollar and other currencies.

In addition, fluctuations in the value of the Real relative to the U.S. dollar
can affect the market value of the ADSs. Devaluation may reduce the U.S. dollar
value of distributions and dividends on the ADSs and may also reduce the market
value of the Preferred Shares and the ADSs.

RESTRICTIONS ON THE MOVEMENT OF CAPITAL OUT OF BRAZIL MAY HINDER INVESTORS'
ABILITY TO RECEIVE DIVIDENDS AND OTHER DISTRIBUTIONS AS WELL AS THE PROCEEDS OF
ANY SALE OF PREFERRED SHARES.

The Brazilian government may impose temporary restrictions on the conversion of
Brazilian currency into foreign currencies and on the remittance to foreign
investors, of proceeds from investments in Brazil. Brazilian law permits the
government to impose these restrictions whenever there is a serious imbalance in
Brazil's balance of payments or reasons to foresee a serious imbalance.

Government restrictions on capital outflow may hinder or prevent the Custodian
in Brazil, or if investors have exchanged ADSs for the underlying Preferred
Shares, from converting the proceeds relating to the Preferred Shares into U.S.
dollars and remitting those proceeds abroad. Investors could be adversely
affected by delays in obtaining any required governmental approval for
conversion of Brazilian currency payments and remittances abroad in respect of
the Preferred Shares underlying the ADSs. In addition, the Brazilian government
may institute a more restrictive exchange control policy in the future.

Currently, in order to remit the proceeds of distributions on, and gains with
respect to, the Preferred Shares to the U.S., the Depositary must register with
the Central Bank the amount invested by non-Brazilians in the Preferred Shares
underlying the ADSs. The Depositary will register its interest in the Preferred
Shares as a foreign investment with the Central Bank. The Central Bank will
issue a certificate of foreign capital registration in the name of the
Depositary, under which the Custodian will, assuming the continued availability
of foreign exchange, be able to convert dividends and other Brazilian
currency-denominated distributions from the Company into U.S. dollars and remit
such U.S. dollars abroad to the Depositary for distribution to you.

DEVELOPMENTS IN OTHER EMERGING MARKETS MAY ADVERSELY AFFECT THE MARKET PRICE OF
THE PREFERRED SHARES AND ADSS

The market price or the Preferred Shares and ADSs may be adversely affected by
declines in the international financial markets and world economic conditions.
The Brazilian securities market is, to varying degrees, influenced by economic
and market conditions in other emerging market countries, especially those in
Latin America. Although economic conditions may differ in each country,
investors' reaction to developments in one country can have an effect on the
securities markets and the securities of issuers in other countries, including
Brazil.

Accordingly, adverse developments in emerging market countries could lead to a
reduction in both demand and the market price for the preferred shares and ADSs.
These events may discourage international investment in Brazil and, more
directly, may hurt the market price of the Company's Preferred Shares and ADSs.

                                       6
<PAGE>

Enforcement of civil liabilities may be difficult

The Company is organized under the laws of Brazil. All of the Company's
directors and officers and many of its advisors reside in Brazil and
substantially all of the assets of these persons and of the Company are located
in Brazil. As a result, it may not be possible to effect service of process upon
these persons within the United States or other jurisdictions outside of Brazil.
Similarly, it may not be possible to enforce, judgments of non-Brazilian courts,
including judgments predicated on civil liability under the U.S. securities laws
against the Company or its directors and officers.

Brazilian counsel has advised the Company that Brazilian courts will enforce
judgments of U.S. courts for civil liabilities predicated on the U.S. securities
laws only if the judgment satisfies certain requirements imposed by the
Brazilian Federal Supreme Court. The foreign judgment will be enforceable in
Brazil if:

     o    It fulfills all formalities required for its enforceability under the
          laws of the country that granted the foreign judgment;

     o    It is for the payment of a certain sum of money;

     o    It was issued by a competent court after service of process was
          properly made on us in the jurisdiction where the judgment was
          awarded;

     o    It is not subject to appeal;

     o    It is authenticated by a Brazilian consular office in the country
          where it was issued and is accompanied by a sworn translation into
          Portuguese; and

     o    It is not contrary to Brazilian national sovereignty, public policy or
          good morals, and does not contain any provision that for any reason
          would not be upheld by the courts of Brazil.

         Brazilian counsel has also advised the Company that:

     o    As a plaintiff, a holder may bring an original action predicated on
          the U.S. securities laws in Brazilian courts and that Brazilian courts
          may enforce liabilities in such actions against the Company, its
          directors, and certain of its officers and advisors;

     o    If a holder resides outside Brazil and owns no real property in
          Brazil, such holder must provide a bond to guarantee court costs and
          legal fees in connection with litigation in Brazil; and

     o    Brazilian law limits the ability of a judgment creditor of the Company
          to satisfy a judgment against the Company by attaching certain of our
          assets.

POLITICAL UNCERTAINTY DURING ELECTIONS CAN INFLUENCE VOLATILITY IN CAPITAL
MARKETS AND GENERATE POLITICAL INSTABILITY IN THE SHORT RUN

Due to democratic diversity in Brazil, during election periods, political
debates among the candidates and election pools generate uncertainty. This
affects the volatility of interest rates, exchange rates and stock market
quotes, which may influence the Company's results. Despite this negative
situation, the unstable environment generated by elections tends to be short
term.

At the end of 2002, Brazil elected a new president from the Workers Party, Luis
Inacio Lula da Silva, known as Lula. In the period leading up to and subsequent
to, his election there was substantial uncertainty relating to the policies that
the new government would pursue, including the potential implementation of
macroeconomic policies that differed significantly from those of the prior
administration. This uncertainty resulted in devaluation of the real against the
U.S. dollar in that period as well as deterioration in Brazil sovereign risk and
certain macroeconomic indexes.

However, the new government has not departed in any material way from previous
policy and the main macroeconomic fundamentals had reverted the negative trend
registered by the second half 2002. Any

                                       7
<PAGE>

substantial negative reaction to the policies of the Brazilian government could
adversely affect the Company's business, operations and the market price of the
Company's preferred shares and ADSs.

RISKS RELATING TO THE COMPANY'S BUSINESS

THE BUSINESS INVOLVES BREEDING OF ANIMALS AND MEAT PROCESSING

The Company's operations involve raising animals, which is subject to a variety
of risks, including disease, contamination, consumer health concerns and adverse
weather conditions. Meat is subject to contamination during processing and
distribution. Contamination during processing could affect a large number of the
Company's products and therefore could have a significant impact on its
operations. The Company's sales are dependent on consumer preferences, and the
loss of consumer confidence in the products sold by Brazilian producers because
of disease or contamination could affect the Company's results of operations.

GRAINS ARE THE MOST REPRESENTATIVE ISOLATED COMPONENT OF COGS AND ARE EXPOSED TO
THE VOLATILITY OF THE COMMODITY MARKETS

The Brazilian foodstuffs industry, like the processed feed industry in other
countries, has been characterized by cyclical periods of higher prices and
profitability, followed by overproduction, leading to periods of lower prices
and profitability. The Company believes that Brazilian and export prices for its
product line are likely to remain volatile and subject to cyclical variation.
There can be no assurance that the Company's results will not be adversely
affected by future downturns in market prices. The largest single component of
the Company's cost of sales is the cost of ingredients used in the preparation
of feed. The price of most of the Company's food ingredients is subject to
significant volatility resulting from weather, the size of harvests,
transportation and storage costs, governmental agricultural policies, currency
exchange rates and other factors. The Company does not currently engage in
hedging of its feed costs.

ENVIRONMENTAL ISSUES CAN AFFECT COSTS AND ARISE NEW REGULATION REQUIREMENTS

Brazilian food producers, including the Company, are subject to stringent
federal, State and local environmental laws and regulations concerning, among
other things, human health, the handling and disposal of wastes and discharges
of pollutants to the air and water. In view of the possibility of unanticipated
regulatory or other developments, particularly as environmental laws become more
stringent both in Brazil and worldwide, the amount and timing of future
expenditures required to maintain compliance could vary substantially from their
current levels and could adversely affect the availability of funds for other
capital expenditures and other purposes.

COMPETITION IN BOTH DOMESTIC AND FOREIGN LIVESTOCK AND FOOD PROCESSING SECTOR IS
VERY STRONG

The Company faces significant competition from other Brazilian producers in the
domestic markets in which it sells its products, and from other world producers
as well in the export markets in which it sells its products. Other major
vertically integrated Brazilian producers compete with the Company. To varying
degrees, these companies have substantial financial resources and strengths in
particular product lines and regions. The Company expects that it will continue
to face strong competition in every market and that existing or new competitors
are likely to broaden their product lines and to extend their geographic scope.
Accordingly, there can be no assurance that the Company's performance will not
be adversely affected by increased competition.

                                       8
<PAGE>

INCREASING PROTECTIONIST MEASURES AMONG BRAZIL'S TRADE PARTNERS' COUNTRIES CAN
RESTRICT EXPORTS OF THE LIVESTOCK AND MEAT PROCESSING COMPANIES

Due to the growing share of the Brazilian livestock, pork and poultry sector in
the international market, companies are increasingly being affected by measures
taken by importing countries in order to protect local producers. Because of the
competitiveness of Brazilian companies, certain countries have raised several
restrictions to prevent the entrance of Brazilian livestock products. Outcomes
such as quota restrictions or import suspensions in a certain country or region,
can affect substantially the sector's export volumes and consequently the
Company's export performance as well as the results of its operations.

FMD Cases in Brazil can indirectly affect pork sales

Although the detected Foot and Mouth Disease (FMD) cases in the south region of
Brazil have affected only cattle, hogs can be contaminated. The Company's animal
breeding facilities are all located in Santa Catarina State, an internationally
recognized FMD free region. No assurance can be given, however, that the Company
will not be affected by FMD, directly, or through limitations on exports.

RISKS RELATING TO SADIA S.A.

THE COMPANY IS CONTROLLED BY A GROUP OF SHAREHOLDERS

The Company is controlled by the group of shareholders party to the Company's
Shareholders Agreement. The Preferred Shares and the ADSs are not entitled to
vote at meetings of shareholders, except in limited circumstances. This means,
among other things, that preferred shareholders are not entitled to vote on
corporate transactions, including mergers or consolidations of the Company with
other companies. In addition, the controlling shareholders have the ability to
determine the outcome of any action requiring shareholder approval, including
transactions such as corporate reorganizations, change of control transactions
and the timing and payment of future dividends. For more information, see item 7
- "Major shareholders and related party transactions".

If the Company loses any of its largest clients, or if they significantly reduce
the amount they purchase from the Company, its revenue and operating income
could be materially adversely affected

The Company's ten largest customers in 2003 accounted for approximately 21% of
the Company's total domestic sales and approximately 11% of its total gross
sales. As a result, if the Company loses any of its ten largest customers or
they reduce significantly the amount they purchase from the Company, the
Company's revenue and operating income could be materially adversely affected.
The Company has been developing new client oriented policies to reduce the
concentration of revenues in a small number of clients and to spread the related
concentration risk.

The Company's ability to export could be adversely affected by port labor
disputes and disruptions and by import restrictions

The Company's ability to export is dependent, in part, on factors beyond its
control, including the lack of transport facilities due to strikes or other
causes, or the enactment of Brazilian laws or regulations restricting exports in
general or its products in particular. In addition, regulatory authorities in
various countries have in the past imposed, and in the future may impose, import
restrictions on Brazil's exports, based on health and sanitary standards. Any of
these could materially adversely affect the Company's revenue and operating
income.

                                       9
<PAGE>

ITEM 4. INFORMATION ON THE COMPANY

A. HISTORY AND DEVELOPMENT OF THE COMPANY

Sadia's activities are concentrated in the agro industrial and food processing
segments. The Company's central administrative headquarters is located at Rua
Fortunato Ferraz, 659, Vila Anastacio, Sao Paulo, State of Sao Paulo, CEP
05093-901, Brazil. Its telephone number is (55 11) 3649-3130, and the Company's
website is www.sadia.com.br or www.sadia.com and e-mail address is
grm@sadia.com.br. Materials posted on the website are not deemed incorporated by
reference into this Annual Report nor made a part hereof.

The Company is the leader in all of the markets in which it operates within
Brazil (see "Market Share"). Sadia is the largest slaughterer and distributor of
poultry and pork products, as well as the largest domestic exporter of poultry,
according to the Brazilian Chicken Exports Association (ABEF). Sadia Group is
also the largest distributor of frozen and refrigerated meat-based products
(according to AC/Nielsen). Sadia Group currently has 34,432 employees (December,
2003).

The level of verticalization adopted by Sadia ensures control at all stages of
production and distribution of products. The Company's operations include
breeding farms for poultry and hog grandparent and parent stock, hatcheries,
pork breeding centers, slaughterhouses, processing units, animal feed production
plants, representative offices and distribution centers. Sadia introduced the
vertical integration of poultry and hog breeding, which was initially adopted in
the west of Santa Catarina State. This system is still utilized by the Company.
It consists of a partnership between the industry and the rural producers, with
a view to obtaining animals for slaughter, raised in highly productive breeding
conditions and controlled hygienic-sanitary conditions. Sadia produces one-day
chicks and piglets and supplies them to outgrowers, along with feed, transport,
technical and veterinary assistance.

The Company has 11 plants within Brazil, and distributes its product line of
approximately 684 items through distribution and sales centers spreaded over
Brazil, Latin America, the Middle East, Asia and Europe. The table below shows
the Company's production capacity:

<TABLE>
<CAPTION>

Production Capacity (2003)

<S>                                                      <C>                       <C>                   <C>
Production and Capacity Table                 Capacity - 2003         Production - 2003     Production - 2002
Chicken Slaughtering (Million head/year)      482.0                   482.0                 450.2
Turkey Slaughtering (Million head/year)       19.6                    19.0                  19.4
Hogs Slaughtering (Million head/year)         4.0                     3.9                   3.9
Processed Products (Th. Tons/year)            490.0                   405.1                 401.2
Margarine (Th. Tons/year)                     158.2                   144.9                 128.9
Animal Feed (Th. tons)                        4,176.0                 3,765.8               3,658.9
</TABLE>
Source: Sadia S.A.


Within Brazil, Sadia's products are marketed in 330,000 points of sales. The
Group has three sales centers within South America, and operates in Paraguay and
Bolivia through an exclusive distributor. The Company maintains representative
offices in Buenos Aires (Argentina), Montevideo (Uruguay), Santiago (Chile),
Worcester (UK), Milan (Italy), Tokyo (Japan) and Dubai (United Arab Emirates).
The Company exports around 250 different products to approximately 92 countries.

Company Overview

Sadia S.A. began in 1944, with the acquisition by Attilio Fontana of the
meatpacker Concordia Ltda., located in the municipality of the same name, in the
Western part of the State of Santa Catarina (Brazil). At the time, the Company
consisted of a wheat mill and an unfinished slaughterhouse for hogs.

Over the course of its 60-year history, the Company evolved based on two key
strategies: the diversification of its portfolio of food products, and
investment in quality.

At the end of the 1980s and the beginning of the 1990s, the Company's policy of
expansion gave way to rationalization of management and cost structures through
reduction by merger of a number of companies in the Sadia Group. Sadia began the
1990s having the controlling ownership in 21 companies, and began to concentrate
its operations on the production of processed meat products.

                                       10
<PAGE>

From 1997 forward, management has continued the reorganization of the Sadia
Group and has implemented the strategy of concentrating on higher value-added
processed products. In 1997, the Company sold its cattle slaughterhouse in Barra
do Garcas (State of Mato Grosso), four soybean processing facilities (crushing
and refining), 12 purchasing and warehousing centers (for grains), and also
transformed its Varzea Grande slaughterhouse (State of Mato Grosso) into a plant
for the production of processed meat products. In addition, the transport of the
products, which had been made by a fleet of owned vehicles, was outsourced to
specialized transportation companies.

In July 1998, Sadia was merged with two of its subsidiaries, Sadia Frigobras
S.A. and Sadia Concordia S.A., so that all of the activities of the Sadia Group
were concentrated in a single listed company, Sadia S.A. This resulted from a
gradual process of reorganization with a view to simplifying the Sadia Group
structure, increasing visibility to capital markets, and achieving gains in
scale through the reduction of general and administrative expenses and tax
costs.

On December 28, 1999 Sadia acquired the capital stock of Granja Rezende S.A.
(primarily a producer and distributor of poultry and pork products) and its
wholly owned subsidiaries Rezende Alimentos Ltda., Rezende Oleo Ltda. and
Rezende Marketing Comunicacoes Ltda.

Immediately following the acquisition of Granja Rezende, the Company decided to
sell Granja Rezende's soybean crushing and oil manufacturing plant, which was
not then in operation, and administrative complex.

During 2000, the subsidiary Rezende Alimentos Ltda. was converted from a limited
liability company into a corporation and the subsidiary's name was changed to
Sadia Alimentos S.A. On December 29, 2000, the then parent was merged into Sadia
Alimentos S.A., whose name was then changed to Sadia S.A. The purpose of the
merger was to permit an operational and administrative rationalization, and the
utilization of tax loss carry forwards.

The investment in Lapa Alimentos S.A. ("Lapa"), a 50 percent owned investee,
accounted for by the equity method, was terminated during 2000.

In April 2001, the Company listed its American Depositary Receipts (ADRs)
program on the New York Stock Exchange, providing investors an alternate channel
to buy its stocks. In June 2001, the Company adhered to the Level One Corporate
Governance with the Sao Paulo Stock Exchange (BOVESPA) certifying its commitment
to transparency and fair disclosure of information.

In the second half of 2001, Sadia and Sun Valley, a U.K. - based subsidiary of
Cargill Foods formed a partnership. This partnership gave rise to Concordia
Foods Ltd., Worcester - UK, the purpose of which is to explore the potential of
the British market providing direct supply to the retail market, foodservice and
other segments in the United Kingdom and Ireland.

In August 2001, Sadia opened a distribution center in the city of Jundiai - SP,
to supply the Sao Paulo State region, considered as the largest market in
Brazil. The Jundiai DC, is a technological milestone for the Company with 20
square meters of area. The Company has invested R$ 23 million, in facilities and
IT structure.

The Company has also developed a supply company called Apprimus, together with
the Accor Group - a French Group that acts in the food vouchering and
hotel-resort segments - and with Grupo Martins - the largest Brazilian food
wholesaler. Apprimus operates in the food service market, servicing
institutional clients in the domestic market.

In May 2002, Sadia G.M.B.H and its subsidiary, Laxness F.C.P.A. Lda. were
created aiming to leverage exports to the European market.

In August 2002, Granja Rezende S/A was merged into Sadia S/A, aiming at cost
reduction both through standardization and through rationalization of the
administrative and operational activities as well as by resulting reflections of
financial and fiscal nature.

In October 2002, the investment in BRF Trading Company was discontinued. The
Company was a joint venture between by Sadia (50%) and Perdigao S.A. (50%).

                                       11
<PAGE>

                         GROUP STRUCTURE - December 2003

                                [GRAPHIC OMITTED

The Sadia Group is currently composed of fourteen companies, as shown in the
chart above.

Sadia S.A. concentrates all production, slaughtering, distribution and product
sales activities within Brazil. Sadia International Ltd. is one of the Company's
vehicles for sales outside Brazil, and is a shareholder of the `Churrascaria
Beijing' steakhouse, which was established in Beijing in partnership with Sky
Dragon, a company linked to the Chinese Ministry of Agriculture. Rezende Oleo
and Rezende Mkt. e Comunic. Ltda. are non operational. Sadia G.M.B.H. is a
holding that controls Laxness F.C.P.A.Lda., an offshore company responsible for
part of Sadia<180>s export operations.Sadia Alimentos is a subsidiary of Sadia
International, established in 2003 aiming to develop commercial operations in
the Argentine market. Sadia Uruguay and Sadia Chile are each responsible for the
distribution and sales of Sadia's products in their respective countries, while
Sadia Italia is a representative office. Nordfin Holding Limited owns 40% of
Sadia Chile. Ez Food Servicos, also known as Apprimus, is a joint venture with
Accor and Grupo Martins, with equal participations for each partner. Concordia
Foods is a joint venture company between Sadia (50%) and Sun Valley Foods (50%)
to explore the UK market. Concordia CVMCC is a brokerage firm authorized to
operate in accordance with current Brazilian legislation.

Business Overview

The Company's operations are organized into three segments: "Processed Products"
(frozen and refrigerated products and margarines), "Poultry" (chickens and
turkeys) and "Pork".

Of the Company's total gross operating revenue in 2003, 48% was derived from the
processed products segment, poultry 39%, pork 10%, and 3% from other activities,
such as the grain and by-products segment, hog and poultry breeding, boiled beef
parts and resale of products.

Within the strategic policy of the Company to emphasize products with greater
added value (processed products), Sadia opted to reduce its activities related
to cattle and grains and by-products. Starting in 1998, the effects of this
strategy showed in the reduced contribution of such activities in the revenue of
the Company. The remaining activities related to the grains and by-products
segment currently consist of the crushing of soy to obtain the meal used as a
raw material in the production of feed for the Company's stock and that of the
integrated producers..

Sadia currently produces a range of products that includes: frozen,
refrigerated, salted and smoked pork cuts, lard, bacon, ingredients for
"feijoada" (a Brazilian pork and bean stew); frozen and refrigerated pork and

                                       12
<PAGE>

chicken giblets; whole frozen and seasoned chickens; frozen and refrigerated
poultry cuts and parts; marinated and partially cooked chicken parts; whole
frozen and seasoned turkeys; frozen and seasoned turkey cuts and parts; breaded
chicken parts; raw, cooked and smoked hams; "tender" gammons, hams, cold cuts
and related products; "Parma-type" hams; smoked chickens and turkeys; cooked and
smoked turkey hams and turkey-based cold cuts; partially cooked and frozen
products, such as beef, turkey and chicken meatballs; beef, turkey and
chicken-based hamburgers; pork, turkey and chicken based frankfurters; sausages;
bolognas; salamis; coppa; turkey-based hams; cold cuts in general; chicken, meat
and pork-based pates; beef, poultry and fish-based frozen ready-made dishes and
pasta; frozen ready-made foods for heating and serving as meals and snacks, such
as breaded poultry, fish and appetizers, frozen pizzas and refrigerated fresh
pasta; and margarine.

The following tables present sales volumes and gross operating revenue (prepared
and presented in accordance with US GAAP) for the years ended December 31, 2003,
2002 and 2001.

SALES VOLUME (TONS)            2003             2002               2001

DOMESTIC MARKET                   677,842          751,041              729,642
     Processed Products           529,663          503,612              472,230
     Poultry                      100,419          143,941              185,100
     Pork                          47,760          103,488               72,312
EXPORTS                           668,044          607,694              445,375
     Processed Products            39,936           25,347               16,377
     Poultry                      524,419          494,035              380,118
     Pork                         103,689           88,312               48,880
TOTAL                           1,345,886        1,358,735            1,175,017
   Processed Products             569,599          528,959              488,607
     Poultry                      624,838          637,976              565,218
     Pork                         151,449          191,800              121,192
Source: Sadia

                                       13
<PAGE>


GROSS OPERATING REVENUE         2003                2002               2001
 (in R$ million)

DOMESTIC MARKET                 3,188.2             2,726.8            2,497.1
  Processed Products            2,523.7             1,931.5            1,670.1
  Poultry                       356.0               374.7              410.9
  Pork                          129.8               197.7              137.4
  Other (*)                     178.7               222.9              278.7
EXPORTS                         2,529.3             1,928.0            1,480.0
  Processed Products            284.9               183,1               97.4
  Poultry                       1,787.4             1,385.5             1,148.8
  Pork                          443.0               318.8              186.6
  Other (*)                     14.0                40.6                47.2
TOTAL                           5,717.5             4,654.8             3,977.1
  Processed Products            2,808.6             2,114.6            1,767.5
  Poultry                       2,143.4             1,760.2            1,559.7
  Pork                          572.8               516.5              324.0
  Other (*)                     192.7               263.5              325.9

(*) Other: Grains and by-products, boiled beef parts, pig and chicken breeding
and resale of products Source: Sadia

The following table presents the breakdown of gross operating revenue in
percentage terms by segment, for the years ended December 31, 2003, 2002 and
2001:

Breakdown of Gross Operating Revenue (in %)

BREAKDOWN OF GROSS OPERATING REVENUE
SEGMENT                           2003              2002                 2001
    Processed Products            49%               45%                  44%
    Poultry                       37%               38%                  40%
    Pork                          10%               11%                  8%
    Other*                        4%                6%                   8%

(*) Other: Grains and by-products, boiled beef parts, pig and chicken breeding
and resale of products Source: Sadia

Processed Products

As a result of the Company's strategy of concentrating on higher value-added,
higher margin products, the processed products segment results increased
significantly as from the second half of the 1990s. Production rose from 239.0
tons in 1994 to 569.6 thousand tons in 2003. Sales of processed products
accounted for 48% of the Company's gross operating revenues in 2003.

Sadia operates eleven plants that manufacture processed products, ten of which
are dedicated to meat processing and one to margarine production. These plants
are located close to their suppliers of raw materials or to the main domestic
centers of consumption.

Sadia's processed products segment comprises a wide range of products,
including: frozen products (hamburgers, breaded products, ready-made dishes and
pizzas), refrigerated products (hams, sausages, frankfurters, bolognas, salamis,
cold cuts, product portions and refrigerated pasta) and margarine - the majority
of which are sold under the "Sadia" brand.

Sadia sells most of its processed products in the domestic market, which
accounted for 89.9% of gross operating revenues from this segment in 2003. The
exports of processed products currently account for 10.1% of gross operating
revenues, which have grown by 55.6% over the past year.

                                       14
<PAGE>

Most of the raw materials used by Sadia derive from meats and soy oil produced
by the Company, with only small volumes of pork acquired from third parties. By
contrast, selected suppliers, who are subject to inspection by the Federal
Agriculture Ministry, produce all beef that is processed by the Company. There
are no suppliers who individually account for over 10% of Sadia's total
purchases of beef.

Sadia believes that its use of chicken meat as a raw material for processed
products should grow substantially for two reasons: (i) the increase in the
range of chicken-based products such as breaded products, and (ii) an increasing
share for this kind of meat in the composition of other processed products, such
as sausages, frankfurters and bolognas. The development of specialized products
(boiled and roasted products) for the institutional and foreign markets should
also contribute to the increase in chicken production.

The following table presents gross operating revenue from sales of processed
products by product line, for the years ended December 31, 2003, 2002 and 2001.

PROCESSED PRODUCTS
GROSS OPERATING REVENUE               2003             2002           2001
 (in R$ million)

Frozen                                482.0           415.7             369.7
    Hamburger                         134.4           105.2              91.8
    Breaded Products                  219.3           183.4             162.4
    Portions                           21.2            20.1              15.1
    Frozen ready-made dishes          107.1           107.0             100.4
Refrigerated                        1,793.9         1,329.5           1,122.0
    Ham and Related                   299.0           239.1             235.5
    Sausages                          420.4           308.9             258.6
    Frankfurters                      182.2           139.5             119.3
    "Light" line                      151.8           133.9             124.2
    Bolognas                          129.1            99.6              88.7
    Salamis                            64.5            55.5              56.9
    Cold cuts                          39.0            39.1              42.2
    Other                             507.9           313.9             196.6
Margarine                             532.7           369.4             275.8

TOTAL                               2,808.6         2,114.6           1,767.5

Poultry and Pork

In 2003, Sadia's sales of non-processed products reached R$ 2,716.2 million, and
accounted for 47.5% of the Company's total gross operating revenue. Among such
products, chicken is the most significant, accounting for 31.1% of total sales
in 2003, followed by turkeys and pork, which accounted for 7.7% and 9.8% of
sales, respectively. The Company exports significant amounts of fresh meat,
which in 2003, accounted for 88.7% of total export revenue.

Sadia operates seven chicken slaughterhouses. Three are located in the State of
Parana, two in the State of Santa Catarina, one in the State of Minas Gerais and
one in the State of Mato Grosso. The Company also operates three turkey
slaughterhouses, one in Santa Catarina State, one in Minas Gerais State and one
in Parana State, and five slaughterhouses for hogs, two in Parana State, one in
Santa Catarina State, one in Minas Gerais State and one in Rio Grande do Sul
State. The table below shows slaughtering volumes of the Company for the years
ended December 31, 2003, 2002 and 2001 in thousands of units:

SLAUGHTERING  VOLUMES   (million units)
                                   2003            2002            2001
Chickens                          482.0           450.2           435.9
Turkeys                            19.0            19.4            20.9
Hogs                                3.9             3.9             3.6
Source: Sadia

                                       15
<PAGE>

The following table shows gross operating revenue from non-processed products,
for the years ended December 31, 2003, 2002 and 2001.

POULTRY AND PORK
GROSS OPERATING REVENUE (in R$ million)

                                   2003                2002              2001

Non-Processed Products
Poultry                         2,143.4              1.760,2         1.559.7
Chickens                        1,692.6              1.413,7         1.267.9
Whole                             667.0                677.3           564.5
Parts                             931.8                662.4           584.8
By-products/Other                  93.8                 74.0           118.6
Turkeys                           450.8                346,5           291.8
Whole                              73.8                 74.6            67.2
Parts                             366.7                261.2           220.0
By-products/Other                  10.3                 10.7             4.6
Pork                              572.8                516.5           324.0
Total                           2,716.3              2,276.7         1,883.7
Source: Sadia

Production Process

Processed Products

The Company uses special cuts of pork, chicken and turkey, as well as selected
and shaped fragments for the production of hams, sausages, frankfurters,
bologna, hamburgers, pressed ham and related products. Seasonings and secondary
raw materials are applied to each product type or line, according to established
formulas, in order to ensure consistency, color, texture and flavor. The
presentation of final products is achieved by shaping, casing, cooking and
freezing in special machines. Products are then subjected to quality controls
and distributed to the consumer market after having been packaged, labeled and
boxed. Poultry

The production process for poultry consists of four stages. The first two entail
direct investment by the Company in grandparent and parent stock. The third
relates to the commercial stock of birds, and involves the direct participation
of integrated farmers, and the last is the slaughtering process.

Grandparent and parent stock. The Company imports grandparent stock from the
United States in the form of eggs that are hatched in Sadia's hatcheries and
then raised on Company-owned farms. These birds produce parent stock that is
also raised on Company-owned farms, and that in turn produce eggs. The operation
involves nine hatchery centers, six of which produce "one-day-chicks" and three
"one-day-turkeys". The "one-day-chicks" are supplied to third-party out growers.
Sadia operates a similar system for turkeys, importing eggs from Canada to
produce grandparent stock that in turn produces parent stock that is raised on
Company-owned farms. The Company is not dependent on any foreign supplier for
its genetic resources, nor does it face any barriers to their development.

Commercial Stock. The "one-day-chicks" produced by parent stock are supplied to
integrated outgrowers who are responsible for raising the birds. The Company has
contracts with approximately 5,300 out growers, to which it provides feed,
technical and veterinary assistance to allow such out growers the outgrowing
process up to the time the birds reach slaughtering age, which for chickens is
normally 40 days (at a weight of 1.93 kg). There are no employment agreements
between Sadia and the outgrowers, who generally carry out this activity in order
to supplement their income. Most outgrowers farm on a small scale and raise six
flocks per year (each flock consists of approximately 14,000 chickens). The
Company remains the owner of the birds, and at the end of each production cycle,
pays an outgrowing commission fee based on a performance index that is
calculated as a function of indicators such as bird mortality, feed to meat
conversion ratio and average

                                       16
<PAGE>

weight. The fee paid to the integrated farmers covers the outgrowing costs, raw
materials, labor and their net profit.

Slaughtering. Poultry are slaughtered through a process by which they are
electrically stunned. They are then bled by puncturing of major blood vessels.
After heating to a temperature of 55/60o C, they are plucked and gutted by
automatic machines. The gutting process is subject to health control and
inspection. The carcasses are then moved for cooling or freezing at respective
temperatures of 6o C or -12/-18o C, and are then packaged according to the
required standards of Servico de Inspecao de Produtos Animais (SIPA)
(Animal-based Product Inspection Agency). At this stage, the whole birds are
either distributed to the consumer market as fresh meat or used as raw material
in processed products.
Pork

The Company produces grandparent, parent and piglet stock on its own farm.

Half the parent stock produced by Sadia is supplied to integrated outgrowers who
receive feed, medicine and technical assistance by way of support. These parent
animals produce hogs that are sold to Sadia for slaughter, after the fattening
process is completed. The other half of the parent stock produced by the Company
is sold to piglet producers, who also receive feed, medicine and technical
assistance. Sadia repurchases the piglets at market prices and distributes them
to integrated outgrowers, who after the fattening process sell such pigs to
Sadia for slaughtering.

Slaughtering. The hogs are slaughtered through a process in which they are bled
after being stunned electrically. After heating to a temperature of 60/64o C,
their bristles are removed by automatic machines. The animals are then dried,
flamed, brushed and gutted, which process is subject to health inspection. After
cooling to a temperature of 5o C, the carcasses are cut up and processed.

Industry Overview - Domestic and International Markets
Processed Products
Consumption of processed products is influenced by several factors, including
the increase in consumer income, and efforts related to the development of
products, with a view to meeting consumer demand for more sophisticated
products.

The processed products segment is divided into three categories: frozen
products, refrigerated products and margarines.

Frozen Processed Products

In 2003, the Brazilian market for frozen processed products accounted for
revenue of US$358,209 thousand. Approximately 80.3% of this total is
attributable to the two largest companies - Sadia and Perdigao S.A.

Consumption of frozen products is less sensitive to variations in income among
the population. This is explained by the fact that higher income groups consume
a large proportion of the total volume of the segment.

<TABLE>
<CAPTION>

Brazilian Market for Frozen Processed Products.

                           2003          2002          2001         2000          1999
<S>      <C>               <C>           <C>           <C>          <C>           <C>
Sales (US$ `000)           358,209       284,342       293,815      299,630       293,957
change %                   26.0%         (3.2%)        (1.9%)       1.9%          (24.3%)
Volume (tons)              127,153       107,494       91,722       74,359        73,053
change %                   18.3%         17.2%         23.4%        1,8%          10.3%
Source: ACNielsen
</TABLE>

Due to the characteristics of frozen processed products - with production
concentrated among a small number of companies, and supply aimed at a more
restricted group of consumers - the Company believes that volume sales of frozen
processed products will maintain their growth trend, although at rates below the
10% annual average registered between 1998 and 2003. In any case, since the
market for frozen processed products is still far from mature within Brazil, the
Company believes that its medium and long-term prospects are highly positive
based on the trend over the preceding six years.
Refrigerated Processed Products

                                       17
<PAGE>

In 2003, the Brazilian market for refrigerated processed products accounted for
sales of US$ 1,312.5 million. The two largest companies in this market together
accounted for approximately 56.0% of net sales, according to ACNielsen, with the
remaining share being split among a large number of small companies.

<TABLE>
<CAPTION>

Brazilian Market for Refrigerated Processed Products

BRAZIL                     2003           2002           2001           2000            1999
<S>        <C>             <C>            <C>            <C>            <C>             <C>
 Sales  (US$ `000)         1,312,517      954,908        1,112,836      1,403,449       1,306,432
change %                   37.5%          (14.2%)        (20.7%)        7.4%            (32.5%)
Volume (tons)              627,318        582,845        575,111        569,043         559,261
change %                   7.6%           1.3%           1.1%           1.7%            6.7%
</TABLE>
Source: ACNielsen

Margarine

The raw material for margarine is crude soybean oil, which is subjected to
refining and bleaching processes. Fats are obtained by hydrogenating bleached
oil. Both of these materials are deodorized in order to prepare the "blend". The
process is completed by the preparation of an emulsion, the cooling and
crystallization of the product, placing into containers, and the packing of
these into boxes.

Principal markets where the Company competes

In 2001, Sadia had an average of 37.2% of its gross operating revenues provided
from exports, in 2002 the Company increased this ratio to 41.4% and in 2003
exports reached 44.2% of total sales. The table set forth below presents the
main regions of the world where the Company has commercial relations and the
discussion that follows describes the main trends and expectations for its
markets.

<TABLE>
<CAPTION>

                                                          2003              2002              2001

<S>                                                            <C>          <C>                <C>
      Europe                                                   912,252      581,936            498,303
      Middle East                                              632,991      542,748            498,303
      Asia                                                     353,731      291,948            218,767
      South America                                            130,322       50,944             63,807
      Emerging markets (mainly Russia and other
      former Soviet Union countries)                           630,332      491,804            240,036
      Adjustments for US GAAP presentation                   (130,349)     (31,383)           (39,168)
                                                             2,529,279    1,927,997          1,480,048
</TABLE>

This information has been prepared and presented in accordance with Brazilian
GAAP that is adjusted for US GAAP presentation. Refer to Note 19 to consolidated
financial statements for details on primary differences between Brazilian GAAP
and US GAAP.

Even with the increasing restrictions against Brazilian poultry, Sadia has been
able to improve its presence in Europe, which comprised 34.3% of the total
amount exported during 2003. This region demand is mainly for poultry cuts and
processed food. In the Middle East region, the Company has a traditional
presence and a recognized brand leadership. These countries consume whole
poultry and processed products. Eurasia is the main market for pork and also
consumes whole poultry and special cuts. The quota regime recently imposed by
Russia will not affect Sadia's long-term strategy plans for the region. In
South America and Emerging Markets, Sadia foresees a potential opportunity for
the expansion of its exports as the Company's presence in these regions
improves.

                                       18
<PAGE>

Market Overview

Poultry - Chicken and Turkey

DOMESTIC ENVIRONMENT

The Brazilian poultry market is a complex sector where a few large companies
share the market with small producers. According to ABEF, (Brazilian Poultry
Exporters Association), the four largest chicken producers in Brazil are
responsible for only 37.5% of the market supply. The low concentration in the
market increases competition on whole poultry and parts. Prices are subject to
supply and demand imbalances.

Many of these small companies operate under low quality standards because of the
large number of producers and government difficulties to inspect producers on a
regular basis. Additionally, there is widespread belief that tax evasion
practices among these producers reduce their cost levels when compared to other
companies in the market.

The recent numbers of Brazilian domestic consumption of fresh chicken have
indicated that the market is determined by average income conditions and the GDP
reduction in 2003was also followed by the decrease in per capita consumption, as
shown in the chart below.

                                [GRAPHIC OMITTED

Source: IBGE (Brazilian Institute of Geography and Statistics Studies)

After seven years of growth in per capita consumption, there was a 3.4% drop
during 2003. This situation is explained by the reduction of average income, due
to the decrease in consumers' purchasing power in the period. As GDP is not
expected to grow significantly, the domestic sector should have slight growth,
or even a decrease in the next three years. According to CONAB (Brazilian Supply
Federation), per capita consumption is forecasted to be at 31.4 kg in 2004.

INTERNATIONAL ENVIRONMENT

The following analysis was prepared based on information gathered from USDA/FAS
market analysis report, CONAB market analysis, Avisite website reports and
Sadia's reports.

In contrast to the local market, poultry export business in Brazil has grown
rapidly since the mid 90's. This can be explained by the production shift of
large Brazilian companies exports, as well as by the competitiveness of
Brazilian poultry. Recently sanitary problems in the main producing countries
such as the Mad Cow Disease (BSE) cases in Europe, Avian Influenza (AI) problems
in Thailand and both BSE and AI cases in the United States has changed the world
broiler trade framework. The reduced competition from major exporting countries
affected by sanitary issues and the competitive cost of Brazilian poultry meat
favoured as the most competitive exporter of quality poultry cuts and
mechanically de-boned chicken meat. Additionally, several new markets in Europe,
Africa and the Middle East have opened to Brazilian chicken, and the number of
markets which Brazil has access to has risen from 107 to 120 at the beginning of
2004.

                                       19
<PAGE>

According to USDA Livestock and Poultry Report, world total broiler meat exports
are forecast to decrease marginally in 2004, but imports from major countries
are expected to decline 12 %. This is a consequence of restrictions imposed by
the world's main importers - China, Japan, and European Union, due to Avian
Influenza. The Russian restrictions on poultry meat quota levels for 2004 are
also influencing the forecast levels on poultry trade for this year. These four
markets accounted for more than 62% of world total broiler meat imports by major
importers in 2003.

<TABLE>
<CAPTION>

                                             WORLD BROILER BALANCE (THOUSAND TONS.)
                                       2003 (P)                                   2004 (F)
                       Production      Consumption      Exports    Production      Consumption     Exports
<S>                      <C>              <C>            <C>         <C>              <C>           <C>
 United States           14,696           12,534         2,237       15,226           12,987        2,248
 Brazil                   7,645           5,742          1,904        8,105           6,005         2,100
 European Union           6,466           6,216           730         6,695           6,315          780
 China                   10,000           10,066          388        10,000           9,910          310
 Japan                    1,127           1,842            -          1,125           1,670           -
 Other                   13,979           15,952          816        14,471           16,593         608
 World                   53,913           52,352         6,075       55,622           53,480        6,046
</TABLE>
Source: FAS, official statistics and inter-agency analysis, USDA, Broiler
Summary (p) preliminary (f) forecast

For the world's main countries, it is expected that production will continue to
grow during 2004. Although exports are expected to be lower on a worldwide
basis, Brazil's exports are expected to increase, while US and China are
forecasted to have slight growth and decrease, respectively. This is a
consequence of reduction in the main importing countries, due to the avian
influenza crisis outbreak among exporters. As the disease did not affect Brazil,
exports are expected to grow 10.3%.

BROILER IMPORTS (THOUSAND TONS)
                                     2003(P)                      2004 (F)
Russia                                1.100                          990
Japan                                  695                           520
European Union                         480                           400
Saudi Arabia                           390                           395
China                                  454                           220
Hong Kong                              154                           170
United Arab Emirates                   145                           140
Other Countries                        960                           987
World Total                           4,378                         3,822

Source: FAS, official statistics and inter-agency analysis, USDA, Broiler
Summary (p) preliminary (f) forecast

Despite the fact that 2004 Japanese broiler meat imports are expected to be
25.2% lower as compared to 2003, imports from Brazil are projected to increase
during 2004. Nonetheless, Japan's total consumption is projected to be 9.3%
lower because of consumer concerns about broiler meat quality.

Among the European Union Countries (in this analysis newly-admitted countries
are not included) Broiler meat imports in 2004 are expected to decrease 16.7%
from 2003. This is due to an increase in EU supplies, because of the expected
production recovery from Avian Influenza in the Netherlands. Imports for 2004
are also expected to fully reflect restrictions against to salted poultry in
2003, which had reclassified lightly salted poultry products to a frozen tariff
classification. This change is more likely to affect suppliers from Brazil and
Thailand, who have historically supplied nearly 80 percent of total EU broiler
imports. Despite Thai fresh poultry being banned from Europe, a portion of its
exports into the EU is made up of cooked chicken meat that will not be affected
by the Avian Influenza ban. In addition, the change in tariff classification
regarding salted poultry meat does not apply to cooked or processed food.

                                       20
<PAGE>

In China, broiler meat imports in 2004 are expected to decline 51.5% from 2003
imports, due to the country's strict quarantine and sanitary requirements in
response to the discovery of Avian Influenza in the United States.

For the Middle Eastern countries, imports in 2004 are forecast to increase 1.3%,
as a consequence of more competitive prices compared to domestically produced
products. Governmental incentives to local production should facilitate
expansion in 2004, lowering costs. About 40% of domestic broiler meat
consumption is supplied by imports, and Brazil has 60% of market share in the
frozen chicken meat segment.

In Russia, broiler meat imports in 2004 are forecasted to decrease 10.0% from
2003 due to the quota restriction regime in the country. Investments in the
domestic broiler industry will continue to expand production capacity and stocks
are expected to be used to meet strong domestic demand. This situation is
directly influenced by tight supply and strong demand, combined with general
price increases because of world poultry markets trade imbalances from Avian
Influenza outbreaks.

<TABLE>
<CAPTION>

RUSSIAN QUOTA DISTRIBUTION FOR 2004 (SUPPLYING COUNTRIES)
COUNTRIES                                             QUOTA (THOUSAND TONS)      %
<S>                                                                      <C>       <C>
United States                                                            771.9     73,5%
European Union and other*                                                205.0     19,5%
Paraguai                                                                   5.0      0,5%
Other                                                                     68.1      6,5%
Total                                                                  1,050.0      100%
RUSSIAN QUOTA LIMITS (BY PERIOD)
PERIOD                                                THOUSAND TONS.
From April 2003 to Dec. 2003                                                       744.0
2004                                                                             1,050.0
2005                                                                             1,050.0
From January to April 2006                                                         306.0
</TABLE>

* Poland, Czech Republic, Hungary, Slovakia, Lithuania, Latvia, Estonia, Cyprus,
and Malta Island Source: Russian Federation Government

Pork Market Overview

DOMESTIC ENVIRONMENT

As in the poultry meat business, the decreasing purchasing power of the
Brazilian population lowered pork meat based products consumption in 2003.
Despite a continuous price decrease since 2002, due to the oversupplied market
as a consequence of restrictions raised in the export market, domestic market
consumption still low. Since 2000, per capita consumption has been decreasing in
Brazil and from 2002 to 2003, this ratio registered a 9.5% decrease. As the
Russian market tends to keep restricted until 2006, price is still expected to
remain low.

Additionally, processing companies are subjected to the same problems faced in
the poultry market - unfair competition with small, low quality producers.
Although these problems influences product quality, there is still very low
perception by part of the population on the risks involved and price dumping is
broadly practiced.

                                       21
<PAGE>


                                [GRAPHIC OMITTED

Source: Abipecs (Brazilian Pork Exporters Association)

Brazilian pork breeding and slaughtering is increasing its productivity
efficiency year after year. Measured by the average birth rate of piglets,
productivity doubled since the 1970's - in 2003, the birth rate reached 24
animals per female and at 160 days old, animals weights 100Kg in average, ready
to be slaughtered. Research has also contributed to reduce fat by 31%,
cholesterol by 10% and calories by 14% in the pork produced in Brazil. This
enhancement allows for a better productivity of prime cuts, more meat per
carcass as well as more nutritious, and healthier meat. The following table
presents information on production indicators of the segment in the last five
years.
<TABLE>
<CAPTION>

                                    2003         2002        2001        2000         1999
<S>                                 <C>          <C>         <C>         <C>          <C>
Sow Number (Thousand)               2,486.0      2,871.0     2,663.0     2,461.0      2,312.0
Slaughtered (Million Head)          34.5         37.7        34.9        32.3         23.5
Thousand Tons Produced              2,698.0      2,872.0     2,730.0     2,556.0      1,834.0
Exports                             491.0        476.0       265.0       127.0        87.0
Imports                             1.0          1.0         1.0         1.0          0.7
</TABLE>
Source: ABIPECS 2003 Annual Report

As demand levels has been decreasing in the last several years, the sales
efforts of Brazilian producers have been oriented to the export market, which
accounted for 82% of production shipments in 2003.

INTERNATIONAL ENVIRONMENT

The international trade market framework for pork has passed through
significant changes since BSE and avian influenza outbreaks appeared in late
2003 and early 2004. The change in consumption habits from beef and poultry meat
based products to pork meat can positively affect growth in both pork production
and consumption in the near term. Nevertheless, there is an increasing awareness
that meat trade flows are becoming largely dictated by sanitary conditions and
regulations. Exporters worry that market access, driven by trade policy, as well
as veterinary and food safety controls, can become easily susceptible to
non-tariff trade barriers, especially when those controls are not based on
technical criteria. Within this very uncertain environment, exporting countries
are trying to maintain a competitive position in lucrative markets. At the same
time, importing countries are seeking to ensure fairness for their domestic
producers, while also safeguarding the health and economic needs of their
consumers.

                                       22
<PAGE>

From total Brazilian pork production in 2003, 23% was exported, with more than
65 % of these exports shipped to Russia. Under the 2004 Russian quota system,
Brazilian pork will compete for a share of the 179,500 ton quota reserved for
"other countries" a considerably lower amount when compared to the 300,000 tons
shipped in 2003. There are alternatives to compensate for the decrease in
Singapore, South Africa, the Netherlands, and Argentina, but the decrease in the
short term is expected to be 30%, according to USDA estimates.

<TABLE>
<CAPTION>

                                                            WORLD PORK BALANCE
                                             2003 (P)                                2004 (F)
                              PRODUCTION   CONSUMPTION      EXPORTS   PRODUCTION   CONSUMPTION      EXPORTS
<S>                              <C>            <C>            <C>       <C>            <C>            <C>
China                            44,600         44,467         282       45,940         45,725         370
European Union                   17,800         16,750        1,150      17,800         16,730        1,140
United States                    9,073          8,833          779       9,195          8,894          828
Brazil                           2,560          1,957          603       2,480          2,060          425
Russia                           1,710          2,309           -        1,760          2,319           -
Japan                            1,259          2,372           -        1,270          2,590           -
Other                           (53,327)       (52,384)       (653)     (54,545)       (53,561)       (682)
World                            87,964         87,548        4,246      89,141         88,966        4,184
</TABLE>
Source: FAS, official statistics and inter-agency analysis, USDA, Pork Summary
(p) preliminary  (f) forecast

According to USDA, U.S. pork production is forecasted to increase 1.3% in 2004.
Foreign demand for U.S. pork is expected to remain strong in 2004, especially as
increasing concerns over BSE and avian influenza continue to affect trade in
beef and poultry.

European Union countries are expected to register stable production levels in
2004, with increasing price levels as a consequence of low inventories, reduced
sow numbers and growing consumer demand. This trend can also be affected by
concerns over rising feed prices, as well as the relative strength of the Euro
vis-a-vis the U.S. dollar. With the new 10 country accession, the EU Commission
estimates that the new pork production in the region will immediately increase
by up to 25 %. However, pork consumption in those countries is very high, and
price is still likely to continue increase.


                              PORK IMPORTS
                                        2003(P)           2004 (F)
Japan                                    1,133              1,300
Russia                                    600                560
Mexico                                    371                385
Hong Kong                                 302                335
South Korea                               153                175
China                                     149                155
European Union                             70                70
Other Countries                          1,085               941
World Total                              3,863              3,921

Source: FAS, official statistics and inter-agency analysis, USDA, Broiler
Summary (p) preliminary (f) forecast

Japan is the world's largest pork importer. Declining stocks and strong consumer
demand are expected to push 2004 pork imports 14.7% above 2003 levels.

With the imbalances in beef and poultry supplies, Hong Kong's 2004 pork imports
are forecasted to increase 11%. Around 19% of Hong Kong's pork imports are
expected to be re-exported, mainly to China. China and Brazil are Hong Kong's
two largest suppliers, each respectively accounting for 43 percent and 20
percent of all imports.

                                       23
<PAGE>

As with poultry, the Russian Government raised tariff rate quotas on pork for
2004. Consequently, Russia's pork imports are expected to decline 6.7% in 2004.
This measure will likely benefit countries like Poland and Hungary, which are
very competitive in prepared and preserved pork products. Due to these
restrictions Brazil, which was responsible for 54% of Russian pork imports
supply, is expected to decrease its market share.

RUSSIA 2004 PORK IMPORTS QUOTA (TONS)

European Union                               227,300
United States                                 42,200
Paraguay                                       1,000
Other countries (except CIS countries)       179,500
Total                                        450,000

Source: FAS, official statistics and inter-agency analysis, USDA, Broiler
Summary

Seasonal Nature of Business

Chicken and pork. Not seasonal in nature.

Processed products. Processed products are seasonal only in the celebration
products, with a higher volume of sales in the fourth quarter.

Turkeys. Turkey production activities are seasonal in nature with respect to
"whole turkeys", whose production is concentrated in the second half of the
year, with a higher volume of sales in the fourth quarter because of Christmas
holidays.

Raw Materials

The Company owns eight animal feed plants with an installed capacity of 4.2
million tons per year, a volume sufficient to supply all the animal feed
requirements of its breeding operations. The basic raw materials used in animal
feed production are corn and soybeans, in a mix that contains preservatives and
micronutrients. Sadia supplies the basic animal feed to its out growers and
sells the remainder on the spot market.

Sadia purchases corn and soybeans from rural producers, small merchants,
cooperatives, large-scale traders and through auctions organized by the
Brazilian government, as well as occasionally from Argentina. Most of the
production of these raw materials is concentrated in the States of Santa
Catarina, Parana, Rio Grande do Sul, Goias and Mato Grosso. Grain is received in
sacks or in bulk, and is then weighed. A sample is taken to measure humidity and
impurities in the grain. After approval, the grain is unloaded into a hopper for
cleaning and drying. Grain is then sieved in order to eliminate the residues
that accompany it. After selection and cleaning, the grain is milled and mixed
with the other ingredients of the feed.

The Company uses beef acquired on the market in its production of frozen and
refrigerated processed products, and boiled beef parts. Other inputs, such as
prepared animal intestines (for casing), seasonings and other ingredients,
cardboard boxes, plastic bags (for packaging and labels), and veterinary
medicines (for poultry and hog breeding), are acquired from many different
sources, both at home and abroad.

Marketing

 Sadia's brand name is considered one of the Company's most valuable assets. The
Company maintains an active marketing program using both electronic and printed
media.

The Company incurred advertising expenses of R$96,845, R$82,154 and R$90,519,
during the years ended December 31, 2003, 2002 and 2001, respectively.

Marketing expenses are related to investments in advertising of specific
campaigns for the launch of higher
value-added products and for the reinforcement of Sadia's brand name.
Business Strategy

Sadia's strategy for maintaining its leadership in the Brazilian food market and
winning share in the international market is to capitalize on the Company's
competitive advantages in its principal segments of operation, and to
concentrate on:

                                       24
<PAGE>

o Developing and introducing value-added products: The Company has invested and
intends to continue investing in maintaining and enhancing its market share in
the processed products segment, while expanding poultry and pork sales, through
value-added products, mainly to export.

o Promoting the "Sadia" brand: The Company is undertaking consistent marketing
initiatives that emphasize the quality of its products;

o Achieving economies of scale through further integration of the activities of
the Company: Sadia has focused on improving efficiency and reducing distribution
costs by modernizing its distribution centers, implementing an enhanced logistic
information system and a distribution routing system and automating/optimizing
its sales branch management; and

o Exports: The Company is increasing exports while changing product mix to more
value-added products and
diversifying export destinations.
Logistics

One of the main competitive advantages of Sadia in Brazil is its logistics
system and distribution channels. The Company has been taking many initiatives
to keep sustaining its leadership, which includes partnerships, information
technology investments and the development of new procedures.

Distribution

The Company has distribution and sales centers within Brazil and three sales
offices in Latin American countries (Argentina, Uruguay and Chile), as well as
an exclusive distributor in Paraguay and Bolivia, and four representative
offices outside Latin America (Milan, Tokyo, Worcester and Dubai).

Within the Brazilian market, Sadia sells its finished products to wholesale and
retail outlets, as well as to institutional clients. For the year ended December
31, 2003, the Company sold through approximately 330,000 points of sale
throughout Brazil.

Sadia's distribution strategy is supported by direct sales to customers, thereby
avoiding concentration among a few large customers.

In 2003, 53% of exports were sold to approximately 10 long-standing customers.
All of these customers have imported increasing quantities of the Company's
products over the last ten years. European countries corresponded to 38.4% of
export sales in 2003 against 22% in 1999, partly because of a consistent
strategic marketing campaign and in part due to a distribution partnership made
with SunValley, a British food processing company, which is responsible for the
distribution of Sadia's products in eastern European countries. Exports to
emerging markets, such as Russia and other former Soviet Union countries, had
also been growing consistently, mainly due to pork and chicken exports,
representing 88% of total exports in 2003. The America region, which comprises
North, Central and South America, represented 5% in 2003 against 3% in 2002,
mainly due to the expansion of exports to Andean countries.

                                       25
<PAGE>

Transport

Sadia uses trucks as the primary method of distributing its products in Brazil.
The Company's distribution system is handled by a network of approximately 1,500
hired vehicles, which service customers directly throughout Brazil. Exports are
mostly shipped by sea.

Distribution by truck is made by refrigerated vehicles, given the perishable
nature of the food products, whose shelf life is approximately 30 days. In the
case of stoppage of transport by virtue of a general strike, the result would be
a complete loss of the products in transit and lack of supply for the points of
sale if the period of interruption is greater than 30 days, an outcome the
Company considers remote. As an alternative to highway transport, supply could
be effected by air, although this would increase the freight cost by more than
20 times. In the case of a sector strike, the impact would be minimized because
the Company has manufacturing units producing the same products located in
different regions of the country.

Shipment of Exports

The Company ships 80% of its exports through the port of Paranagua, in the State
of Parana, with the remainder loaded at the ports of Sao Francisco do Sul and
Itajai, both in the State of Santa Catarina.

In the port of Paranagua, the Company has two refrigerated warehouses with a
storage capacity of aproximately 10,000 tons. These warehouses have a "drive in"
storage system and only operate with palleted cargoes. This system allows the
warehouses to receive 1,000 tons of products per day and to load 2,000 tons per
day onto pallets.

Since one of the warehouses is located in the wharf area, the Company has
priority in the mooring of ships arriving at the port of Paranagua, thereby
avoiding possible cost increases due to delays in loading cargo.

The Company ships its cargoes in "full container" or conventional "reefer"
vessels for palleted cargo.

Market Share

Sadia is the Brazilian leader in frozen and refrigerated processed products
according to ACNielsen's surveys. Its market position is supported by
significant investments in its brand, its distribution channels and in quality
control.

Ranking in Brazil - 2003

                                   Position   Market Share           Source
Frozen Processed Products          1st                 45.6%         NIELSEN*
Refrigerated Processed Products    1st                 30.1%         NIELSEN*
Margarine                          1st                 28.8%         NIELSEN*

* By revenue

In order to maintain its market share, the Company will continue to concentrate
on launchings of higher value-added products. In 2003, Sadia launched 53
products, against 56 products in 2002 and 65 products in 2001.

Processed Products

Sadia is the domestic leader in processed products (according to ACNielsen),
with a 45.6% market share of frozen products and a 30.1% share of refrigerated
products.

Sadia has also assumed the leadership in the domestic margarine market,
according to ACNielsen, with a market share of 28.8% in 2003.

                                       26
<PAGE>

<TABLE>
<CAPTION>

Brazilian Margarine Market

BRAZIL                            2003          2002           2001          2000          1999
<S>                                 <C>           <C>            <C>           <C>          <C>
Value  (US$ `000)                   478,882       363,157        352,554       419,016      447,556
Change  %                             31.9%          3.0%                       (6.4%)      (27.6%)
                                                                 (15.9%)
Volume (Tons)                       272,912       262,527        249,035       245,466      242,775
 Change %                              4.0%          5.4%           1.5%          1.1%         1.4%
</TABLE>
Source: Nielsen

Poultry

In 2003, the Company had a12.9% share of domestic chicken production, and a 23%
share of the Brazilian poultry export market. Sadia introduced turkey production
to the Brazilian market in 1973, when its consumption was virtually
non-existent. Today the market is shared with other competitors, but Sadia is
still in the leadership, with 72.5% of total sales.
Brazil is a competitor in the international poultry market, ranking as the
second largest exporter in 2003 (according to FAS statistics), with exports
around 1,904 thousand tons. Competitive advantages such as raw materials,
climate and the local labor force are responsible for its performance.

Pork

Approximately 70% of Sadia's pork production is used in its processed products
segment. The remainder is sold as fresh meat cuts in the domestic and
international markets. According to the Brazilian Pork Producers Association, in
2003, the Company had a 11.3 % share of domestic pork production, and a 21.3%
share of the Brazilian pork export market.

Investments in Operations

In 2003, Sadia invested R$105.8 million in operations - 5.7% less than in 2002.
Of this amount, 40.9% was allocated to processed products, 39.7% to poultry,
5.2% to pork, and 14.2% in the administrative area. These resources allowed the
Company to launch 53 products.. In 2002, Sadia invested R$ 112.1 million in
operations - 8.3% more than in 2001, 39.9% of which was directed towards
processed products, 30.9% to poultry, 14.8% to pork, and 14.4% in other
activities.

Environment

Brazilian environmental regulations have their principles established in the
Federal Constitution, with concurrent jurisdiction among the Brazilian Federal
government, the States and the municipalities to regulate the subject. The
public administration at each such level of government is responsible for the
supervision and control of pollution in any form, as well as for the
preservation of forests, hydraulic resources and the fauna and flora. The
integration of all of the federal, State and municipal agencies responsible for
the protection and improvement of environmental quality is undertaken by the
SISNAMA- National Environmental System.

Sadia, as a producer of foodstuffs using a wide range of industrial processes -
especially its meat product lines which require slaughter of animals - is
therefore subject to compliance with all of the legal requirements, covering
environmental risks that are customary in these processes, such as rules
governing treatment of liquid effluents, solid organic waste, particulate
suspension and odors. The Company is careful to respect the environment at all
stages of the production chain, including its activities in the field, the
design of packaging (developed with a view to reducing the quantity of raw
materials used) and adapting the same to recycling processes. In addition to
simply treating residues, Sadia invests in minimizing the generation of these by
optimizing processes and adopting stringent procedures for controlling the
emission of wastes and effluents. Sadia's expenditures related to meeting
environmental requirements and in process optimization amounted to R$ 15.8
million in 2003(R$ 3.7 million in 2002 and R$ 8.5 million in 2001.).

The Chapeco industrial facility is certified by ISO-14001 certification -
recognized by the BVQI (Bureau Veritas Qualite Internationale) since 1999. The
conclusion of the process to adjust the Paranagua (PR) plant to the ISO 14001
regulations by the end of 2003 resulted in its certification by the Bureau
Veritas Quality International. This certification, attests the conformity of
environmental management systems to the

                                       27
<PAGE>

ecosystem in which it operatesand assures a world recognized certification that
acts as a guarantee of environmental quality, which is required by many
countries as a prerequisite for trade relations.

Other achievements in 2003 comprise the New Effluent Treatment Technologies
Project. Studies are being conducted in partnership with the Federal University
of Santa Catarina (UFSC) and the Hannover University in Germany. Their purpose
is to adopt the use of new techniques for purifying water during the final phase
of treatment.

During 2003, Sadia Paranagua won first place in the state of Parana in the
National prize for Conservation and Rational Use of Energy 2002-2003, run by the
Ministry of Mines and Energy and the National Confederation of Industry (CNI),
in the manufacturing category, electric energy division. The unit was also
classified in second place in the national contest.

The Toledo plant also placed in the state stage of the contest, in the
environmental education category. In August, the Chapeco unit received the Fritz
Muller trophy from the Santa Catarina Environmental Foundation in recognition of
its work in favor of sustainable development. The Riparian Buffer Zone
Reforestation Project recovered and repopulated riverside fauna in the region
near the Francisco Beltrao (PR) facility. Some 250,000 seedlings were planted
and more than 2 million hatchery fish were introduced.

Human Resources

The Company ended 2003 with 34,432 employees, as compared with 32,184 at the end
of 2002. Gross Operating Revenue per employee was R$ 166,053, an increase of
10.9% when compared to 2002. In 2003, the Sadia Corporate University (UniS)
project was implemented. It is a way for the Company to conduct and systematize
a process of education and learning that is in line with its strategic and
long-term objectives. During the year UniS offered MBA programs for 35
employees. UniS maintained the partnership Sadia already had with the State
University of Campinas and signed agreements with professors from the University
of Sao Paulo and the Getulio Vargas Foundation. Besides the UniS' MBA programs,
the Company has an agreement with the Dom Cabral Foundation for training
executives. Through UniS, Sadia believes the understanding of the business will
be more efficiently disseminated and better employed through concrete action
designed to generate value.

The Company distributes 5% of its operating earnings to eligible employees with
at least one year of service, excluding equity accounting adjustments, income
tax and social contributions. In 2003, the amount corresponded to R$ 30.4
million, with premiums of a minimum of 1.71 times the salary of each employee,
for profit sharing bonus for good departmental performance.

The Company believes it maintains satisfactory relations with its employees, and
there have been no strikes or significant labor disputes in recent years.
Current collective bargaining agreements have a term of one year, and are
negotiated between the Company and workers' unions, with such agreements
negotiated separately for each industrial unit. The agreement reached with the
local or regional union applies to the employees of a given unit, whether they
are members of the union or not.

Employee Benefits

Sadia contributes 0.75% of its payroll to the Attilio Fontana Foundation
(`FAF'), a private pension fund. Employees contribute 1.5% of their payroll

One of the ten largest employers in Brazil, the Company spent R$ 71.8 million on
benefits during 2003, consisting of meals served, medical assistance,
maintenance of day care centers, life insurance and transportation expenses.

                                       28
<PAGE>

Total Quality Program

The Company maintains a quality control program, called "Total Quality
Management" (TQM). The TQM program's objectives are: (i) to ensure high
standards of quality by implementing a rigorous inspection program of raw
materials and finished products; (ii) to ensure that Company executives stay
informed of product and service performance; and (iii) to achieve the highest
possible level of customer satisfaction.

Sadia's Central Laboratory is responsible for inspecting the Company's products,
and develops and implements new methods for examining food materials for
chemical and biological contamination. It also examines raw materials used in
developing products. The Laboratory also controls the environment of plants, as
well as water and wastewater treatment facilities.

The Company has a series of toll-free lines, and encourages customers to use
these in order to provide feedback on its products and services, which is passed
to the Company's commercial area. This procedure provides Sadia with the
information that it requires in order to correct or improve its quality control
process.

Brazilian Food Sector Regulation

The Brazilian Minister of Agriculture regulates Sadia's activities, more
specifically, by the SDA - Secretaria de Defesa Agropecuaria (Agricultural and
Cattle Breeding Defense Secretary) under the DIPOA sector (Animal Products
Inspection Department). The latter is responsible for the issuance of
regulations, conduct of inspections and legal support in respect to the
livestock, animal breeding, food processing and any other activity involving
animal related affairs in the Brazilian territory.

C. ORGANIZATIONAL STRUCTURE

Ownership

The Company's most liquid shares are non-voting (Preferred Shares), and 26.4%
(December 2003) of these are owned by foreign investors. The Company has no
current plans to change its ownership structure.

On December 31, 2003, the Company's share capital consisted of 257,000,000
Common Shares and 426,000,000 Preferred Shares. Of the two types of shares
traded in the market, only Common Shares carry voting rights. Under the terms of
the Company's By-laws, however, specific rights attach to the non-voting
Preferred Shares. In accordance with Brazilian law, a company is entitled to
purchase up to 10% (ten percent) of its own stock traded on Brazilian stock
exchanges. See "Item 7. Major Shareholders and Related Party Transactions" and
Item 4.A above for organizational chart, for more information.

D. PROPERTY, PLANT AND EQUIPMENT

In 2003, the Company operated 11 industrial plants, which include seven units
for poultry production, five units for pork, eight units for animal feed, two
units for crushing of soybeans and nine units for processed products. Some
plants are multioperational, including several integrated activities. The
Company has 15 distribution and commercial centers and nine representative
offices and distribution centers abroad.

                                       29
<PAGE>

Operating Units
<TABLE>
<CAPTION>

The table below lists Sadia's operating units and its principal activities:

State       City              Address                              Principal activity

<S>         <C>               <C>                                  <C>
MG          Uberlandia        Av. dos Eucaliptos, 800              Raising and  slaughtering  chickens,  turkeys and hogs,
                                                                   processed products and animal feed
MT          Varzea  Grande /  Alameda  Julio  Muller,  1850 -      Raising and slaughtering  chickens,  processed products
            Campo Verde       Cristo Rei                           and animal feed
PR          Dois Vizinhos     Rua Sen. Attilio Fontana, 2323       Raising  and  slaughtering  chickens;  animal  feed and
                                                                   crushing of soybean.
PR          Francisco         Avenida Attilio Fontana,  s/n(0),    Raising  and  slaughtering  chickens  and  turkeys  and
            Beltrao           Km 4                                 animal feed
PR          Toledo            Av.  Senador  Atilio   Fontana,      Raising and slaughtering  chickens and hogs;  processed
                              1191                                 products; animal feed and soy oil
PR          Ponta Grossa      Rua Leopoldo Froes, 1000             Raising and slaughtering hogs; pizzas and pasta
PR          Paranagua         Av.  Senador  Attilio  Fontana,      Margarine
                              1501 -- Colonia Santa Rita
RJ          Duque de Caxias   Estr.  Venancio  PereiraVeloso,      Processed products
                              1479
RS          Tres Passos       Rua Jose Bonifacio, 300              Raising and slaughtering hogs and animal feed

SC          Chapeco           Av. Sen. Attilio Fontana, 3600       Raising and slaughtering  chickens and turkeys,  animal
                                                                   feed and processed products
SC          Concordia         Rua Senador Attilio Fontana, 86      Raising and slaughtering  chickens and hogs,  processed
                                                                   products and animal feed
SP          Sao Paulo*        Rua Fortunato Ferraz, 365            Processed products
</TABLE>

                                       30
<PAGE>

Distribution and Commercial Centers

<TABLE>
<CAPTION>
The table below lists Sadia's Distribution and Commercial Centers and the
corresponding region of activity:

State    City          Address                                                          Region of Activity
<S>     <C>            <C>                                                             <C>
AM       Manaus        Bairro Chapada - Manaus - AM                                     Brazil North Region
                       CEP: 69050-010
BA       Salvador      Granjas Rurais Presidente Vargas, s/n(degree)- Km 5,5, Trevo     324   Brazil Northeast Region
                       Bairro Campinas de Piraja
                       CEP: 41290-000
CE       Fortaleza     Anel Viario de Fortaleza, km 8,2, Pajucara, Maracanau            Brazil Northeast Region
DF       Brasilia      SIA 33 - lote 150/200                                            Brazil Federal District
                       CEP: 71200-030
MG       Belo          Rua das Canarias, 223 -  Bairro Jardim Atlantico                 Brazil Southeast Region
         Horizonte      CEP: 31560-050
MS       Campo Grande  Rod.  BR 163,  km 04, n(degree)6689 - Cidade  Morena - Zona R    ural, Brazil Central region
                       CEP: 79064-000
MT       Cuiaba        Alameda Julio Muller, 1650                                       Brazil Central States
                       Bairro Porto Velho - Varzea Grande
PA       Belem         Rua dos Pariquis, 2999 - Cremacao - Belem                        Brazil North Region
PE       Recife        Av. Vinte de Janeiro, 958- Bairro Boa Viagem                     Brazil Northeast Region
PR       Curitiba      Rua Carneiro Lobo, 468 - 4(0)andar                               Brazil South Region
                       Batel - CEP: 80240-240
RJ       Rio        de Av. Dona Tereza Cristina, 1478                                   Brazil Southeast Region
         Janeiro       Bairro Capivari - Duque de Caxias - RJ
                       CEP: 25243-620
RS       Porto Alegre  Rua Paul Zivi, 400                                               Brazil South Region
                       Bairro Jardim,  Sao Pedro - CEP: 91040-240
SC       Itajai        Rua Otto Hoier, 134                                              Brazil South Region
                       Sao Vicente - CEP: 88308-100
SP       Sao Paulo*    Rua Fortunato Ferraz, 529/659 -- Terreo                          Brazil Southeast Region
                       Bairro Vila Anastacio
SP       Jundiai       Av. Jose Benatti, s/no, Gleba 3                                  Brazil   Southeast  Region
                       CEP: 013213-085 - Jundiai, SP                                    and Sao Paulo State Region
</TABLE>

*In the second half of 2003 the Sao Paulo activities for distribution and
product processing were transferred to Ponta Grossa.


                                       31
<PAGE>

Environmental issues affecting the company's activities

As a poultry and hog livestock and slaughtering company, Sadia's activity
impacts on environmental issues, especially related to water resources
pollution, animal treatment and deforestation. However, the Company takes all
measures to comply with the Brazilian environmental regulations.

As a way of ensuring the sustainability of its activities, Sadia has strict
policies for reducing consumption of water and uses biomass to substitute fuel
oil and gas to generate thermal energy. All its units have water resources
treatment facilities to avoid the contamination of water tables and rivers near
the units. The Company also strictly supervises the activities taken by the
poultry and hog out growers. Finally, The Company has a program for being self
sufficient in firewood, maintaining legal forest reserves for all of its
manufacturing units. These areas total 25,000 hectares and supply 70% of the
Company's firewood requirements.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with the Company's
consolidated financial Statements and notes thereto, and other financial
information included elsewhere in this Annual Report.

Through December 31, 1997 the Company's consolidated financial Statements were
prepared on a fully indexed basis to recognize the effects of changes in the
purchasing power of the Brazilian currency. In July 1997 the three-year
cumulative inflation rate for Brazil fell below 100%. However, for accounting
purposes, the constant currency method continued to be used through December 31,
1997. The restated balances of non-monetary assets and liabilities of the
Company as of December 31, 1997 became the new basis for accounting and the
financial statement items are no longer restated for inflation beginning January
1, 1998.

Company-related Factors

As part of its Strategic Plan, which focuses on higher value-added products
(processed products) together with the simplification of its administrative and
corporate structure and the improvement of tax efficiencies, Sadia has
implemented the following measures:

Grains and by-products

Sadia has some activities related to the segment of grains and by-products
currently consisting on the crushing of soy to obtain the meal used as a raw
material in the production of feed for the Company's own stock and that of the
integrated producers, and refining of crude oil resulting from crushing for
margarine production.

Corporate Reorganization

In July 1998, Sadia Concordia S.A. was merged into Sadia Frigobras S.A., and
changed its name, so that all of the operational activities of the organization
were consolidated into a single public company: Sadia S.A. The initiative
resulted from a gradual process of corporate reorganization with a view to
simplifying its structure and improving economies of scale, through the
reduction of administrative and tax costs.

Sales

The Company adapted its sales structure and commercial policies to the large
chain, wholesale (cash and carry), regional mid-size clients, traditional retail
(small retail), institutional and distributor channels. The sales force was
unified in a single management group, making it possible for the big retail
chains to be serviced by an account manager, with the support of coordinators,
promoters and restockers.

For medium and small retailers, the Company instituted telemarketing service,
which complements the market work of the sales force. Sadia's field team became
more productive, balancing the reduction in number of clients serviced and a
reduction in salesmen with an increase in the client portfolio for each
salesman, and a minimum weekly order.

                                       32
<PAGE>

Organizational Structure

In 2000, the Company organized its activities in three macro processes so as to
create demand, to reach demand and manage the Corporation, in order to simplify
structures and achieve higher efficiency in the decision-making process, aiming
at a stronger synergy with the Marketing and International areas. Implemented in
the second half of 2000, this change has already had a positive impact on the
mix of products traded in the domestic market, hence increasing profitability.

Investments

Granja Rezende

On December 28, 1999 Sadia acquired the capital stock of Granja Rezende S.A..
Granja Rezende is a food producer located in the strategic Mid-West region of
Brazil, in the city of Uberlandia, Minas Gerais State. Granja Rezende's results
from operations were consolidated with Sadia's figures from the date of
acquisition. At the date of acquisition, Granja Rezende's plant consisted of a
processed product manufacturing unit, a chicken slaughterhouse, a hog
slaughterhouse, poultry and hog breeding farms and hatcheries.

The acquisition was made due to some important regional characteristics: the
strategic location in the central region of Brazil close to the suppliers of the
main inputs for poultry and pig farming, the close proximity to the major
consuming centers, a favorable climate for production and a well organized
infrastructure of transport, energy, water, communications and skilled labor.
Additionally, the region is served by a road-rail network and multipurpose cargo
terminal combining air, land and river transport (the Tiete-Parana waterway)
linking the city to the principal markets of Brazil, Mercosur and overseas.

On August 30, 2002 the Company and Granja Rezende merged. Sadia is still
producing products under the Rezende brand in other units and is producing
Sadia's products in the Granja Rezende unit. The former denominated Granja
Rezende's activities are now referred to as Uberlandia Unit.

Lapa Alimentos

During 2000, the investment in Lapa Alimentos S.A. ("Lapa"), a 50 percent owned
investee, accounted for on the equity method, was terminated. Property, plant
and equipment received from Lapa were valued at estimated fair value less cost
to sell and classified as assets available for sale at year-end.

Investment Plans

The Company's investment plans for the year 2004 totals R$ 150.3 million. Of
this amount, the processed products segment will receive R$ 92.7 million,
directed improvements on processing equipment, Marketing, logistics and
distribution will receive R$ 4.0 million, Information Technology R$ 47.9 million
and other corporate departments are going to have R$ 5.7 million on investments.
The Company expects to fund its investment plan with available cash flow
generated from operations.

Company's Operations and Market Overview

The Company's operations are organized into three segments: "Processed Products"
(frozen and refrigerated products and margarines), "Poultry" (chickens and
turkeys) and "Pork".

Of the Company's total gross operating revenue in 2003, 49% was derived from the
processed products segment, poultry 37% and pork 10%, and 4% from other
activities, such as the grain and by-products segment, hog and poultry breeding,
boiled beef parts, and resale of products.

The Brazilian market has shown a trend towards concentration as structural
transformations and economic stabilization consolidate themselves. By way of
example, the reduction in transport costs and in taxation tends to reduce the
competitive advantages of regional and/or informal companies, as does the
greater preference of consumers for quality rather than price, following the
reduction of income inequalities.

The six largest companies in the Brazilian poultry sector account for around
45.8% of total Brazilian production, while in the case of pork, the three
largest companies account for 26.6%, according to Abef

                                       33
<PAGE>

(www.abef.com.br) and Abipecs (www.abipecs.com.br), respectively. Because of the
low capital and reduced technology barriers to entry, there has been a
proliferation of independent producers that are able to offer unprocessed
products at low prices since they operate on an informal basis. In the frozen
and refrigerated product segments, concentration is greater, with the two
largest producers accounting for 80.3% and 56.0% of the markets respectively. At
times of economic downturn, predatory competition in the non-processed meat
segment also tends to affect the refrigerated meat segment.

The growth potential of the Brazilian market, and its low input costs are
attractive to international entrants. The main barrier to such companies has
nevertheless been the need to build a wide-ranging refrigerated distribution
chain, and a network of integrated producers. The prices of the sector's
principal raw materials, corn and soybeans, are strongly influenced mainly by
climate conditions. As the Company acts as a relevant player in the local grain
market - Sadia is one of the largest corn and soybean consumer's of the country
- the bargaining power that it has towards agricultural producers and it's
storage capacity gives a positive advantage to the Company when negotiating
prices and volumes.

Costs and Operating Expenses

The Company's principal costs of production are incurred in Reais and consist of
grains (Corn and Soybeans), packaging, labor and depreciation costs. While input
costs are Reais denominated, the international commodity prices (grains and
packaging) tend to follow international prices and are influenced by exchange
rate fluctuations. The Company operates with an average idle capacity of 18% in
processed product lines but can be at full capacity depending on the market
demand. Due to the flexibility in production lines and to the diversity of the
equipment present in the Company's 11 plants, production can be adapted and
reformulated, depending on the Company's needs to face a determined segment
demand - night and weekend shifts as well as supply partnerships are broadly
used to reduce bottlenecks during the production process.

Corn

During several years, Brazil's corn prices used to be determined only by
domestic supply. Production was mainly on relatively small properties and had a
low level of mechanization. However, during 2002, due to the Real currency
depreciation and the improvement of several local producers, part of their crop
was shifted to the international market. Therefore, Brazilian corn prices went
up to adjust to international prices.

In Brazil, there are around 20 different regions where buyers can bid for the
product. Corn prices tend to be influenced by local supply, but international
prices also influence local quotes, according to crop expectations among the
main world producers (USA, China and Argentina) and the level of international
storage in the main consuming countries (Europe and Japan).

                                       34
<PAGE>

The following chart sets forth Sadia's average monthly buying price of corn for
the period between January, 1994 and March 31, 2004:

                                [GRAPHIC OMITTED

Source: Sadia S/A

According to Conab (Brazilian Supply Company), the 2003/2004 crop has shown a
10% decrease in the supply of the grain - from 47.4 to 42.7 million tons, when
compared to the 2002/2003 crop. The reduction in the planted area is due to the
increase of planted areas of soybean and wheat cultures substitution, which
offered better prices for the producer. Productivity levels were also affected
by 6.3% negative due to bad climate conditions. Domestic corn prices are
increasing lately, due to inventory retentions by producers as well as
expectation for a lower winter crop.

Soybean

Soybean producers in Brazil have been increasing their productivity during the
last several years and Brazil has become the second largest producer in the
world. Soybean production is substantiallymechanized and grains are cultivated
on large properties. Producers are well organized and production is oriented to
the export market. Production is also spread over several regions among the
southern, southeastern and central region of the country, and prices are
regionally given by local supply. However, international prices tend to
influence local prices when foreign demand and supply are unbalanced.

                                       35
<PAGE>

The following chart sets forth Sadia's average monthly buying price of soybeans
for the period between January, 1994 and March 31, 2004:

                               [GRAPHIC OMITTED]

Source: Sadia S/A

Discussion on Critical Accounting Policies

Critical accounting policies are those that are considered important, complex or
subjective by the Company's management to the understanding of the Company's
financial condition and results, as well as estimates about the effect of
matters that are uncertain. To provide an accurate understanding about how the
Company's management interprets these variables, considering future events, the
next paragraphs will present and discuss these critical accounting policies:

Investment in Debt Securities

The Company is required to assess potential other-than-temporary decline in the
market value of its investments in debt securities. If such decline in value is
deemed to be other-than-temporary, an imparment loss is recognized in the
operating results to the extent of the decline.

Allowance for Doubtful Accounts

The collectibility of the accounts receivable is based on a combination of
factors. In circumstances where management is aware of a specific customer's
inability to meet its financial obligations, a specific allowance against
amounts due is recorded to reduce the net recognized receivable to the amount
that is likely to be collected. In addition, an allowance is recorded based on
the length of time receivables are past due and historical experiences.

                                       36
<PAGE>

Inventory

At December 31, 2003, the Company's inventory amounted to R$ 899.8 million, with
an average turnover of 87 days (103 days in 2002). The main reasons for the
variance were the reduction in the livestock and poultry ready to be slaughtered
as well as more efficient use of grains and feedstock inventories. The Company
updates its inventories on a monthly basis due to the large number of items that
are maintained. Grain inventories policies involve anticipated purchases on an
average of 100 days with the objective of reducing commodity market impacts on
costs. Inventories are stated at lower of cost or market using the average cost
method.

Impairment of Long-Lived Assets

The Company is required to assess potential impairments to its long-lived
assets, which are primarily property, plant and equipment. If impairment
indicators are present, the Company must measure the fair value of the assets in
accordance with SFAS 144 "Accounting for the Impairment of Disposal of Long
Lived Assets" to determine if adjustments are to be recorded.

Contingencies

The Company is party to certain legal proceedings arising in the normal course
of business and is required to assess the likelihood of any adverse judgments or
outcomes to these matters as well as potential ranges of probable losses. A
determination of the amount of reserves required for these contingencies are
made after considerable analysis of each individual issue. These reserves may
change in the future due to changes in the Company's assumptions, the
effectiveness of strategies or other factors beyond the Company's control.

Deferred Tax Assets

As of December 31, 2003, the Company had approximately R$127.5 million of net
deferred tax asset.

The realization of this asset is based upon estimates of future taxable income.
In preparing estimates of future taxable income, the Company used the same
assumptions and projections used in its internal 3-year forecasts. Based on
these projections, the Company estimates that the loss carry forwards will be
fully utilized within 3 years. For more information see Note 16 of the Company's
Consolidated Financial Statements. Pension Plan

The Company accounts for its defined benefit pension plans in accordance with
SFAS No. 87, which require that amounts recognized in financial Statements be
determined on an actuarial basis. A substantial portion of the Company's pension
amounts relate to its defined benefit plan. SFAS No. 87 and the policies used by
the Company, notably the use of a calculated value of plan assets (which is
further described below), generally reduced the volatility of pension income
(expense) from changes in pension liability discount rates and the performance
of the pension plan's assets.

The most significant element in determining the Company's pension income
(expense) in accordance with SFAS No. 87 is the expected return on plan assets.
The company has assumed that the expected long-term rate of return on plan
assets will be 12.4%. The assumed long-term rate of return on assets is applied
to a calculated value of plan assets, which recognizes changes in the fair value
of plan assets in a systematic manner over every year. This produces the
expected return on plan assets that is included in pension income (expense). The
difference between this expected return and the actual return on plan assets is
deferred. The net deferral of past asset gains (losses) affects the calculated
value of plan assets and, ultimately, future pension income (expense).

At the end of each year, the Company determines the discount rate to be used to
discount plan liabilities. The discount rate reflects the current rate at which
the pension liabilities could be effectively settled at the end of the year. The
Company considers a conservative position to estimate this rate, based on future
expected salary increases and life expectancy of participants. At December 31,
2003, the Company determined this rate to be 11.3%.

                                       37
<PAGE>

Recently Issued Accounting Standards

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and replaces
EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 also establishes that fair value is the objective for
initial measurement of the liability. The statement is effective for exit or
disposal activities initiated after December 31, 2002. The application of the
provisions of SFAS No. 146 did not have a material impact on the consolidated
financial statements.

In November 2002, the FASB issued FIN 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN 45"). The Interpretation requires expanded disclosure to be made
in the guarantor's financial statements in regards to the guarantees and
obligations under certain agreements. It also requires that a guarantor
recognize, as the inception of the guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure requirements
of FIN 45 are effective for financial statements issued after December 31, 2002
and have therefore been applied in the accompanying financial statements. The
recognition requirements of FIN 45 are applicable for guarantees issued or
modified after December 31, 2002. The adoption of the Interpretation did not
have a material impact on the Company's consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 "Consolidation of
Variable Interests Entities" ("FIN 46"). The objective of FIN 46, as revised in
December 2003, is to improve financial reporting by companies involved with
variable interest entities. A variable interest entity is a corporation,
partnership, trust, or any other legal structure used for business purposes that
either (a) does not have equity investors with voting rights or (b) has equity
investors that do not provide sufficient financial resources for the entity to
support its activities. FIN 46 requires a variable interest entity to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. FIN 46 also requires
disclosures about variable interest entities that the company is not required to
consolidate, but in which it has a significant variable interest. FIN 46 was
effective immediately for variable interest entities created after January 31,
2003. The Company expects to adopt the provisions of FIN 6, as revised, for
entities that are special purpose entities ("SPES") as of January 1, 2004. For
variable interest entities created before February 1, 2003, FIN 46 is effective
December 31, 2004. As of December 31, 2003, the Company does not expect the
adoption of FIN 46 to have a material impact on its consolidated financial
statements.

In April 2003, the FASB issued FASB Statement No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities". FAS 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivatives Instruments and Hedging
Activities", and FASB Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an amendment of FASB Statement No. 133". This statement is effective for
contracts entered into or modified after June 30, 2003. The adoption of this
statement did not have a material impact on the Company's consolidated financial
statements. In May 2003, the FASB issued Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of Both Liabilities and
Equity" ("FAS150"). FAS 150 require that an issuer classify certain financial
instruments as a liability because that financial instrument embodies an
obligation of the issuer. The remaining provisions of FAS 150 expand the
definition of a liability to encompass certain obligations that a reporting
entity can or must settle by issuing its own equity, depending on the nature of
the relationship between the holder and the issuer. FAS 150 is effective upon
issuance of new contracts entered into after May 31, 2003, except for the
provision related to certain mandatory redeemable noncontrolling interests,
which has been deferred indefinitely as a result of Financial Staff Position
150-3. The adoption of the provisions of FAS 150 did not have a material impact
on the Company's financial position.

In December 2003, the FASB issued Statement No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("FAS 132R"). FAS
132R requires additional disclosure regarding certain aspects of pension plans
including, but not limited to, asset and investment strategy,

                                       38
<PAGE>

expected employer
contributions and expected benefit payments. The disclosure requirements of FAS
132R were effective for financial statements of periods ending after December
15, 2003.

Brazilian Economic Environment

Sadia's results of operations and its financial condition are dependent on
Brazil's general economic condition and particularly on (i) economic growth and
inflation and their impact on people's purchasing power, (ii) financing costs
and the availability of financing, and (iii) exchange rates between Brazilian
and foreign currencies. The following table sets forth Brazilian GDP growth,
inflation and the devaluation of Brazilian currency against the U.S. dollar and
interest rate changes for the periods shown.
<TABLE>
<CAPTION>

                                         2003        2002         2001      2000      1999
<S>             <C>                      <C>         <C>          <C>       <C>       <C>
Real GDP growth (1)                      (0.2%)      1.54%        1.51%     4.2%      1.01%
Inflation (2)                            8.7%        25.30%       10.38%    9.95%     20.1%
Nominal Exchange Rate Variation          (18.2%)     52.27%       19.15%    9.30%     40.01%
Real Interbank Rate - CDI (3)            8.0%        (4.96%)      6.24%     6.82%     4.27%
</TABLE>

(1) Source: IBGE
(2) Source: IGP-M, as published by the Getulio Vargas Foundation
(3) Source:
ANDIMA (adjusted by the IGP-DI inflation rate).

The Brazilian economy has been affected by interventions on the part of the
Government, which has made repeated changes in its monetary, credit, tariff and
other policies, in order to influence the direction of the national economy. The
changes in policies involving foreign exchange and tax rates could have a
significant impact on the Company's business and its operating results, in the
same way as inflation, currency devaluation, social instability and other
political, economic and diplomatic issues, and the reaction of the Brazilian
government to these issues.

Inflation and Real Plan Effects

Inflation has traditionally had a negative effect on the Brazilian economy in
general in past years, and on the profitability and operating results of the
Company in particular. In an attempt to control inflation, the Government has at
times imposed wage and price controls, and reduced its spending. Inflation and
the measures adopted by the Government, combined with public speculation about
its future decisions, have also contributed to periods of uncertainty in the
economy, as well as to increased volatility in the Brazilian securities markets.
In addition, the Government's desire to control inflation and reduce budget
deficits may cause it to make actions that slow Brazilian economic growth.

After the implementation of the Real plan, which was based on an exchange rate
anchor (Reais x US dollar), inflation rates declined and stabilized at low
levels. This new economic environment increased the purchasing power of part of
the population, which had been used to high inflation levels and did not have
access to financial instruments to reduce their monetary losses due to high
inflation. Consumer goods and income experienced a growth and credit
availability increased. According to the General Prices Index - IGP- M of the
Fundacao Getulio Vargas Brazilian inflation amounted to 1,246.62% in 1994,
15.24% in 1995, 9.20% in 1996, 7.74% in 1997, 1.78% in 1998, 20.1% in 1999,
9.95% in 2000, 10.38% in 2001, 25.30% in 2002 and 8.71% in 2003.

Exchange Rate Effects

From March 1995 until January 1999, the Brazilian Central Bank managed a
semi-fixed exchange rate policy based on the establishment of an annual exchange
rate fluctuation target at the beginning of each year, setting both a wide limit
or "band", and a much narrower band, in order to effect a gradual devaluation by
means of this exchange rate band system. The Central Bank bought or sold U.S.
dollars in the market in order to ensure that the exchange rate remained within
established limits.

In an attempt to stem the increasing capital outflows and concerns about the
commitment of certain State governments to the fiscal austerity proposal, on
January 13, 1999, Brazilian monetary authorities halted their intervention to
maintain the previous system of exchange rate bands underpinned by a specific
rate and allowed the Real's value to be determined by the foreign exchange
markets, intervening only to limit wide swings in the value of the currency.

                                       39
<PAGE>

Since then, the exchange rate market has been operating under a floating rate
regime and the Central Bank has implemented an inflation targeting policy, using
internal interest rates to adjust demand. A resulting negative side-effect of
this policy can be reflected in high interest rate levels, increasing cost of
capital to the Company and raising uncertainty in the financial markets about
the capacity of Brazil to pay its debts, increasing the sovereign risk. A
floating exchange rate can also be pressured by the deterioration of these
fundamentals, affecting dollar-related price references, which has the negative
effect of contaminating local prices and causing reduction in consumption and a
decrease in GDP growth.

Although the Company uses Reais as its functional currency, a relevant amount of
its assets, liabilities and revenues is dollar denominated. In December 2003, R$
2,529.3 million (44.2%) of the Company's revenues were collected in US Dollars,
coming from export proceeds, R$ 1,095.3 million of its assets were dollar
denominated, mainly attributable to Brady Bonds, government debt securities and
accounts receivable from foreign market clients. The Company's total debt
subject to exchange rate variation amounted to R$ 1,818.4 million at December
31, 2003.

The devaluation of the Reais influences the amount available for distribution to
the Company's shareholders when measured in U.S. dollars. Considering that the
Company has subsidiaries abroad, the devaluation of the Real creates foreign
exchange gains and losses, which are included in the Company's foreign currency
exchange gain (loss), net account in results of operations. In 2003, on a
consolidated basis, the Company recorded foreign exchange gain (including gains
from foreign currency swaps) of R$ 61.0 million.

The specific foreign currency risks, which caused Sadia to enter into swap
contracts, beginning in March 1999, to protect itself against further possible
devaluation of the Real were associated with currency fluctuation exposure on
the U.S. dollar denominated (short and long term) debt. The contracts protect
against these risks by committing Sadia and the counter-parties to positions in
foreign currency, thereby offsetting, to the extent of these contracts, the
effects of currency fluctuations on foreign currency debt. The Company's net
debt foreign currency exposure (U.S. dollar-denominated debt less foreign
currency and interest rate swaps contracts) was R$ 668.4 million at December 31,
2003. At December 31, 2003 and 2002 the notional amounts of the outstanding
contracts were R$ 1,274,700 and R$ 812,280 and the measurement of these
contracts at fair value resulted in losses amounting R$ 53,090 and gains
amounting R$ 163,548, respectively. The weighted average pay rates on the
Company's outstanding foreign currency and interest rate swap contracts are
floating rate based on CDI (Interbank Deposit Certificates). The fair values of
the Company's foreign currency and interest rate swap contracts were estimated
based on quoted market prices of comparable contracts. See "Item 10 - Additional
Information", and "Item 11 - Quantitative and Qualitative Disclosures About
Market Risk".

                                       40
<PAGE>

A. OPERATING RESULTS

The following table summarizes certain selected financial data of the Company's
Statements of operations, expressed as percentages of net operating revenue, for
the years as shown.

                                     YEARS ENDED DECEMBER 31,
                                     2003            2002            2001
                                     -------------------------------------------
                                              %               %               %
Net operating revenue                     100.0           100.0           100.0
Cost of goods sold                       (71.6)          (69.3)          (64.5)
                                     -------------------------------------------
Gross profit                               28.4            30.7            35.5

Selling expenses                         (19.0)          (20.9)          (20.0)
General and administrative expenses       (1.1)           (1.2)           (1.5)
Other operating expenses, net           (0.7)           (0.3)           (0.5)
                                     -------------------------------------------
Total operating expenses                 (20.8)          (22.4)          (22.0)
                                     ===========================================
Operating income                            7.6             8.3            13.5
                                     ===========================================

The following table summarizes certain items of the Company's Statements of
operations for the years as shown.

<TABLE>
<CAPTION>

Segment Information - in thousands of Reais - R$

                                                        2003                2002               2001
                                                     ------------------------------------------------
      NET OPERATING REVENUE
<S>                                                   <C>                 <C>               <C>
      Processed products                              2,412,989           1,818,464         1,613,862
      Poultry                                         2,275,888           1,907,479         1,657,480
      Pork                                              559,578             478,989           290,786
      Other                                               43,669              33,911           72,697
      Adjustments for US GAAP presentation            (151,281)           (51,708)           (32,355)
                                                     ------------------------------------------------
          Total net operating revenue                 5,140,843           4,187,135         3,602,470
                                                     ================================================
</TABLE>

Other net operating revenue is primarily attributable to grain and by-products
and beef products operations.

<TABLE>
<CAPTION>

                                                         2003               2002               2001
                                                     ------------------------------------------------
      DEPRECIATION EXPENSE
<S>                                                    <C>               <C>                <C>
      Processed products                               (54,069)          (46,747)           (46,943)
      Poultry                                          (54,653)          (49,056)           (44,782)
      Pork                                             (14,565)          (13,309)            (8,441)
      Other                                               (961)             (880)            (2,780)
                                                     ------------------------------------------------
          Total depreciation expense allocated
       to                                             (124,248)         (109,992)          (102,946)
          Segments
        Depreciation allocated to administrative
         expenses                                      (12,814)          (12,493)           (11,706)
       Adjustments for US GAAP presentation             37,801            30,349             25,750
                                                     ------------------------------------------------
       Total depreciation expense                      (99,261)          (92,136)           (88,902)
                                                     ================================================

                                       41
<PAGE>

      SEGMENT OPERATING INCOME
      Processed products                               268,483            57,618             84,094
      Poultry                                          198,410           235,217            343,300
      Pork                                              36,593            39,655             57,876
      Other                                              8,189             6,440              9,398
                                                     -----------------------------------------------
          Total operating income                       511,675           338,930            494,668
       Interest expense                              (449,408)          (317,719)          (228,205)
       Interest income and other                       481,609           263,342            152,051
       Foreign currency exchange gain (loss),           52,833           (40,632)          (161,627)
       net
       Adjustments for US GAAP presentation          (125,178)            52,809              3,014
                                                     ------------------------------------------------
       Income before income taxes, equity
       income or loss of investees and minority
       interest                                        471,531           296,730            259,901
                                                     ================================================


      SEGMENT ASSETS                                     2003               2002               2001
                                                     ------------------------------------------------
      Processed products                               449,860           468,610            466,615
      Poultry                                          348,312           362,567            373,292
      Pork                                             109,750           124,222            118,961
      Other                                             49,535            54,537             66,659
      Adjustments for US GAAP presentation            (128,454)         (149,866)          (167,874)
          Total property, plant and equipment          829,003           860,070            857,653

       Reconciling items - corporate assets
         Cash and cash equivalents                   2,610,961         2,315,136            966,388
         Accounts and notes receivable, net            453,936           374,708            374,908
         Inventories                                   920,564           877,366            661,637
         Other corporate assets                        544,748           639,369            428,858
      Adjustments for US GAAP presentation             661,787          (240,888)          (132,013)
                                                     ------------------------------------------------
      Total consolidated assets                      6,149,453         4,975,627          3,325,305
                                                     ================================================

                                                         2003              2002              2001
                                                     ------------------------------------------------
      CAPITALEXPENDITURES
      Processed products                                45,056            48,419             19,227
      Poultry                                           43,799            37,498             27,846
      Pork                                               5,709            17,960              8,619
      Other                                             15,656            17,475             54,808
       AdjustmentsforUSGAAPpresentation                 (4,470)           (9,230)            (6,978)
                                                     ------------------------------------------------
       Total segment capital expenditures              105,750           112,122            103,522
                                                     ================================================
</TABLE>

The information above has been prepared and presented in accordance with
Brazilian GAAP that is adjusted for US GAAP presentation. Refer to Note 19 to
consolidated financial statements for details on primary differences between
Brazilian GAAP and US GAAP.

The following table sets forth components of the Company's cost of goods sold,
expressed in percentage, for the years as shown.

<TABLE>
<CAPTION>

Composition  of cost of goods      Year ended December 31,
sold (%)
                                            2003                      2002                       2001

<S>                                                   <C>                        <C>                       <C>
Raw Materials                                         77.7                       75.9                      76.5
Labor                                                 11.3                       11.7                      12.6
Depreciation                                           2.5                        2.7                       3.4
Other                                                  8.5                        9.7                       7.5
Total cost of goods sold                             100.0                      100.0                     100.0
</TABLE>

                                       42
<PAGE>

Structure and Profitability of the Company's Operations

Period ended December 31, 2003 compared with December 31, 2002

The following discussion presents comparisons of results of operations for the
twelve-month periods ended December 31, 2003 and 2002. Additionally, the
discussion on December 31, 2002 and 2001 results of operations is presented
afterwards.

Gross Operating Revenue

In 2003, Sadia's Gross Operating Revenues posted a 22.8% increase over 2002,
reaching R$ 5,717.5 million. Despite the decline observed in the purchasing
power of consumers in 2003, domestic sales grew 16.9% compared to 2002. Such
increase was primarily due to a greater efficiency in the commercial process,
rationalization of the product portfolio, growth of the sales mix and recovery
of prices. The Company also maintained its leadership in the frozen,
refrigerated, poultry and pork segments, reaching the first position in the
margarine segment, from second in 2002. Domestic sales accounted for 55.8% of
total revenues. Gross revenues from exports were up by 31.2%, because of an
increase in sales to Europe and emerging markets. During 2003 the Company sold
1,345,886 tons, 7.8% percent above the 1,358,735 tons sold during 2002.

Domestic Market

Revenues from domestic sales reached R$ 3,188.2 million, 16.9% above the R$
2,726.8 million obtained in 2002. During 2003, volume sold decreased 9.7%, from
751,041 tons in 2002 to 677,842 tons in 2003 (including grains and by-products,
boiled beef parts, pig and chicken breeding and resale of products) while
weighted average sales prices rose 37.5%. The Company entered into negotiations
with its major customers was successful in passing along price increases in
order to recover profitability of domestic sales.

Export Market

Even with the appreciation of the Real against Dollar in 2003 and the raising of
protectionist barriers in some international market regions, revenues increased
31.2%, from R$ 1,928.0 million in 2002 to R$ 2,529.3 million in 2003. Export
sales as a percentage of gross revenues increased from 44.7 % in 2002 to 49.6%
in 2003 and volumes sold reached 668,044 tons, 9.9% over the 607,694 tons
shipped in 2002. This performance resulted from diversifying destinations and
increasing exports of processed products.

Processed Products

During the year, the Company continued to increase sales of its higher value
added products. Sales in the domestic market were R$ 2,523.7 million during
2003, reaching 529,663 tons, up 30.7% and 5.2%, respectively, when compared to
2002, mainly due to increases in sales prices.

Revenues from exports of processed products rose 55.6%, from R$ 183.1 million in
2002 to R$ 284.9 million, in 2003, in connection with higher volumes exported
(57.5% higher as compared to 2002, from 25,347 tons in 2002 to 39,936 tons in
2003). There were no significant increases in the average sales price of
exported processed products during 2003.

Poultry

The Company maintained the strategy of increasing export sales, which resulted
in a decline in the domestic sales volumes of 30.2% during 2003. The recovery of
prices and the improvement in the mix during the year resulted in total revenues
of R$ 356.0 million which were only 5.0% lower than total sales revenues in 2002
of R$ 374.7.

Poultry exports totaled R$ 1.8 billion, 29.0% higher than 2002. Unfavourable
climate conditions in Europe and sanitary problems in Asia reduced the worldwide
stocks of chicken, contributing to a recovery of international prices and an
increase in demand for poultry from unaffected regions, like Brazil.

                                       43
<PAGE>

Pork

There was a 53.8% decline in domestic sales volume caused by the redirection of
production towards exports, from 103,488 tons in 2002, to 47,760tons in 2003.
The continuing strong supply of animals in a down turning domestic economy
reduced revenues, which were 34.3% lower than in 2002, dropping from R$ 197.7
million in 2002 to R$ 129.8 million in 2003.

Export volumes amounted to 103,689 tons, 17.4% higher than the 88,312 reached in
2002, while sales grew by 39.0%, from R$ 318.8 million in 2002 to R$ 443.0
million in 2003. Such performance was due to the recovery of the international
prices of carcasses and a greater demand by the Russian market caused by the
expectation of the establishment of import quotas.

Sales Deductions and Value Added Tax on Sales

Value-added tax on sales consist of ICMS, the Social Contribution on Sales
(COFINS) and the contribution to the Social Integration Program (PIS), and
amounted R$ 535.3 million, 28.3% above the R$ 417.3 million reached in 2002.
Total sales deductions decreased by 17.9% from December 31, 2002 to December 31,
2003, amounting to R$ 50.3 million and R$ 41.3 million, respectively. Sales
deductions and VAT ratio as a percentage of gross operating revenues was stable
in 10.1% in 2003.

Cost of Goods Sold

In 2003, Cost of Goods Sold was R$ 3,673.0 million, versus R$ 2,903.2 in 2002,
and 26.8% higher than in 2002, and represented 71.6% of net revenues, versus
69.3% in the previous year. This increase of 2.3 percentage points is mainly due
to higher average prices of packaging material and grains. Average corn market
prices increased by 7.9% above year 2002.. The average costs of soybeans for the
Company in 2003 were 20.8% above 2002-year average market prices. The Company
maintained its inventory policy that involves advance purchases, aimed at
alleviating commodity market impacts on its costs.

Selling Expenses

Sales expenses of R$ 975.8 million were 11.3% higher than the R$ 876.8 million
in 2002. These expenses represented 19.0% of net revenues, 1.9 percentage points
below the ratio registered in 2002. This is a result of lower domestic freight
costs, gains in scale in export activities and more efficiency in the use of
sales force.

General and Administrative Expenses

In 2003, General and Administrative Expenses totaled R$ 54.2million,
representing 1.1% of net revenues, versus R$ 49.1 million in 2002, when they
represented 1.2% of net revenues. This is in accordance with certain expense
cutting initiatives taken over the year that resulted in lower fees paid to
consulting firms and technical assistance.

Other Operating expenses, net

Other operating expenses, net of R$ 36.8 in 2003 is 188.3% higher than the R$
12.8 million posted in 2002. The increase is primarily attributable to the
recognition of PIS and Cofins accrual on foreign exchange gains reported in
2003, which amounted R$ 23.0 million in 2003 and R$ 4.9 million in 2002.

Interest Expense

Interest expense in 2003 amounted R$ 450.2 million, 41.8% above the R$ 317.8
million accounted in 2002. This increase in expense of R$ 132.4 million was
mainly due to higher losses in swap contracts as compared to 2002.

                                       44
<PAGE>

Interest Income

Interest income increased from R$ 266.5 million in 2002 to R$ 459.8 million in
2003. This 72.5% change was mainly due to increased volume of short-term
investments in connection with higher cash surplus and gains on the sales of
Brazilian bonds.

Foreign Currency Exchange Gain (Loss), net

Foreign exchange currency gain of R$ 60.9 million reported in 2003 was primarily
attributable to the 15% appreciation of Brazilian currency against the US
dollar, which is net of a R$ 63.4 million exchange rate loss resulted from the
translation of investments denominated in foreign currencies.

Income Tax

The Company reported an income tax benefit of R$ 1.0 million in 2003, against an
expense of R$ 12.2 million in the previous year. This is mainly because a
significant portion of earnings generated abroad were non-taxable in 2003. In
addition, the Company took higher deductibility of interest attributed to
shareholders' equity.

Net Income

Based on the aspects described above, the net income increased 64.6% to R$ 473.3
million in 2003, against R$ 284.3 million in 2002.

Period ended December 31, 2002 compared with December 31, 2001

The following discussion presents comparisons of results of operations for the
twelve-month periods ended December 31, 2002 and 2001. Additionally, the
discussion on December 31, 2001 and 2000 results of operations are presented
afterwards.

Gross Operating Revenue

In 2002, Sadia's Gross Operating Revenues posted a 17.0% increase over 2001,
reaching R$ 4,654.8 million. The domestic market was less favorable than
expected, but the Company maintained its leadership in the frozen, refrigerated,
poultry and pork segments, reaching the second position in the margarine
segment, from third in 2001. Domestic sales accounted for 58.6% of total
revenues. Gross revenues from exports were up by 30.3%, mainly due to increased
poultry and pork sales volume to Russia and other emerging markets and favorable
foreign exchange effect. During 2002 the Company sold 1,358,735 tons, 15.6%
percent above the 1,175,017 tons sold during 2001.

Domestic Market

Revenues from domestic sales reached R$ 2,726.8 million, 9.2% above the R$
2,497.1million obtained in 2001. During 2002, volume sold increased 2.9%, from
729,642 tons in 2001 to 751,041 tons in 2002 (including grains and by-products,
boiled beef parts, pig and chicken breeding and resale of products) while
weighted average sales prices slightly rose 6%.

Export Market

During 2002 international average prices for poultry and pork dropped 28.8% and
32.5% respectively in dollar terms, because of the oversupply in European
countries and the Russian market. Despite this fact, revenues increased by
30.3%, from R$ 1,480.0 million in 2001 to R$ 1,928.0 million in 2002. Export
sales as a percentage of gross revenues increased from 37.2 % in 2001 to 41.4 %
in 2002 and volumes sold reached 607,694 tons, 36.4% over the 445,375 tons
shipped in 2001.

                                       45
<PAGE>

Processed Products

In the processed products segment, sales in the domestic market contributed with
R$ 1,931.5 million during 2002, reaching 503,612 tons, up 15.7% and 6.6%,
respectively, when compared to 2001. For the processed products exports the
Company reached R$ 183.1 million in 2002, up 88.0% on the R$ 97.4 million
registered in 2001. Volumes exported were 54.8% higher, from the 16,377 tons in
2001 to 25,347 tons in 2002.

Poultry

During the course of 2002, there was a 22.2% drop in volumes sold in the
domestic market for whole birds and pre-cuts of chicken and turkey, which were
relocated to the export market. The drop in volumes sold was not offset by price
increases and the segment gross revenues were at R$ 374.7 million, 8.8% below
the R$ 410.9 million reached in 2001.

Gross operating revenue from poultry sales to overseas markets totaled R$
1,385.5 million, 20.6% above the R$ 1,148.8 million reached in 2001, with
494,035 tons sold, 30.0% up on the previous year. Turkey exported volumes posted
a 14.2% increase over the previous year. This result is a consequence of
depressed dollar prices during the year, due to the oversupply of poltry and
pork meat.

Pork

Gross revenues from pork sales in the domestic market reached R$ 197.7 million,
43.9% above the R$ 137.4 million registered in 2001. This increase was due to
the 43.1% hike in volumes, with 103,488 tons sold, compared to the 72,312 tons
sold in 2001.
Pork exports amounted to R$ 318.8 million, 70.8% above the R$ 186.6 million
reached by the segment in 2001. During the year, exported volumes increased
80.7%, to 88,312 tons, from 48,880 tons shipped in 2001. The main factor that
contributed to this performance was the oversupply in the Russian market.

Sales Deductions and Value Added Tax on Sales

Value-added tax on sales consist of ICMS, the Social Contribution on Sales
(COFINS) and the contribution to the Social Integration Program (PIS), and
amounted R$ 417.3 million, 42.3% above the 293.3 million reached in 2001. Total
sales deductions decreased by 38.2% from December 31, 2001 to December 31, 2002,
amounting to R$ 81.4 million and R$ 50.3 million, respectively. Sales deductions
and VAT ratio as a percentage of gross operating revenues was 10.1% in 2002,
against 9.4% in 2001. The lower percentage in 2001 was due to tax credits the
Company was entitled to, amounting approximately R$ 85 million.

Cost of Goods Sold

In 2002, Cost of Goods Sold was R$ 2,903.2 million, versus R$ 2,322.7 in 2001,
and though 25.0% higher than in 2001, represented 69.3% of net revenues, versus
64.5% in the previous year. This increase of 4.8 percentage points is due to
higher prices of dollar denominated cost components - grains and packaging. For
Sadia, corn prices increased by 123.2% above year end 2001 closing market
prices. The costs of soya for the Company in 2002 were 78% above 2001 closing
market prices. The Company maintained its inventory policy that involves advance
purchases, aimed at alleviating commodity market impacts on its costs. Salaries
and wages are renegotiated on a yearly basis and the date of adjustment depends
on the agreements set up with regional Unions for each State where the Company
has operations, with a direct impact on labor costs. Depreciation expenses
booked as costs represented 2.7% of CGS, versus 3.4%in 2001.

Selling Expenses

Sales expenses of R$ 876.8 million were 21.6% higher than the R$ 720.8 million
in 2001. These expenses represented 20.9% of net revenues, 0.9 percentage points
above the ratio registered in 2001. This increase in the ratio was mainly
because of shipping costs increases, due to larger sales volume.

General and Administrative Expenses

In 2002, General and Administrative Expenses totaled R$ 49.1million,
representing 1.2% of net revenues, versus R$ 54.0 million in 2001, when they
represented 1.5% of net revenues. This is in line with better

                                       46
<PAGE>

dilution of fixed expenses because of the investments in the implementation of a
new ERP system, which has resulted in an optimization of certain G&A processes.

Other Operating expenses, net

Other operating expenses, net were a negative result of R$ 12.8 million, 25.1%
below the R$ 17.1 million posted in 2001. The decrease is primarily attributable
to lower allowances for civil contingences, which amounted to R$ 8.1 million in
2002 and R$ 11.1 million in 2001.

Interest Expense

Interest expense in 2002 amounted R$ 317.8 million, 58.0% above the R$ 201.2
million accounted in 2001. This increase in expense of R$ 116.6 million was
mainly due to the growth on Reais denominated short and long term debt, which
are subject to higher interest rates (R$ 167.3 million charged in 2002 against
R$ 64.1 million charged in 2001).

Interest Income

Interest income increased from R$ 144.6 million in 2001 to R$ 266.5 million in
2002. This 84.3% change was mainly due to higher net cash provided by financing
and operating activities. Foreign Currency Exchange Gain (Loss), net

The devaluation of the Brazilian Real during 2002 was offset by several swap and
hedge operations. Although there was partially an increase on the Company's
dollar based debt from 16% in 2001 to 29.7% of total net debt by the end of
2002, the Company protected its exposure against devaluations of the Real, and
entered into foreign currency and interest rate swap contracts to mitigate
currency devaluation effects.

Foreign exchange currency gain (loss) accounted for a net positive result of R$
2.7 million, which was comprised by a net exchange rate loss of R$ 271.7 million
(R$ 201.7 million in 2001, loss) and a positive amount of R$ 186.1 million from
hedge operations (R$ 19.7 million in 2001). In addition, the investments
denominated in foreign currencies generated an exchange rate gain of R$ 88.4
million (R$ 10.6 million in 2001).

Income Tax Expense

Income tax amounted R$ 12.2 million in 2002, against R$ 51.1 million in the
previous year. A significant portion of earning generated abroad and the
exchange gains on investments held in foreign currencies outside of Brazil were
non-taxable in 2002.

Net Income

The operating profitability achieved from the Company's operations, principally
in the export business, contributed to the earnings growth to R$ 284.3 million
in 2002, against an R$ 203.5 million profit posted in 2001.

B. LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Sources of Funding

The Company's principal cash requirements include: (i) debt repayment, (ii)
investments in property, plant and equipment, raising of efficiency levels and
optimization of processes; and (iii) payment of dividends and interest on equity
to Shareholders.

The Company's primary sources of liquidity have traditionally consisted of cash
generated from operations and, short-term and long term-debt. The net cash
generated by operating activities totaled R$ 902.2 million, R$ 293.9 million and
R$ 420.2 million for the years ended December 31, 2003, 2002 and 2001,
respectively. Short-term and long-term debt presented a total net increase of R$
575.1 million in 2003 and of R$ 1,457.1 million in 2002, with an R$107.4 million
decrease in 2001. Sales of disposed fixed assets generated total proceeds of R$
8.7 million, R$ 7.5 million, and R$67.0 million for the years of 2003, 2002 and
2001, respectively. In the year ended December 31, 2003, net operating cash was
used in the purchase of property

                                       47
<PAGE>

plant and equipment (R$ 105.8 million), payment of dividends (R$ 95.6 million)
and investment in equity investees (R$ 2.9 million). In December 31, 2002, net
operating cash was used in the purchase of property plant and equipment (R$
112.1 million), payment of dividends (R$ 73.8 million) and investment in equity
investees (R$ 2.9 million). In December 31, 2001, the main uses of funds were
purchase of property, plant and equipment (R$ 103.5 million) and payment of
dividends (R$ 52.6 million) and investment in equity investees (R$ 1.5 million).

Indebtedness and Financial Strategy

The loans taken by the Company are basically intended to finance exports and for
investments in fixed assets, both for the modernization and technological update
of the plants, for the financing of working capital, and, depending on market
conditions, for financial investments.

At the end of 2003, the Company's total interest-bearing debt stood at R$
3,393.1 million, representing a 4.2% increase when compared with the total debt
of R$ 3,257.2 million at December 31, 2002. At the same time, at December 31,
2003 financial short-term assets were: Cash and Cash Equivalents, R$ 1,818.1
million (R$455.6 million at December 31, 2002), Held-to-maturity securities, at
R$ 37.9 million (R$ 721.7 million at December 31, 2002) and Available for Sale
Debt Securities at R$ 101.8 million (R$ 72.4 million at December 31, 2002). The
long-term financial assets were: Available for Sale Debt Securities at R$1,158.6
million (R$ 758.6 million at December 31, 2002). In December 31, 2003 Foreign
currency and interest rate swap contracts represented R$ 69.3 million in Current
Assets and R$ 87.9 million in Other Assets.

Considering all financial assets and liabilities at December 31, 2003, total net
debt stood at R$ 329.9 million (R$ 1,083.0 million at December 31, 2002),
equivalent to 14.7% of shareholders' equity.

Following the normal course of operations, the amounts maturing in the short run
can be settled or re-negotiated for the next period. The Company uses trade
finance for its working capital needs because it is available at a lower cost,
since lenders perceive that the exchange risk is mitigated by the link to US
dollar exports.

In order to finance its operational working capital, Sadia has maintained its
strategy of raising funds in the international markets through operations linked
to exports, whose cost is below that of transactions in the domestic market.

<TABLE>
<CAPTION>

                                                                         2003                   2002

<S>                                                                          <C>                    <C>
        Working capital from commercial banks                                1,256,015              1,432,941
         Trade accounts receivable credit facility                             106,345                      -
        Bank borrowings, secured by accounts receivable                              -                 71,273
                                                                             1,362,360              1,504,214
</TABLE>

Working capital from commercial banks primarily relates to export financing and
pre-export advances, of which R$ 1,168,022 in 2003 (R$1,241,232 in 2002) are
denominated in U.S. dollars with interest at Libor (1.21% at December 31, 2003)
plus interest at the rate from 3,03% to 5.11% in 2003 (interest at the rate from
2% to 4.92% in 2002).

On May 12, 2003, the Company entered into an agreement to sell, from time to
time, up to R$150 million of its domestic receivables to a special purpose
entity, organized as an investment fund. See Note 11to Consolidated Financial
Statements.

                                       48
<PAGE>

At December 31, 2003 and 2002, the weighted average interest rates on short-term
debt were 5.19% and 5.12%, respectively.

<TABLE>
<CAPTION>

Long-Term Debt

                                                                        2003                    2002
                                                               ----------------------- -----------------------
<S>                                                                 <C>                       <C>
     Foreign debt (denominated in U.S. dollars): IFC-
     International Finance Corporation (for investment in
     property, plant and equipment) due in installments
     through 2008, R$128,656 interest at fixed rate of 8.52%
     and R$48,949 at fixed rate of 9.05%

                                                                      177,605                 419,951

     Export financing, due in installments through 2010,
     interest at Libor (1.21% in December 2003) plus interest
     rate of 5.65%, guaranteed by promissory notes or sureties
     issued by the Company.                                         1,196,174                 527,345

     Local debt (denominated in reais):

     BNDES- due in installments through 2009, R$415,185
     subject to long- term interest rate- TJLP (11% in 2003)
     plus interest rate ranging from 2.89% to 3.5% and
     R$107,985 subject to weighted average exchange rate
     variations on currencies held by BNDES- UMBNDES (16 % in
     2003) plus interest at the rates ranging from 3.5% to
     3.86%.                                                           523,170                 661,024

     PESA - Special Aid Program for Agribusiness payable in
     installments from 2004 to 2020, subject to the - General
     Price Index -Market - IGP-M (6,22 % in 2003) plus
     interest rate of 9.76%

                                                                      114,233                 105,130

     Other                                                             19,570                  39,564

                                                               ----------------------- -----------------------
                                                                    2,030,752               1,753,014
    Less current portion of long- term debt                         (663,916)               (547,854)
                                                               ----------------------- -----------------------
    Long- term portion                                              1,366,836               1,205,160
                                                               ======================= =======================
</TABLE>

The Company is subject to certain restrictive covenants contained in the IFC
agreement. These covenants include a restriction on the payment of dividends in
excess of the mandatory amount without the prior agreement of the IFC. During
2003, the Company paid dividends in excess of that allowed under the IFC
agreement. Consequently, such debt is callable should the IFC so desire.
Therefore, the Company reclassified the long-term portion of IFC debt amounting
to R$153 million from long-term debt to short-term debt. There were no
restrictions on the payments of dividends made in 2002 as they were in
accordance with the mandatory amount. Payments of dividends on future
distributable income in excess of the mandatory amount will require approval of
the IFC prior to such payments until such time that the Company meets the
financial ratio.

                              49
<PAGE>

C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

Sadia invested R$ 6.5 million, R$ 7.3 million and R$8.7 million, for the years
ended December 31, 2003, 2002 and 2001, respectively, in research and
development activities. During the past five years, the R&D Department has
developed seven new product families (refrigerated pasta, pizzas, fish-based
products, ready-made dishes, sweet pies, frozen desserts and breaded products),
as well as improving existing products.

During 2003, Sadia launched 53 Products mainly in the lines of ready to eat
dishes, margarines, breaded, hams and Miss Daisy Desserts. Investments in R&D
have also brought benefits to the area of animal breeding, achieving
improvements in the quality of meat, the production process, and reducing feed
conversion rates. Between 1975 and 2003, the duration of the chicken production
cycle was reduced from 59.3 days to 35 days for each 1.8 kg bird. During the
same period, chicken weight increased from 1.7 kg to 1.93 kg. Similarly, the
feed conversion rate decreased from 2.4 kg to 1.8 kg per kg of chicken. Between
1975 and 2003, the duration of the pork production cycle was reduced from 179
days to 152 days for each 100 kg animal. During the same period, slaughtered hog
weight increased from 94 kg to 103 kg. In a similar way, the feed conversion
rate decreased from 3.6 kg to 2.8 kg of feed per kg of pork. During the same
period, the percentage of pork meat per carcass increased from 46% to 56.7%.

D. TREND INFORMATION

This section discusses the main concerns and trends that will drive the
Company's strategy planning over 2004.

Considering recent developments in the Brazilian macro economic environment and
the livestock and processed food sector, the Company expects to have its
operations affected most significantly by the following factors:

Foreign Market Protectionst Measures.

The Company expects that new regulations can be issued by foreign importer
countries to protect its local producers. Since a relevant part of the Company's
revenues comes from the export operations, the raise of protectionist barriers
can affect its operations.

In July 2002, the European Union Sanitary Commission issued a new regulation
increasing the duties for imported fresh chicken. During the second semester,
100% of Brazilian chicken exported to Europe was required to be tested for
forbidden antibiotic Nitrofuran, increasing export sales costs. The Russian
government had also introduced a quota regime on pork and poultry meat exports,
that should be effective until by 2006.

Although the Company was not directly affected by these measures, these
initiatives can reduce competitiveness of the Company's products in such
markets. The Brazilian government, associated with local and international
entities, normally negotiates the terms of such measures in order to mitigate
its negative effects.

E. OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on the its financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.

                              50
<PAGE>

F. TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The Company has several contracts among partners and suppliers that are both
oriented for production purposes (inputs and raw material) and for other issues,
as support services and office supplies. At December 31, 2003, the balance of
contractual obligations is as follows:

<TABLE>
<CAPTION>

                             Payments due by period
Contractual Obligations                   Total        Less  than  1 1 - 3 years  3 - 5 years More    than   5
                                                       year                                   years
<S>                                       <C>           <C>          <C>           <C>         <C>
Long-Term Debt Obligations                2,030,752     663,916      1,078,963     73,372      214,501
Capital (Finance) Lease Obligations       -            -             -            -           -
Operating Lease Obligations               -            -             -            -           -
Purchase Obligations                      1,833,174    1,776,000     753          25,275      31,146
Other Long-Term  Liabilities Reflected on -            -             -            -           -
the Company's  Balance  Sheet  under the GAAP
ofthe primary financial statements
Total                                     3,863,926    2,439,916     1,079,716    98,647      245,647
</TABLE>

Service purchase obligations are usually renegotiated in an annual basis and can
be terminated before it is due, subject to the payment of a 10% charge and 30
days communication in advance. Terms of revision of these contracts are normally
subject to free negotiations between the Company and its suppliers, eventually
they can consider the basis of the IGP-M inflation index or U.S. dollar
variation. At December 31,2003, approximately 11% of the total purchase
obligations contracts were subject to these indexes.

G. SAFE HARBOUR

Not Applicable

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. DIRECTORS AND SENIOR MANAGEMENT

Executive Officers and Members of the Board of Directors

The management of the Company is carried out by the Board of Directors and its
Executive Officers. Pursuant to Sadia's By-laws, the Board of Directors is
composed of 7 to 11 members that must be residents in Brazil. Members of the
Board of Directors are elected at the Ordinary General Meeting of Shareholders
for a one-year term, and may be re-elected. Upon electing the members of the
Board, the Meeting must designate the Chairman from among those elected. The
Board will then, in a subsequent meeting, elect one or more Vice-Chairmen, and
designate a Secretary of the Board. According to Sadia's By-laws, the Board of
Directors must elect between 7 and 20 Executive Officers for a one-year term. In
the annual shareholder's meeting, held in April 16, 2004 new board members were
elected. The Board of Directors is composed of five members who represent the
controlling shareholder group, and six market professionals.

The following table sets forth information with respect to the members of the
Board of Directors and the Executive Officers of the Company.

                              51
<PAGE>

Board of Directors

The Company's Board of Directors is presently composed of eleven members listed
below, who were elected at the Ordinary General Meeting held on April 16th,
2004.

<TABLE>
<CAPTION>

NAME                                 ACADEMIC BACKGROUND                        EXPERIENCE
<S>                                  <C>                                        <C>
Romano   Ancelmo    Fontana   Filho  60 years old.  - Business  Administrator,  Member  of  the  board   since  1994.
(Chairman of the Board)              Graduated from Mackenzie University.       Former   IT   and   Human   Resources
                                                                                Director from 1976 to 1994.

Alcides Lopes Tapias                 61  years  old.  Business  Administrator,  Member  of  the  board   since  2002.
                                     Graduated from Mackenzie University.  Law  Former   Banco   Bradesco   Executive
                                     Bachelor from  Faculdades  Metropolitanas  Vice-President.  Former  president of
                                     Unidas                                     FEBRABAN  (Brazilian Bank Federation)
                                                                                and member of the  National  Monetary
                                                                                Council.  Former Industry,  Trade and
                                                                                Development Ministry (July, 2001).

Everaldo Nigro dos Santos            65 years old.  Civil  Engineer  graduated  Member  of  the  board   since  2004.
                                     from  the  Mackenzie  University  of  Sao  Former  CEO of  Alcan  Latin  America
                                     Paulo.   MBA  from  the  Centre  d'Etudes  (1999)..
                                     Industrielles - Geneve Swiss.

Francisco Silverio Morales Cespede   57  years  old.  Business  Administrator.  Member of the board since  2004.  CFO
                                     Post   Graduation   from  Getulio  Vargas  at Sao Paulo  Alpargatas  S/A,  board
                                     Foundation.                                member  at  Santista  Textil  S/A and
                                                                                former CFO at Monsanto do Brasil.

Marise Pereira Fontana Cipriani      44 years old.                              Member of the board since  2001.  CEO
                                                                                of  SolVista,Inc.,  USA and  Chairman
                                                                                of   the    board   of    Transbrasil
                                                                                Foundation S.A.

Norberto Fatio                       63  years  old.  Business  Administrator,  Member  of  the  Board   since  2004.
                                     graduated from Getulio Vargas Foundation.  Marketing  executive   experience  at
                                                                                Unilever,  Danone,  Bunge  Alimentos,
                                                                                Kibon,   Fleischmann  Royal  Nabisco.
                                                                                Former CEO of Se Supermarkets.

Osorio Henrique Furlan               82  years  old.  Lawyer,  Graduated  from  Member  of  the  board   since  2002.
                                     Braganca Paulista Law School               Sadia's  first  executive  president,
                                                                                member of the Sao Paulo
                                                                                Commercial Association and
                                                                                former Transbrasil Airlines
                                                                                vice-president (1964 - 1975).

Roberto Faldini                      56  years  old  Business   Administrator,  Member  of  the  Board   since  2002.
                                     Graduated from Getulio Vargas Foundation.  Fiesp  Economy  Department  Director,
                                     MBA - Insead, France.                      Member  of  the  board  of  ABN  Amro
                                                                               Ethical Investment Fund, former CVM
                                                                               president, former Bovespa board
                                                                               member.

Sergio Fontana dos Reis             43 years old. Architect, Sao Paulo         Member of the board since 1991.
                                    University, post graduated in              Former Director of Attilio Fontana
                                    Business from Getulio Vargas Foundation.   Foundation from 1996 to 1998.


Vicente Falconi Campos               56  years  old.   Engineer  Minas  Gerais  Member  of  the  board   since  2002.
                                     Federal  University - UFMG. Ph.D Colorado  Brazilian  Government  Consultant  at
                                     School of Mines (USA)                      the    energy    crisis    management
                                                                                committee,  AMBEV and  TELEMAR  board
                                                                                member.

                                       52
<PAGE>

NAME                                 ACADEMIC BACKGROUND                        EXPERIENCE

Walter Fontana Filho                 49  years  old.  Economics  and  Business  Member of the board since  2004.  Mr.
                                     Administration,    with    emphasis    on  Fontana  has been  Sadia's  CEO since
                                     Marketing,  with postgraduate  studies in  1994.   Before   becoming   CEO,  Mr.
                                     Economics                                  Fontana was Sadia's Sales Director.
</TABLE>

Executive Officers

The Company's management team consists of professionals with extensive
experience in the Brazilian food sector. Three are members of the founding
family. The Executive Officers are responsible for the execution of decisions of
the Board of Directors and day-to-day management of the Company. Below is a
short resume of the key members of Sadia's management team:

<TABLE>
<CAPTION>

                      NAME                         ACADEMIC BACKGROUND                              EXPERIENCE
<S>                                                   <C>                                           <C>
Walter Fontana Filho                                  Economics and Business Administration,        Mr. Fontana has been Sadia's
Chief Executive Officer                               with emphasis on Marketing, with              CEO since 1994. Before
Date Joined Sadia:01/30/92                            postgraduate studies in Economics             becoming CEO, Mr. Fontana was
Age: 49                                                                                             Sadia's Sales Director.

Adilson Serrano da Silva                              Business Administration,                      Career developed in the area
Human Resources Officer                               Postgraduate studies at the CEAG-FGV          of Human Resources. Has worked
Date Joined Sadia:  09/08/91                                                                        in medium- and large-scale
Age: 54                                                                                             companies such
                                                                                                    Eletroradiobras, VASP and
                                                                                                    Linhas

Alexandre de Campos                                   Business Administration,                      Based in Worcester - England.
International Sales Director                          Postgraduate studies at the Advertising       Member of the Concordia Foods
Date Joined Sadia:  03/01/1999                        and Marketing School (ESPM) and MSC at        board. Developed his carreer
Age: 34                                               the Central University of England (CUE).      in Foreign trade at GE -
                                                                                                    General Electric and Perdigao.


Alfredo Felipe da Luz Sobrinho                        Higher Degree in Law, with                    Was a member of the Board of
Institutional Relations and Legal Affairs Officer     Specialization in Area of Administration.     Directors and a Director Vice
Date Joined Sadia:  04/08//71                                                                       President of Marketing, Sales
Age:  57                                                                                            and Services of Transbrasil.
                                                                                                    Is currently President of
                                                                                                    ABIPECS - The Brazilian
                                                                                                    Association of the Pork
                                                                                                    Processing and Exporting
                                                                                                    Industry, and the Executive
                                                                                                    President of the Attilio
                                                                                                    Francisco Xavier Fontana
                                                                                                    Foundation.


Antonio Paulo Lazzaretti                              Higher Degree in Chemical Engineering         Worked for Renner Hermann as a
Process and Product Development Officer               and Business Administration                   Chemical Engineer, joining
Date Joined Sadia: 04/11/72                                                                         Sadia in April 1972, at its
Age:  55                                                                                            Sao Paulo plant, developing
                                                                                                    his career in the area of
                                                                                                    production. Has already held
                                                                                                    posts such as Manager and
                                                                                                    Production Officer.


Artemio Fronza                                        Unfinished higher studies in Philosophy       Worked in the Rio Grande do
Livestock and Poultry Production Officer                                                            Sul Union of Cooperatives and
Date Joined Sadia: 08/15/88                                                                         the Alto Uruguai Agricultural
Age:  53                                                                                            Cooperative (where he held the
                                                                                                    post of Executive Manager and
                                                                                                    Superintendent) before joining
                                                                                                    Sadia at its Tres Passos
                                                                                                    plant, in August 1988. Has
                                                                                                    already been an officer of the
                                                                                                    Grain and By-products Area.


Eduardo Fontana d'Avila                               Higher Degree in Engineering                  Career in Sadia's production
Processed Products Operations Officer                                                               area. Has already been a Vice
Date Joined Sadia:  02/14/77                                                                        President of Industrial
Age:   49                                                                                           Operations. Mr. Eduardo is the
                                                                                                    cousin of Mr. Walter Fontana
                                                                                                    Filho, CEO of the Company.

                                       53
<PAGE>

                      NAME                         ACADEMIC BACKGROUND                              EXPERIENCE

Flavio Luis Favero                                    Higher Degree in Industrial Chemistry         Professional career developed
Processed Products Production Officer                 and Chemical Engineering                      entirely within Sadia, in the
Date Joined Sadia: 07/24/85                           Postgraduate Degree in Management             area of production. Has held
Age:  39                                              Development                                   posts of Supervisor, Total
                                                                                                    Quality Coordinator, and
                                                                                                    Production Manager at the
                                                                                                    Company's Tres Passos plant
                                                                                                    (Rio Grande do Sul).

Flavio Riffel Schmidt                                 Higher Degree in Business Administration      During his career within
Planning and IT Director                              and First Degree in Accounting                Sadia, he was Finance,
Date Joined Sadia: 04/02/79                                                                         Planning and Control Officer
Age:  50                                                                                            from 1988 to 1994.

Gilberto Meirelles Xando Baptista                     Business Administrator, Graduated at          Developed his carrer at Sadia
Marketing Director                                    Getulio Vargas Foundation. Postgraduate       beginning his in the
Date Joined Sadia: March, 1983                        studies at the CEAG-FGV                       mechanical maintenance
Age:39                                                MBA Sao Paulo University                      department, then production
                                                                                                    department and pork production
                                                                                                    area.

Gilberto Tomazoni                                     Higher Degree in Mechanical Engineering       Career entirely developed
Diretor de Marketing e Vendas                         Postgraduate Degree in Management             within Sadia. Joined the
Date Joined Sadia: 03/26/83                           Development                                   maintenance area of Company's
Age:  44                                                                                            Concordia plant in March 1983,
                                                                                                    and expanded his knowledge of
                                                                                                    the activities of the
                                                                                                    production area. Was a Head of
                                                                                                    Department and a Manager.

Guillermo Henderson Larrobla                          Higher Degree in Mechanical Engineering       Mr. Larrobla developed his
International Middle East Sales Director              (1985)   and marketing management             career in the Foreign Trade
Date Joined Sadia: 04/01/99                           specialist (1997)                             Area of Seara Alimentos (Bunge
Age:  47                                                                                            Group), since 1991. In Sadia
                                                                                                    he began his activities as the
                                                                                                    Market Manager responsible for
                                                                                                    Sadia's Business in Middle
                                                                                                    East, at the Dubai Office and
                                                                                                    was elected director in April
                                                                                                    2002.

Luiz Gonzaga Murat Junior                             Higher Degree in Business                     Developed career in finance
Chief Financial Officer                               Administration, Postgraduate Degree in        and control areas. Was a
Chief Controller, Director of Investor Relations      Agricultural Economics at Stanford            director of Perdigao, Bahia
Date Joined Sadia: 08/01/94                           University                                    Sul Celulose and Suzano
Age:  50                                                                                            Feffer. Is a Board Member of
                                                                                                    IBEF - Institute of Finance,
                                                                                                    and of Abrasca - The Brazilian
                                                                                                    Association of Listed
                                                                                                    Companies

Paulo Francisco Alexandre Striker                     Business Administrator (1982)  and Civil      Trainee at Caterpillar.
Logistics Director                                    Engineer (1978), Graduated at Makenzie        Started at Sadia as Director
Date Joined Sadia: 1984                               University. Postgraduate studies at the       Assistant, former trade
Age:  47                                              JUSE Institute (Japan) and  Dom Cabral        marketing manager and brand
                                                      Foundation.                                   management/strategic planning
                                                                                                    manager.

Roberto Banfi                                         Higher Degree in Economics (Switzerland)      An Italian citizen, has worked
Intenational Sales Director                           MBA from Stanford Business School  (USA)      in Switzerland and the U.S.
Date Joined Sadia: 07/13/98                                                                         Resident in Brazil since 1977,
Age:  55                                                                                            has worked for Bonfiglioli -
                                                                                                    Cica, Cicatrade and Swift
                                                                                                    Armour as a Statutory
                                                                                                    Director. Held the posts of
                                                                                                    Marketing Manager and
                                                                                                    Coordinator for Mercosur in
                                                                                                    the sales area of
                                                                                                    RMB-Refinacoes de Milho do
                                                                                                    Brasil.


Sergio Carvalho Mandin Fonseca                        Production Engineer (Sao Paulo University)    Worked at La Fonte Metalurgy,
Domestic Sales Director                               MBA at University of California (USA).        Souza Cruz Cigarrete Company and
Date Joined Sadia: 08/01/2003                                                                       and former retail director at
Age:  47                                                                                            the Martins Distribution
                                                                                                    Company

Ronaldo Kobarg Muller                                 Higher Degree in Chemical Engineering,        Professional career developed
Pork Production Officer                               Postgraduate Degree in Management             entirely within Sadia. Joined
Date Joined Sadia: 02/22/84                           Development  from UFSC-UNOESC                 the Company at its Concordia
Age: 42                                                                                             plant and held posts such as
                                                                                                    Head of de Department at
                                                                                                    Chapeco (State of Santa
                                                                                                    Catarina), Total Quality
                                                                                                    Coordinator and Production
                                                                                                    Manager at its Ponta Grossa
                                                                                                    (State of Parana) plant.

                                       54
<PAGE>

                      NAME                         ACADEMIC BACKGROUND                              EXPERIENCE

Valmor Savoldi                                        Agricultural Technician,                      Professional career developed
Supply Director                                       Higher Degree in Agronomy,                    entirely within Sadia. Has
Date Joined Sadia: 12/26/77                           Specialization in Administration              worked in the areas of
Age: 48                                                                                             agriculture and production and
                                                                                                    has extensive knowledge of
                                                                                                    poultry and pork processing.
                                                                                                    Has held the posts of
                                                                                                    Coordinator of Total Quality,
                                                                                                    Production Manager and Sales
                                                                                                    Manager.
</TABLE>


There are no pending legal proceedings, involving either Board Members or
Executive Officers that could prevent any of these from carrying out their
duties.

The Company has an Audit Committee, composed by members of the board, which
serves to monitor the activities of the executive officers, election of
independent auditors and to examine the Company's financial Statements. The
Fiscal Committee is composed of three members and three substitute members, who
are elected at the Ordinary General Meeting, with a mandate until the Ordinary
General Meeting of the following year.

Family relationship

Some members of the board are related. Mr. Sergio Fontana dos Reis, Ms. Marise
Pereira Fontana Cipriani,Mr. Walter Fontana and Eduardo Fontana D'Avila are
cousins.

B. COMPENSATION

For the year ended December 31, 2003, the aggregate compensation paid by Sadia
to all members of the Board of Directors and Executive Officers for services in
all areas is approximately R$ 11.1 million, not including related taxes or
social security contributions. For the year ended December 31, 2002, the amount
paid was approximately R$ 9.0 million.

The total annual bonus for 2003 and 2002 paid by the Comapny was as follows:
<TABLE>
<CAPTION>

Year of Basis,                           2003                   2002                   2001
<S>                                      <C>                    <C>                    <C>
Date of payment/exercise                 March 22nd, 2004       March 30th, 2003       March 30th, 2002
Total bonus (R$ thousands)               24,718.4               1,818.5                3,498.0
</TABLE>

The Company has also granted personal car, fuel reimbursements, health
assistance and life insurance as benefits to its executive officers.

During 2003, the Company terminated the stock award plan for its Directors,
which received a portion of their annual bonus in shares of preferred stock that
were purchased in the market by the Company in the Director's name. Based on the
number of preferred shares each director had received under this plan, which
totaled 711,000 preferred shares at the termination date; the Company paid
approximately R$ 240.1 thousand to the Directors relating to the increase in the
market value of these shares.

For the year 2003, the Company developed a variable compensation policy aiming
to consolidate several challenging targets. This plan, called GVS (Sadia Value
Generation), uses value generation metrics considering, among other things, cost
reduction, expense containment and revenue growth. During 2003, the Company
distributed a total amount of R$ 141.8 million for all eligible employees
(25,316 people), according to Sadia's official plan and observing Brazilian
federal law nr. 10,101 (12/19/2000).

In the event of the termination of the mandate of a Director or an Executive
Officer, they are entitled only to statutory employment benefits under
applicable law, without any special severance.

                                       55
<PAGE>

C. BOARD PRACTICES

Sadia has four standing committees: a Taxation Committee, an Audit Committee, a
Financial Committee and a Compensation Committee. The committees are composed of
members of the Board who dedicate themselves to the development of the long run
strategy of specific areas of the Company.

Taxation Committee

This committee is responsible to identify cost reduction opportunities through
the evaluation of the tax regulations, its changes and impacts on the Company's
operations. This committee is composed of three effective members: Roberto
Faldini (coordinator), Romano Ancelmo Fontana Filho and Walter Fontana Filho.

Audit Committee

The responsibility of the members of this committee is to evaluate the
performance of the external auditors, assure that the accounting procedures are
being properly followed by the operational areas of the Company and monitor the
internal audit department. It is composed of four members of the board:
Francisco Silverio Morales Cespede (coordinator), Roberto Faldini, Norberto
Fatio and Osorio Henrique Furlan. The Audit Committee does not yet have all of
the attributions, including independence, required by Sarbanes-Oxley, relevant
U.S. regulations and the corporate governance rules of the New York Stock
Exchange. The Company is required to comply with the law, regulations and rules
by June 30, 2005 and fully expects by that date to be in compliance or to avail
itself of permitted exemptions. See "Item 16A. Audit committee financial
expert."

Financial Committee

Responsible for the medium and long term management of the financial strategy of
the Company. This committee is charged with development of the Company's hedge
policy, project financing, capital markets, capital structure and cash
management directions, and is composed of three members: Alcides Lopes Tapias
(coordinator), Everaldo Nigro dos Santos and Walter Fontana Filho.

Compensation Committee

Responsible for conducting the human resources planning and strategy of Sadia,
among others, its basic functions are: evaluate executives performance, training
and hiring policies, salary and bonus policy and succession plans for senior
management. The members are: Romano Ancelmo Fontana Filho (coordinator),
Everaldo Nigro dos Santos, Vicente Falconi Campos and Marise Pereira Fontana
Cipriani.

D. EMPLOYEES

At December 31, 2003, the Company had 34,432 employees.

E. SHARE OWNERSHIP

On March 31, 2004 the board members, executive officers and directors of the
company held, as a group, 6,047,056 common shares and 10,319,693 preferred
shares, corresponding to 1.96% and 2.42% of the amount of outstanding shares of
each class, respectively.

For more details on ownership and any relationship among major shareholders, see
"Item 7. Major Shareholders."

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<PAGE>

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MAJOR SHAREHOLDERS

Shareholders Agreement

Members of the family of the founder, Mr. Attilio Fontana, established a
Shareholders' Agreement in May 1977, amended in October 1999, when it was
extended until May 2010. The Agreement strives to regulate the relationship
between the family groups regarding the purchase and sale of shares between
themselves and with third parties as well as to establish principles and rules
for the exercise of block voting rights, investment policy and remuneration of
capital. The Agreement is reviewed every three years. Any family member who
wishes to dispose of his/her shareholding must provide a right of first refusal
to all parties to the Shareholders' Agreement.

The Company's Shareholders' Agreement, was composed of 48 participants, in
December 2003 and controls 68.1% of Sadia's voting shares. Sadia S.A. voting and
non-voting capital stock is listed on the Bovespa stock exchange, where it is
among the most actively traded stocks, representing 64.1% of the total volume
traded on the food sector stocks.

Restrictions on Foreign Investment

According to Sadia's bylaws, 51% of the voting capital of the Company must be
held by Brazilian citizens. The right to convert dividend payments and proceeds
from the sale of Preferred Shares into foreign currency and to remit such
amounts outside Brazil is subject to exchange control restrictions and foreign
investment legislation which generally are subject to several mechanisms that
permits a foreign investor to trade directly in Bovespa.

Until March 2000, this mechanism was known as the Annex IV Regulations, in a
reference to Annex IV of Resolution No. 1,289 of the National Monetary Council
(the "Annex IV Regulations"). Currently, this mechanism is regulated by
Resolution No. 2,689, of January 26, 2000, of the National Monetary Council and
by Instruction No. 325, of January 27, 2000, of the CVM, as amended (the "2,689
Regulation"). The 2,689 Regulation, which became effective on March 31, 2000,
sets forth new rules concerning foreign portfolio investments in Brazil.

Foreign investments registered under Annex IV Regulations had to be conformed to
the 2,689 Regulation by September 30, 2000. Such new rules allow foreign
investors to invest in almost all of the financial assets and to engage in
almost all transactions available in the Brazilian financial and capital
markets, if some requirements are fulfilled.

In accordance with the 2,689 Regulation, foreign investors are individuals,
legal entities, mutual funds and other collective investments resident,
domiciled or headquartered abroad. The 2,689 Regulation prohibits the offshore
transfer or assignment of the title of the securities, except in the cases of
(i) corporate reorganization effected abroad by a foreign investor or (ii)
inheritance.

Pursuant to the 2,689 Regulation, foreign investors must: (i) appoint at least
one representative in Brazil with powers to perform actions relating to the
foreign investment; (ii) fill in the appropriate foreign investor registration
form; (iii) obtain registration as a foreign investor with CVM; and (iv)
register the foreign investment with the Central Bank.

The securities and other financial assets held by the foreign investor pursuant
to the 2,689 Regulation must be registered or maintained in deposit accounts or
under the custody of an entity duly licensed by the Central Bank or by the CVM
or be registered in register, clearing and custody systems authorized by the
Central Bank or by the CVM. In addition, securities trading is restricted to
transactions carried out in exchanges or organized over-the-counter markets
licensed by the CVM.

All investments made by a foreign investor under the 2,689 Regulation will be
subject to an electronic registration with the Central Bank. Resolution No.
1,927 of the National Monetary Council, which is the Amended and Restated Annex
V to Resolution No. 1,289 (the "Annex V Regulations"), provides for the issuance
of depositary receipts in foreign markets in respect of shares of Brazilian
issuers. The ADSs have been approved under the Annex V Regulations by the
Central Bank and the CVM. Accordingly, the proceeds

                                       57
<PAGE>

from the sale of the ADSs by ADR holders outside Brazil are free of Brazilian
foreign investment controls and holders of the ADSs will be entitled to
favorable tax treatment. According to the 2,689 Regulation, foreign investments
registered under Annex V Regulations may be transferred to the new investment
system created by Resolution No. 2,689 and vice-versa, with due regard to the
conditions set forth by the Central Bank and by the CVM.

Payments of dividends and other cash distributions by the Company relating to
the Preferred Shares underlying the Preferred ADRs will be made in Brazilian
currency to the Custodian, in its capacity as representative of the Depositary,
which will then convert such proceeds into U.S. dollars and will then remit such
U.S. dollars to the Depositary for distribution to holders of the related
Preferred ADSs. If the Custodian is not immediately able to convert the
dividends in Brazilian currency to U.S. dollars, then the holders of the
Preferred ADSs may be adversely affected by devaluation or other fluctuations in
exchange rates, before it is possible to convert and remit these dividends.
Fluctuations in the exchange rate between the Real and the U.S. dollar may also
affect the value in U.S. dollars, equivalent to the price in Reais, of the
Preferred Shares traded on Brazilian stock exchanges.

Share Position

The following table contains certain information as of March 31, 2004 with
respect to (i) any person known to the Company to be the beneficial owner of
more than 5% of the Company's outstanding shares of voting Common Shares, (ii)
any person known to the Company to be the beneficial owner of more than 5% of
the Company's outstanding shares of Preferred Shares and (iii) the total number
of the Company's voting Common Shares and Preferred Shares owned by the
executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>

Share Position at March  31, 2004

Stockholder                                  Common Shares      %           Preferred  Shares    %
<S>                                          <C>                <C>          <C>                 <C>
 Sunflower Participacoes S/A                 32,018,789         12.46%      -----                -----
 Osorio Henrique Furlan                      14,378,172         5.59%       557,127              0.13%
Attilio Francisco Xavier Fontana  Foundation 24,998,558         9.73%       8,230,000            1.93%
Private  Social  Security  Fund of the Sadia
employees, controlled by 23,000 participants
Bradesco Vida e Previdencia S.A.              18,191,148         7.08%       -----                -----
Executive Officers and Directors as a Group       11,915             2.4%        4,305,442            1.0%
</TABLE>
Source: Sadia S/A

Sunflower Participacoes is a holding company composed of several family members
and is part of the shareholders agreement. The breakdown is as follows:

<TABLE>
<CAPTION>
SUNFLOWER PARTICIPACOES

Investor                               Common              Shares %         of Preferred           Shares %
                                       Beneficially Owned         Sunflower    Beneficially Owned
<S>                                    <C>                        <C>          <C>                       <C>
Maria Aparecida Cunha Fontana          14,084,143                 43.99        -                          -
Walter Fontana Filho                   6,739,660                  21.05        -                          -
Attilio Fontana Neto                   5,716,562                  17.85        -                          -
Vania Cunha Fontana                    5,478,424                  17.11        -                          -
Total                                  32,018,789                 100.0        -                          -
</TABLE>
Source: Sadia S/

                                       58
<PAGE>

Bradesco Vida e Previdencia S.A. is a private pension fund owned by the Bradesco
Group and does not participate in the shareholders agreement. The ownership
structure breakdown is as follows:
<TABLE>
<CAPTION>

BRADESCO VIDA E PREVIDENCIA S.A.
Investor                                        Common Shares       %          Preferred Shares     %
<S>                                             <C>                 <C>                             <C>
Bradesco Seguros S.A.                           791,364,365         100.0%     -                    0.00%
Total                                           791,364,365         100.0%     -                    0.00%
</TABLE>

B. RELATED PARTY TRANSACTIONS

The Company has operating transactions mainly with Sadia International and
Laxness F.C.P.A. Lda., which are both the Company's vehicles for sales
outside Brazil. Sadia International is also acting as a financial entity of the
Group by obtaining export-financing loans from international banks and investing
the proceeds in debt securities.

Concordia CVMCC is a brokerage firm that is responsible for identifying the
better alternatives of investments for the cash surplus generated by the Company
and its subsidiaries.

C. INTERESTS OF EXPERTS AND COUNSEL

Not Applicable.

ITEM 8. FINANCIAL INFORMATION

A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See "Item 18. Financial Statements"

Legal Proceedings

The Company and its subsidiaries are parties to certain legal proceedings in the
normal course of business, including administrative and judicial tax disputes,
civil and labor proceedings. Provisions taken by the Company on its financial
Statements in connection with such proceedings reflect a reasonably estimate of
probable losses as determined by the Company's management based on legal advice.
Additionally, the Company constitutes judicial deposits to serve as guaranties
during the dispute the discussion of its proceedings, when this procedure is
required to suspend the enforcement of the claim.

In the opinion of management, except as set forth below, there are no legal
proceedings in which the Company or any of its subsidiaries is a party, or to
which any of their respective properties are subject, that are not presently
provided for, which, either individually or in the aggregate, may have a
material adverse effect on the results of operations or financial position of
the Company.

Labor Disputes

The Company is involved in 1,750 labor proceedings none of which is material in
amount. The Company established a reserve amounting to R$ 13.6 million, to treat
those issues. These disputes involve matters ranging from overtime claims,
wrongful termination and claims involving work conditions.

Civil Disputes

Sadia is involved in a series of civil proceedings all of which are in the
ordinary course of business. At December 31, 2003 the Company provisioned an
aggregate amount of approximately R$17.7 million relative to the expected
settlement for these proceedings. The proceedings considered material to Sadia
refer to ex-employees' claims for indemnification due to health problems that
evolved after resignation (ex-employees allege they developed occupational
diseases related to the activities they used to perform during the work period
in Sadia, and workplace accidents) in the amount of R$ 5.8 million. In
accordance with Brazilian law, notwithstanding that the Company pays an
additional salary to cover the risks involved in those activities, considered
risky and extraordinary, these claims, when legally challenged, are discussed as
civil issues, because they involve indemnity claims. The Company is also
discussing with ex-integrated poultry out growers claims for indemnification in
the amount of R$ 3.9 million, relative to termination of contracts due to

                                       59
<PAGE>

high production costs. Finally, there is a customer claim in the amount of R$
8.0 million, for consequential damages due to diseases developed by the avian
breeding flocks that were supplied by Granja Rezende S/A before its acquisition
by Sadia.

Tax Disputes

The Company is involved in tax litigation, as both plaintiff and defendant, in
which it contests the payment of certain taxes or requests as relief the
confirmation of the applicability of tax credits, as described below:

The Company is a defendant in the following cases

i. Income tax:

In order to cover several tax contingencies, which are individually not
material, the subsidiary Granja Rezende (merged in August 2002) has established
several reserves aggregating R$ 6.1 million.

ii.      ICMS (Value added tax on Sales and Services):

     a)   The State of Sao Paulo is seeking to collect value added tax (ICMS) on
          customs discharge of certain imported products. A reserve of R$ 3.3
          million was created to cover probable losses to be settled;

     b)   The State of Rio de Janeiro is seeking to collect value added tax
          (ICMS) on certain products. The State has asserted that these products
          were transferred from other States' production units invoiced at a
          cost above from the corresponding production costs. A reserve of R$
          5.5 million has been established to cover the eventual liability;

     c)   The State of Rio de Janeiro is seeking to collect value added tax
          (ICMS) on certain transactions as the States has asserted that some
          merchandise sold was supported by incorrectly completed invoices
          (issuer: Rezende - Uberlandia; receiver: several customers in the
          State of Rio de Janeiro). A reserve of R$ 2.7 million was established
          to cover an eventual liability;

     d)   The State of Mato Grosso is seeking to collect value added tax (ICMS)
          due to differences found in monthly deductions on ICMS values charged
          from third party freights by tax substitution. Of the total tax amount
          sought, the Company was partially successful in, reducing the
          contingency to R$ 0.8 million, which is being paid by a 60-month
          amortization plan agreed with the State. The reserve was adjusted from
          R$ 1.4 million to R$ 0.8 million;

     e)   The State of Mato Grosso is seeking to collect value added tax (ICMS)
          due to improperly procedures to prove that certain credits could be
          unwound on purchases made in the Manaus Free Zone. A reserve of R$ 5.5
          million has been established to cover the eventual liability;

     f)   The State of Rondonia is seeking to collect value added tax (ICMS) on
          certain products. The State has asserted that the Company has not
          issued the invoices from third party warehouses. A reserve of R$ 0.5
          million has been established to cover the eventual liability;

     g)   The State of Sao Paulo is seeking to collect credits on value added
          tax (ICMS) used to offset the electric energy consumed by the Company
          freezers and on the acquisition of some telecom services. A reserve of
          R$ 2.5 million has been established to cover the eventual liability;

     h)   Other Judicial and administrative proceedings amounting R$ 0.4
          million.

iii. National Institute of Social Security (INSS)

The National Institute of Social Security (INSS) requires the collection of
contributions on salaries of third parties rendering services in civil
construction work at the incorporated subsidiary Granja Rezende, due to joint
liability, amounting to R$ 1.0 million. The Company is claiming the contribution
among those responsible for the construction.

                                       60
<PAGE>

iv. Other tax contingencies

The Company as a plaintiff

The Company is a plaintiff in several judicial and administrative issues,
intending to recover improperly paid taxes or challenging those that it believes
were improperly charged. Based on estimates of its legal counsel these claims
are considered probable or possible positive outcomes.

Dividends and Dividend Policy

The authorized capital stock of the Company is composed of Common Shares and
Preferred Shares. As of December 31, 2003, the Company's capital stock was
composed of 257,000,000 Common Shares and 426,000,000 Preferred Shares.

Dividends Distributed

The following table sets out the dividends paid to Shareholders of the Company's
Common and Preferred Shares since 1996 in historical Brazilian currency and U.S.
dollars translated from historical Brazilian currency at the commercial exchange
rate on the date of payment of the same dividends.

<TABLE>
<CAPTION>

Period                Payment Date         R$ per 1,000         US$ per 1,000        US$ per ADR
------                ------------         Preferred Shares     Preferred Shares

<S>                   <C>                 <C>                  <C>                  <C>
1996                  12/16/1996           6.00                 5.77                 -
                      04/10/1997           18.00                16.92                -
1997                  08/25/1997           19.41                17.78                -
                      03/11/1998           19.80                17.41                -
1998                  08/25/1998           38.80                32.97                -
                      02/25/1999           41.40                20.05                -
1999                  08/25/1999           16.50                9.06                 -
                      02/10/2000           27.50                15.45                -
2000                  08/18/2000           11.00                6.05                 -
2001                  02/20/2001           37.40                18.64                -
                      08/22/2001           32.35                12.82                0.38
2002                  02/14/2002           89.29                36.82                1.10
                      08/16/2002           17.60                5.64                 0.17
2003                  02/14/2003           63.50                17.35                0.52
                      02/21/2003           20.37                5.63                 0.17
2004                  08/15/2003           60.70                20.27                0.61
                      02/16/2004           156.80               53.90                1.62
</TABLE>
Source: Sadia S/A

Calculation of Distributable Amount

At each annual General Shareholders' Meeting, the Board of Directors must
recommend the manner of allocation of the Company's income from the preceding
fiscal year. According to Brazilian Corporate Law, the net income of a company
after deduction of income tax and social contributions relative to the same
fiscal year, and net of any losses accumulated in prior fiscal years, and
amounts allocated to employee and management profit-shares, will represent the
"net income" of the Company, following (i) the deduction of amounts allocated to
the constitution of the legal reserve, (ii) the deduction of amounts allocated
to the constitution of other reserves, following the principles established by
the Company and in accordance with the applicable legislation (as hereinafter
discussed), and (iii) the increase by the reversion of reserves constituted in
previous fiscal years. This net income will be available for distribution to
Shareholders (thus constituting the "adjusted net profit", designated here as
the "Distributable Amount") in any fiscal year.

Legal Reserve. According to Brazilian Corporate Law, the Company is required to
maintain a "legal reserve" to which it must allocate 5% of its "net income" in
each fiscal year, until the amount of this reserve is equal to 20% of the
paid-in share capital, or until the sum of this reserve and all other capital
reserves reaches 30% of the paid-in share capital. Net losses, if any, may be
debited against the legal reserve.

                                       61
<PAGE>

Discretionary Reserves. According to Brazilian Corporate Law, the Company may
decide to assign on a discretionary basis a portion of the "net income" to the
limit established in its By-laws (with such reserves collectively designated as
"discretionary reserves"). The Company's By-laws established a special fund for
Research and Development to which it may allocate up to 15% of its "net income"
per year, until the amount of this fund is equivalent to 10% of its paid-in
share capital.

Contingency Reserve. According to Brazilian Corporate Law, the Company may also
decide to assign a portion of the "net income" to a "contingency reserve"
against likely losses in future fiscal years. Any amount thus assigned in a
previous year must be (i) reversed in the fiscal year in which the loss was
envisaged, if this loss does not effectively occur, or (ii) debited, if the
foreseen event actually materializes. At the present time, Sadia has no
contingency reserve. There are no clearly defined rules on the extension of the
future period for which a loss may be foreseen for the purposes of constituting
a contingency reserve. Its determination thus depends on circumstances and the
nature of each particular event, and will be decided at the discretion of the
Board of Directors.

Investment Project Reserve. According to Brazilian Corporate Law, a portion of
the "net income" may also be assigned for any discretionary appropriations for
plant expansions or any other investment projects, the amount of which is based
on the capital budget previously presented by management and approved by
Shareholders. Following the conclusion of the corresponding investment projects,
the Company may withhold the relevant appropriation until the Shareholders vote
to transfer all or part of the capital reserve or retained earnings. The
Company's By-laws effective as of March 31, 2000, contains provisions for a
Special Expansion Reserve, to which at least 15% and at most 60% of the "net
income" (formerly 5% and 15%, respectively) must be allocated each year, until
the amount of this reserve is equivalent to 70% of its paid-in share capital
(from former 30%).

Unrealized Income Reserve. According to Brazilian Corporate Law, if the amount
of "unrealized income" (according to the definition below) in any fiscal year
exceeds the allocated amount (i) of the legal reserve, (ii) of the discretionary
reserves, (iii) of the contingency reserve and (iv) of the investment project
reserve, the excess amount may be allocated to an "unrealized income reserve".
"Unrealized income" in any fiscal year will represent the sum (i) of monetary
correction of the balance sheet (until 1995) during the fiscal year, (ii) income
from subsidiaries or associated companies for the fiscal year in question, (iii)
income from installment sales to be received after the end of the subsequent
fiscal year.

Fiscal Incentive Investment Reserve. According to the terms of Brazilian tax
legislation, a portion of "net income" may also be assigned to a "fiscal
incentive investment reserve" for amounts corresponding to the Company's income
tax deductions generated by credits for certain investments that are approved by
the Government. The reserve may only be used to acquire shares in companies that
are developing specific projects that are approved by the Government.

Brazilian Corporate Law States that all discretionary allocations of "net
income" including discretionary reserves, the contingency reserve, the
unrealized income reserve and the investment project reserve, will be subject to
approval by Shareholders at the annual meeting, and may be transferred to the
company's capital or used to pay dividends in subsequent fiscal years. The
fiscal incentive investment reserve and the legal reserve are also subject to
approval by Shareholders at the annual meeting and may be transferred to the
company's capital, but may not be used to pay dividends in subsequent fiscal
years.

The calculation of the "net income" of the Company, and the allocations to
reserves in any fiscal year, are determined on the basis of financial Statements
prepared in accordance with Brazilian Corporate Law and Brazilian GAAP, which
differ from the financial Statements prepared in accordance with United States
generally accepted accounting principles. The Financial Statements presented
herein were prepared in accordance with U.S. GAAP, and while the allocations to
reserves and the dividends are reflected in these Consolidated Financial
Statements, investors will not be able to calculate the amounts of these
allocations, or of dividends due, on the basis of the same Consolidated
Financial Statements.

Mandatory Dividends. As established in its By-laws, Sadia is required to
distribute to Shareholders in lieu of dividends relative to each fiscal year
ended December 31, an amount of no less than 28% of the Distributable Amount
(the "Mandatory Dividend") in any given fiscal year (an amount of which shall
include any interest whatsoever on Shareholders' equity paid and any
preferential dividends paid on Preferred Shares during the same fiscal year). In
addition to the Mandatory Dividend, the Board of Directors may recommend the
payment of dividends to shareholders from other legally available resources,
according to the terms of such

                                       62
<PAGE>

law. Any payment of interim dividends or interest on Shareholders' equity will
be deducted from the amount of the Mandatory Dividend for the same fiscal year.
In accordance with Brazilian Corporate Law, if the Board of Directors decides,
prior to the annual Shareholders' meeting, that the payment of the Mandatory
Dividends for the preceding fiscal year is not advisable, due to the financial
condition of the Company, then there will be no requirement to pay such
Mandatory Dividends. Such a decision must be reviewed by an Audit Committee, and
reported to Shareholders and to the CVM. If a Mandatory Dividend is not paid,
any retained earnings must be allocated to a special reserve account. If the
Company does not incur the expected losses that led to the withholding of the
Mandatory Dividend, then the Company will be required to pay the proper
Mandatory Dividend.

Priority of the Preferred Shares in the Payment of Dividends On May 5, 1997, an
amendment to Brazilian Corporate Law was approved (Law No. 9,457), that included
the requirement that companies whose By-laws do not include provisions for the
distribution of fixed or minimum dividends, whether cumulative or not, pay
dividends on their Preferred Shares that are at least 10% greater than the
corresponding dividends on their common shares. In accordance with the Company's
By-laws, and subject to the calculation of the Mandatory Dividends for any
particular fiscal year, the holders of the Preferred Shares will be entitled to
minimum annual non-cumulative preferred dividends for an amount equal to 28% of
the share capital attributable to the Preferred Shares, prior to the
distribution of dividends to the holders of the Common Shares. After having paid
these minimum annual non-cumulative preferred dividends, the holders of the
Common Shares will receive the same amount of dividend per share as that of the
Preferred Shares. Once this condition has been met, any additional dividends
declared by the Company with regard to any particular fiscal year will be
divided between the holders of the Common Shares and the Preferred Shares, with
the latter receiving an amount 10% greater than the former.

Other Rights of Preferred Shares The Company's By-laws do not contain provisions
for the conversion of Preferred Shares into Common Shares. In addition, there
are no provisions for the redemption of shares associated with the Preferred
Shares. The Preferred Shares take priority in procedures related to the
liquidation of the Company, without entitlement to any other form of
compensation for existing Shareholders. Holders of Preferred Shares are not
entitled to vote at the general meeting of the Company's Shareholders. If,
however, the preferred dividends are not paid for three successive years, the
Preferred Shares will acquire the right to vote, until the payment of these
dividends is made.

Payment of Dividends In accordance with Brazilian Corporate Law, the Company is
required to hold an annual Shareholders' meeting by April 30 of each year,
during which an annual dividend will be declared In addition, interim dividends
may be declared by the Board of Directors. According to Brazilian Corporate Law,
dividends must generally be paid to the holders of the relevant shares within 60
days of the date of declaration of the same dividend, unless a resolution of
Shareholders establishes another date of payment, which in both cases, must
occur before the end of the fiscal year in which the dividend was declared. The
Company's By-laws require that an Annual General Shareholders' Meeting be held
within four months of the end of each fiscal year. At this meeting, among other
things, an annual dividend may be declared by decision of the Shareholders and
at the recommendation of the Executive Officers, as approved by the Board of
Directors. The payment of annual dividends is based on the financial Statements
relating to the fiscal year ending December 31. According to the Company's
By-laws, dividends will be paid to Shareholders within 60 days of the date of
declaration of the dividend, which must be effected before the end of the fiscal
year in which the same dividend was declared. The requirement for Mandatory
Dividends may be met through payments either in the form of dividends or of
interest on Shareholders' equity. The Company is not required to adjust the
amount of the dividend for inflation for the period from the end of the last
fiscal year to the date of declaration of the same dividend. It is therefore
possible that the amount, expressed in Reais, of the dividends paid to holders
of Preferred Shares or Common Shares will be reduced due to inflation.
Shareholders have up to three years from the date of payment of the dividend to
demand payment of these as they relate to shares held by the same party, after
which time the Company will be free from any obligation to make such payments.

Payments of cash distributions by the Company relating to the Preferred Shares
underlying the Preferred ADRs will be made in Brazilian currency to the
Custodian, in its capacity as representative of the Depositary, which will then
convert such proceeds into U.S. dollars and will then remit the same U.S.
dollars to the Depositary for distribution to holders of the related ADRs (See
"Description of American Depositary Receipts"). Dividends paid to Shareholders
that are not Brazilian residents, including holders of Preferred ADRs, are
exempt from withholding of Brazilian income tax at source, except with regard to
income provisioned before 1996, which is subject to retention of 15% in lieu of
Brazilian taxation. (See "Taxation").

                                       63
<PAGE>

Shareholders that are not resident within Brazil must register with the
Brazilian Central Bank so that the dividends resulting from sales, or other
amounts, may be remitted in foreign currency outside Brazil. The Preferred
Shares underlying the ADRs are maintained within Brazil by the Custodian, which
acts as agent for the Depositary, which appears in the Company's register as the
beneficial owner of the shares.

Notional Interest Charge Attributed to Shareholders' Equity Pursuant to a change
in Brazilian tax law effective January 1, 1996, Brazilian companies are
permitted to pay limited additional amounts to holders of equity securities and
treat such payments as an expense for Brazilian income tax purposes. The amount
of any such "interest" payment to holders of equity securities is generally
limited in respect of any particular year to (i) retained earnings for such year
plus 50% of the pre-tax profits for such year multiplied by (ii) the Taxa de
Juros de Longo Prazo interest rate (Long-Term Interest Rate -TJLP), which is the
official rate for governmental long-term loans. The additional payment may take
the form of supplemental dividends to Shareholders. In 1996, the only form of
payment could be through an increase to capital or any addition to reserves. A
15% withholding tax is payable by the Company upon distribution of the notional
interest amount. In 1996, the withholding tax was payable by the Company and was
accrued and charged to income. In 1997, the withholding tax was paid by the
Company on behalf of the shareholders. In 1996, this notional interest charge
was deductible in determining Brazilian income tax payable. Additionally,
effective January 1, 1997, such payments are also deductible for social
contribution purposes.

Under Brazilian law, the Company is obliged to distribute to Shareholders an
amount sufficient to ensure that the net amount received by Shareholders after
payment by the Company of Brazilian withholding taxes in respect of the
distribution of notional interest, is at least equal to the Mandatory
Distribution.

Dividend Policy. The Company currently plans to pay dividends or interest on
Shareholders' equity on its Preferred and Common Shares to the amount of the
distributions required in any fiscal year, subject to the determination by the
Board of Directors that such distributions are inadvisable due to the financial
condition of the Company. In accordance with its policy, the Company pays
dividends twice a year, although the law does not require it to do so.

Amendments to Brazilian Corporate Law

In 2001, important amendments to the Brazilian Corporate Law were adopted. The
most important changes were (i) the conversion of CVM into an autonomous
governmental agency linked to the Ministry of Finance, with legal independence
and separate assets and liabilities; (ii) the requirement of greater disclosure
by listed companies; (iii) the tag-along right to minority common shareholders
in the event of change in control of a listed company; (iv) the right of
preferred shareholders with non-voting rights or restricted voting rights
representing at least 10% of the total stock of a listed company to elect one
board member and his alternate (until April 2005, the representative of such
shareholders can be chosen out of a three-name list prepared by controlling
shareholders, from 2006 on the representative can be appointed without any
restrictions by the refered group); (v) the right of the minority common
shareholders to also elect one board member; and (vi) the preferred shares will
only be traded in the stock market if they have at least one of the rights
mentioned below: (a) priority in the receipt of dividends corresponding to at
least 3% of the shares' net worth based on the last approved balance sheet of
the company; (b) the right to receive dividends at least 10% higher than the
dividend assigned to each common share; or (c) the tag-along right in the event
of change in the control of the company. The By-Laws of existing listed
companies were required to be modified to conform to the new provisions
mentioned above, by March 1, 2003.

B. SIGNIFICANT CHANGES

No significant change has occurred since the date of the annual financial
statements included in this Annual Report.

                                       64
<PAGE>

ITEM 9. THE OFFER AND LISTING

Price Information
The table below presents, for the indicated periods, the minimum and maximum
closing prices for Preferred Shares on the Sao Paulo Stock Exchange. The prices
are expressed in nominal reais as of the period end date. The sales prices
included on the two following tables were also translated into U.S. dollars, but
please note that the "high" and "low" quote in U.S. dollars in a given period
may not be in the same month of the "high" and "low" prices expressed in reais
due to the influence of the foreign exchange rate.

<TABLE>
<CAPTION>

                                                       CLOSING SALE PRICES
                NOMINAL REAIS PER 1,000 PREFERRED SHARES               U.S. DOLLARS PER 1,000 PREFERRED SHARES
                     HIGH                       LOW                      HIGH                         LOW
<C>                 <C>                      <C>                        <C>                          <C>
1999                532.74                   1,407.60                   836.36                       466.25
2000                752.14                   1,424.80                   824.54                       392.97
2001                877.33                   1,269.30                   624.04                       447.62
2002               1,036.00                  1,001.00                   576.76                       262.76
2003               3,840.00                  1,010.00                  1,323.23                      277.47
</TABLE>


<TABLE>
<CAPTION>

                                                             CLOSING SALE PRICES
                       NOMINAL REAIS PER 1,000 PREFERRED SHARES       U.S. DOLLARS PER 1,000 PREFERRED SHARES
                       HIGH                 LOW                       HIGH                  LOW
                                                         2001
<S>                                <C>                       <C>                     <C>                         <C>
First Quarter                      1,263.00                  1,006.90                693.96                      573.08
Second Quarter                     1,170.70                    961.99                648.95                      519.71
Third Quarter                      1,101.30                    877.33                564.19                      447.62
Fourth Quarter                     1,269.30                    933.33                624.04                      480.40
                                                         2002
First Quarter                      1,310.00                  1,200.00                548.12                      556.07
Second Quarter                     1,360.00                  1,050.00                576.76                      373.24
Third Quarter                      1,150.00                  1,010.00                401.12                      277.78
Fourth Quarter                     1,360.00                  1,030.00                386.82                      262.76
                                                         2003
First Quarter                       1,220.0                   1,010.0                344.63                      348.76
Second Quarter                      1,370.0                   1,060.0                474.05                      320.24
Third Quarter                       2,590.0                   1,360.0                892.18                      314.15
Fourth Quarter                      3,840.0                   2,450.0              1,323.23                      847.16
</TABLE>

                                       65
<PAGE>

The sales prices included on the following table were translated into U.S.
dollars in accordance with the Commercial Market rate of exchange for each
corresponding date quoted.

<TABLE>
<CAPTION>

                                                              CLOSING SALE PRICES
                         NOMINAL REAIS PER 1,000 PREFERRED SHARES     U.S. DOLLARS PER 1,000 PREFERRED SHARES
                         HIGH                 LOW                     HIGH                         LOW
<S>                                  <C>                     <C>                          <C>                  <C>
December 2003                        3,840.00                3,330.00                     1,323.23             1,128.81
January 2004                         4,740.00                3,860.00                     1,665.50             1,340.74
February 2004                        4,680.00                4,120.00                     1,603.29             1,416.29
March 2004                           4,290.00                3,980.00                     1,482.38             1,348.31
April 2004                           4,180.00                3,960.00                     1,446.37             1,352.46
May 2004                             4,080.00                2,560.00                     1,368.67               815.29
</TABLE>

The Company's Preferred Shares were listed in the form of ADRs on the New York
Stock Exchange (the "NYSE") in April 2001. The following tables present, for the
periods indicated, the high and low prices for the ADRs. Each ADR represents 30
preferred shares.

<TABLE>
<CAPTION>

                               CLOSING SALE PRICE
                              U.S. DOLLARS PER ADR
                                                      HIGH                                 LOW
                                      2001
<S>                                   <C>                            <C>                                 <C>
Second Quarter                                                       17.25                               13.25
Third Quarter                                                        14.35                               10.75
Fourth Quarter                                                       16.55                               11.33
                                      2002
First Quarter                                                        16.75                               14.75
Second Quarter                                                       17.00                               11.21
Third Quarter                                                        11.80                                8.51
Fourth Quarter                                                       16.55                               11.33
                                      2003
First Quarter                                                        12.09                                9.55
Second Quarter                                                       16.00                               10.61
Third Quarter                                                        27.47                               15.59
Fourth Quarter                                                       41.75                               26.75
</TABLE>

<TABLE>
<CAPTION>

                               Closing Sale Price
                              U.S. DOLLARS PER ADR
                                                      HIGH                                 LOW
<S>      <C>                                          <C>                                 <C>
December/2003                                         41.75                               34.60
January/2004                                          49.65                               40.50
February/2004                                         48.30                               42.25
March/2004                                            44.50                               40.52
April/2004                                            43.00                               39.80
May/2004                                              40.96                               34.05
</TABLE>

As of April 31, 2004 there were approximately 25 U.S. beneficial owners of the
ADSs (based on their addresses only), representing approximately 1.8 % of the
total Preferred Shares.

B. PLAN OF DISTRIBUTION
Not applicable.

                                       66
<PAGE>

C. MARKETS

Trading on the Brazilian Stock Exchanges

Of Brazil's stock exchanges, the Sao Paulo Stock Exchange has been the most
significant in recent years. During 2003, the Sao Paulo Stock Exchange accounted
for almost the total of the trading value negotiated in Brazil.

The Sao Paulo Stock Exchange is a non-profit entity owned by its member
brokerage firms. Trading on the Sao Paulo Stock Exchange is limited to member
brokerage firms and a limited number of authorized non-members. The Sao Paulo
Stock Exchange currently has two open outcry trading sessions each business day,
from 10:00 a.m. to 1:00 p.m. and from 2:00 p.m. to 4:45 p.m. Trading is also
conducted between 10:00 a.m. and 5:00 p.m. on the automated system of the Sao
Paulo Stock Exchange. There is also trading in the so-called After-Market, only
through the automated system of the Sao Paulo Stock Exchange, from 5:45 p.m. to
19:00 p.m. Only shares that were traded during the regular trading session of
the day may be traded in the After-Market of the same day.

There are no specialists or market makers for the Company's shares on the Sao
Paulo Stock Exchange. The Comissao de Valores Mobilarios (the "CVM" or the
"Brazilian Securities Commission") and the Sao Paulo Stock Exchange have
discretionary authority to suspend trading in shares of a particular issuer
under certain circumstances. Trading in securities listed on the Sao Paulo Stock
Exchange may be effected off the exchange under certain circumstances, although
such trading is very limited.

In December 2003, the aggregate market capitalization of the companies listed on
the Sao Paulo Stock Exchange was approximately US$ 234.0 billion. Although any
of the outstanding shares of a listed company may trade on the Sao Paulo Stock
Exchange, in most cases less than half of the listed shares are actually
available for trading by the public, the remainder being held by small groups of
controlling persons that rarely trade their shares. For this reason, data
showing the total market capitalization of the Sao Paulo Stock Exchange tend to
overstate the liquidity of the Brazilian equity securities market. The Brazilian
equity securities market is relatively small and illiquid compared to major
world markets.

Settlement of transactions is effected three business days after the trade date
without adjustment of the purchase price for inflation. Payment for shares is
made through the facilities of a separate clearinghouse, named Companhia
Brasileira de Liquidacao e Custodia - CBLC, which maintains accounts for member
brokerage firms. The seller is ordinarily required to deliver the shares to the
exchange on the second business day following the trade date. The CBLC is
controlled by clearing agents, such as member brokerage firms and banks, and the
Sao Paulo Stock Exchange.

Trading on the Sao Paulo Stock Exchange by non-residents of Brazil is subject to
certain limitations under Brazilian foreign investment legislation.

Regulation of Brazilian Securities Markets

The Brazilian securities markets are regulated by the Brazilian Securities
Commission ("CVM"), which has authority over stock exchanges and the securities
markets generally, and by Banco Central do Brasil (the "Central Bank"), which
has, among other powers, licensing authority over brokerage firms and regulates
foreign investment and foreign exchange transactions. The Brazilian securities
market is governed by Law no. 6,385 dated December 7, 1976, as amended (the
"Brazilian Securities Law") and the Brazilian Corporate Law (Law no. 6,404 dated
December 15, 1976, as amended) (the "Brazilian Corporate Law").

Law 10,303 of October 31, 2001, amended Law n(0) 6,385/76 and Law n(0) 6,404/76.
The most important changes were (i) the conversion of CVM into an autonomous
governmental agency linked to the Ministry of Finance, with legal independence
and separate assets and liabilities; (ii) the requirement of greater disclosure
by listed companies; (iii) the tag-along right to minority common shareholders
in the event of change in control of a listed company; (iv) the right of
preferred shareholders with non-voting rights or restricted voting rights
representing at least 10% of the total stock of a listed company to elect one
board member and his alternate (by April 2005, the representative of such
shareholders is to be chosen out of a three-name list prepared by controlling
shareholders); (v) the right of the minority common shareholders to also elect
one board member; and (vi) the preferred shares will only be traded in the stock
market if they have at least one of

                                       67
<PAGE>

the rights mentioned below: (a) priority in the receipt of dividends
corresponding to at least 3% of the shares' net worth based on the last approved
balance sheet of the company; (b) the right to receive dividends at least 10%
higher than the dividend assigned to each common share; or (c) the tag-along
right in the event of change in the control of the company. Under the Brazilian
Corporate Law, a company is either listed, a "companhia aberta", such as the
Company, or private, a "companhia fechada". All listed companies are registered
with the CVM and are subject to reporting requirements. A company registered
with the CVM may have its securities traded either on the Sao Paulo Stock
Exchange or in the Brazilian over-the-counter markets ("Brazilian OTC"). The
shares of a listed company, including the Company, may also be traded privately
subject to certain limitations.

There are certain cases in which the disclosure of information to the CVM, the
Sao Paulo Stock Exchange, or even to the public is required. These include (i)
the direct or indirect acquisition by an investor of at least 5% (five percent)
of any class or type of shares representing the capital stock of a listed
company, (ii) the sale of shares which represents the transfer of control of a
listed company and (iii) the occurrence of a material event to the corporation.

CVM issued Instruction N(0) 361, of March 5, 2002, which regulates tender offers
mainly when the following events occur: (i) delisting of public companies; (ii)
increase in the equity interest by the controlling shareholder; and (iii)
transfer of control of a public company.

To be listed on the Sao Paulo Stock Exchange, a company must apply for
registration with the CVM and the Sao Paulo Stock Exchange. Once this exchange
has admitted a company to listing and the CVM has accepted its registration as a
listed company, its securities may be traded in the Sao Paulo Stock Exchange, as
long as the company complies with the minimum requirements of this exchange.

The Brazilian OTC consists of direct trades between individuals in which a
financial institution registered with the CVM serves as intermediary. No special
application, other than registration with the CVM, is necessary for securities
of a listed company to be traded in the Brazilian OTC. The CVM requires that it
be given notice of all trades carried out in the Brazilian OTC by the respective
intermediaries.

Trading in securities on the Sao Paulo Stock Exchange may be suspended at the
request of a company in anticipation of the announcement of a material event.
Trading may also be suspended on the initiative of the exchange or the CVM,
among other reasons, based on or due to a belief that a company has provided
inadequate information regarding a material event or has provided inadequate
responses to the inquiries by the CVM or the exchange.

The Brazilian securities markets are governed principally by Brazilian
Securities Law, by Brazilian Corporate Law and by regulations issued by the CVM
and the Conselho Monetario Nacional (the "National Monetary Council"). These
laws and regulations, among others, provide for disclosure requirements,
restrictions on insider trading and price manipulation, and protection of
minority shareholders. Although many changes and improvements have been
introduced, the Brazilian securities markets are not as highly regulated and
supervised as the U.S. securities markets or markets in certain other
jurisdictions.

D. SELLING SHAREHOLDERS

Not Applicable.

                                       68
<PAGE>

E. DILUTION
Not Applicable.

F. EXPENSES OF ISSUE Not Applicable.

ITEM 10. ADDITIONAL INFORMATION

A. SHARE CAPITAL

Not Applicable.

B. MEMORANDUM AND ARTICLES OF ASSOCIATION

Not Applicable.

C. MATERIAL CONTRACTS

Not Applicable.

D. EXCHANGE CONTROLS

There are two foreign exchange markets in Brazil: the commercial rate exchange
market (the "Commercial Market") and the tourism rate exchange market (the
"Tourism Market"). Most trade and financial foreign exchange transactions,
including transactions relating to the purchase or sale of shares or the payment
of dividends with respect to shares, are carried out in the Commercial Market.
Purchases of foreign currencies in the Commercial Market may be carried out only
through a financial institution in Brazil licensed to deal in foreign exchange.
The Tourism Market rate generally applies to transactions to which the
Commercial Market rate does not apply, like travels abroad. Since the
introduction of the real, the two rates have not differed materially, although
there could be substantial differences between the two rates in the future. In
both markets, rates are freely negotiated but may be strongly influenced by
Central Bank intervention.

Brazilian law provides that, whenever there is a significant imbalance in
Brazil's balance of payments or reasons to foresee such an imbalance, temporary
restrictions may be imposed on remittances of foreign capital abroad. For
approximately six months in 1989 and early 1990, for example, aiming at
preserving Brazil's foreign currency reserves, the Brazilian government froze
all dividend and capital repatriations that were owed to foreign equity
investors and held by the Central Bank. These amounts were subsequently released
in accordance with Brazilian Government directives. There can be no assurance,
however, that the Brazilian Government may not take similar measures in the
future.

E. TAXATION

The following summary contains a description of the principal Brazilian and US
federal income tax consequences of the ownership and disposition of a Preferred
Share and a Preferred ADR. It does not purport to be a comprehensive description
of all the tax considerations that may be relevant to a decision to purchase
those securities. In particular, this summary deals only with holders that will
hold Preferred Shares or Preferred ADRs as capital assets and does not address
the tax treatment of a holder that may be subject to special tax rules, like a
bank, an insurance company, a dealer in securities, a person that will hold
Preferred Shares or Preferred ADRs in a hedging transaction or as a position in
a "straddle" or "conversion transaction" for tax purposes, a person that has a
"functional currency" other than the US dollar, a person liable for alternative
minimum tax, a partnership (or other entity treated as a partnership for US
federal income tax purposes) or a person that owns or is treated as owning 10%
or more of the voting shares of the company. Each prospective purchaser of a
Preferred Share or Preferred ADR should consult his own tax advisers as to the
personal tax consequences of his investment, which may vary for investors in
different tax situations.

The summary is based upon tax laws of Brazil and the United States and
applicable regulations, judicial decisions and administrative pronouncements as
in effect on the date hereof. Those authorities are subject to change or new
interpretations, possibly with retroactive effect. Although there is no income
tax treaty between Brazil and the United States at this time, the tax
authorities of the two countries have had discussions that may culminate in a
treaty. No assurance can be given, however, as to whether or when a treaty will
enter

                                       69
<PAGE>

into force or how it will affect the US holders of Preferred Shares or Preferred
ADRs. This summary is also based upon the representations of the Depositary and
on the assumption that each obligation in the Deposit Agreement relating to the
Preferred ADRs and any related documents will be performed in accordance with
its terms.

Brazilian Tax Considerations

The following discussion summarizes the material Brazilian tax consequences of
the acquisition, ownership and disposition of Preferred Shares or Preferred ADSs
by a holder that is not domiciled in Brazil for purposes of Brazilian taxation
and, in the case of a holder of Preferred Shares which has registered its
investment in such securities with the Central Bank as a U.S. dollar investment
(in each case, a "non-Brazilian holder"). The following discussion does not
specifically address all of the Brazilian tax considerations applicable to any
particular non-Brazilian holder, and each non-Brazilian holder should consult
his or her own tax advisor concerning the Brazilian tax consequences of an
investment in any of such securities.

Taxation of Dividends. Dividends paid with respect to income earned since
January 1, 1996, including dividends paid in kind (i) to the Depositary in
respect of the Preferred Shares underlying the Preferred ADSs or (ii) to a
non-Brazilian holder in respect of Preferred Shares, are not subject to any
withholding tax in Brazil. The current tax legislation eliminated the then
existing 15% withholding tax on dividends paid to companies, resident
individuals or non-residents in Brazil. Accordingly, dividends with respect to
profits generated on or after January 1, 1996 are not subject to withholding tax
in Brazil. Dividends related to profits generated until December 31, 1993 will
be subject to Brazilian withholding tax of 25%. Dividends related to profits
generated between January 1, 1994 and December 31, 1995 will be subject to
Brazilian withholding tax of 15%, if distributed. Expenses on dividends paid as
interest on equity, are neither deductible from the calculation basis of
corporate income tax nor from the social contribution on income.

Taxation of Gains. Gains realized outside Brazil, until December 31st, 2003, by
a non-Brazilian holder on the disposition of Preferred ADSs to another
non-Brazilian holder are not subject to Brazilian tax. From January 1st, 2004
on, investments made in permanent assets by non resident are subject to the
payment of income tax over capital gains. The gain will be charged at a 15% or
25% rate if the beneficiary is a tax haven country resident or from on any
jurisdiction where taxing rates are below 20%. The taxable capital gain is
calculated on the difference from the selling value of the asset and the
declared value to Brazilian Central Bank (in foreign currency) by the time of
registration.

The withdrawal of Preferred Shares in exchange for Preferred ADSs is not subject
to Brazilian tax. The deposit of Preferred Shares in exchange for Preferred ADSs
is not subject to Brazilian tax if the Preferred Shares are registered by the
investor or its agent under the 2,689 Regulation. In the event the Preferred
Shares are not so registered, the deposit of Preferred Shares in exchange for
Preferred ADSs may be subject to Brazilian tax at the rate of 15% or 25%. On
receipt of the underlying Preferred Shares, a non-Brazilian holder who qualifies
under the 2,689 Regulation will be entitled to register the U.S. dollar value of
such shares with the Central Bank as described below.

Non-Brazilian holders are subject to tax in Brazil on gains realized on sales of
Preferred Shares that occur abroad or on the proceeds of a redemption of, or a
liquidating distribution with respect to, Preferred Shares. When the Preferred
Shares are registered under the 2,689 Regulation, the non-Brazilian holder
cannot transfer or assign them abroad. As a general rule, non-Brazilian holders
are subject to a withholding tax imposed at a rate of 15% or 25% on gains
realized on sales or exchanges of Preferred Shares that occur in Brazil to or
with a resident of Brazil, outside of the Sao Paulo Stock Exchange. From January
2004, on this taxation is also applicable to gains accrued in transactions
conducted by non-Brazilian holders. Non-Brazilian holders are subject to
withholding tax at the rate of 20% on gains realized on sales or exchanges in
Brazil of Preferred Shares that occur on the Sao Paulo Stock Exchange unless
such sale is made under the 2,689 Regulation. Gains realized arising from
transactions on the Sao Paulo Stock Exchange by an investor under the 2,689
Regulation are not subject to tax (except as described below). The "gain
realized" as a result of a transaction on the Sao Paulo Stock Exchange is the
difference between the amount in Brazilian currency realized on the sale or
exchange and the acquisition cost measured in Brazilian currency, without any
correction for inflation, of the shares sold. The "gain realized" as a result of
a transaction that occurs other than on the Sao Paulo Stock Exchange will be the
positive difference between the amount realized on the sale or exchange and the
acquisition cost of the Preferred Shares, both such values to be taken into
account in reais. There are grounds, however, to hold that the "gain realized"
should be calculated based on the foreign currency amount registered with the
Central Bank. There can be no assurance that the current preferential treatment
for holders of

                                       70
<PAGE>

Preferred ADSs and for certain non-Brazilian holders of Preferred Shares under
the 2,689 Regulation will continue in the future or that such treatment will not
be changed in the future. As of January 1, 2000, the preferential treatment
under the 2,689 Regulation is no longer applicable if the non-Brazilian holder
of the Preferred ADSs or Preferred shares is resident of a tax haven - i.e.,
countries which do not impose income tax or where such tax is imposed at a rate
lower than 20% - in accordance with Law No. 9,959, of January 27, 2000. In other
words, gains realized by such holder on the sale or exchange in Brazil that
occur in the spot market of shares traded on a Brazilian stock exchange will be
taxed at a rate of 20%. Any exercise of preemptive rights relating to the
Preferred Shares will not be subject to Brazilian taxation. Any gain on the sale
or assignment of preemptive rights relating to the Preferred Shares by the
Depositary on behalf of holders of Preferred ADSs will be subject to Brazilian
income taxation at the rate of 15% or 25%, unless such sale or assignment is
performed within the Sao Paulo Stock Exchange, and with the investments
registered under 2,689 Resolution or Annex V from Central Bank, in which the
gains are exempt from withholding income tax. Any gain on the sale or assignment
of preemptive rights relating to Preferred Shares, will be subject to Brazilian
income tax at the same rate applicable to the sale or disposition of Preferred
Shares. The maximum rate of such tax is currently 15%, except for non-resident
holders domiciled in tax haven countries, where rates are 25%.

Notional Interest Charge Attributed to Shareholder's Equity. Distributions of
interest on equity in respect of the Preferred Shares as an alternative form of
payment to shareholders who are either Brazilian residents or non-Brazilian
residents, including holders of ADSs, are subject to Brazilian withholding tax
at the rate of 15%. In case the non-Brazilian resident is a tax haven country
resident or is under the jurisdiction of a region where tax rate is below 20%,
he will be entitled to pay a rate of 25%. Since 1996, such payments have been
tax deductible by the Company. Since 1997, the payments have also been
deductible in determining social contributions and income tax by the Company as
long as the payment of a distribution of interest is approved at the Company's
General Meeting. The Board of Directors of the Company alone may determine the
distribution of interest on shareholders' equity. No assurance can be given that
the Board of Directors of the Company will not determine that future
distributions of profits be made by means of interest on shareholders' equity
instead of by means of dividends.

Other Brazilian Taxes. There are no Brazilian inheritance, gift or succession
taxes applicable to the ownership, transfer or disposition of Preferred Shares
or Preferred ADSs by a non-Brazilian holder except for gift and inheritance
taxes which are levied by some States of Brazil on gifts made or inheritances
bestowed by individuals or entities not resident or domiciled in Brazil or
domiciled within the State to individuals or entities resident or domiciled
within such State in Brazil. There are no Brazilian stamp, issue, registration
or similar taxes or duties payable by holders of Preferred Shares or Preferred
ADSs.

Pursuant to Decree nr. 2,219 of May 2, 1997, and Ordinance no. 5 of January 21,
1999, issued by the Ministry of Finance, the amount in Reais resulting from the
conversion of the proceeds received by a Brazilian entity from a foreign
investment in the Brazilian securities market (including those in connection
with the investment in the Preferred Shares or Preferred ADSs and those made
under Regulation nr. 2,689, which substituted Annex IV Regulations) is subject
to a transaction tax ("IOF"), although at present the rate of such tax is 0%.
The Minister of Finance is empowered to establish the applicable IOF tax rate.
Under Law nr 8,894 of June 21, 1994, such IOF tax rate may be increased at any
time to a maximum of 25%, but any such increase will only be applicable to
transactions occurring after such increase becomes effective.

Pursuant to Law nr. 9,311 of October 24, 1996, the Contribuicao Provisoria sobre
Movimentacao Financeira (the "CPMF tax") was levied at a rate of 0.2% on fund
transfers in connection with financial transactions in Brazil. Pursuant to Law
9,539, the CPMF tax was payable until February 1999. Pursuant to Constitutional
Amendment 21, of March 18, 1999, the collection of the CPMF was extended for an
additional period of 36 months. This payment of the CPMF tax was required as of
June 17, 1999. The CPMF tax rate was 0.38% during the first 12 months, and would
be 0.30% for the remaining period. But in December 2000, Constitutional
Amendment nr. 31 increased the rate to 0.38% as of March 2001. By May 28, 2002,
Constitutional Amendment nr. 37, determined that CPMF must be charged until
December 31, 2004. Finally, the Constitutional Amendment nr. 42, approved in
2003, extended the CPMF tax until December 31, 2007.

The responsibility for the collection of the CPMF tax is borne by the financial
institution that carries out the relevant financial transaction. Additionally,
when the non-Brazilian holder remitted the proceeds from the sale or assignment
of Preferred Shares by means of foreign exchange transactions, the CPMF tax was
levied on the amount to be remitted abroad in Brazilian reais. However, since
April, 2002 this tax has not been

                                       71
<PAGE>

charged on stock transactions. If it is necessary to perform any exchange
transaction in connection with Preferred ADSs or Preferred Shares, it will bear
the CPMF tax.

Registered Capital. The amount of an investment in Preferred Shares held by a
non-Brazilian holder who qualifies and registered with the CVM under the Annex
IV Regulations which was converted into Annex of 2,689 Resolution as of June
2000, or in ADSs held by the Depositary representing such holder, as the case
may be, is eligible for registration with the Central Bank; such registration
(the amount so registered is referred to as "Registered Capital") allows the
remittance abroad of foreign currency, converted at the Commercial Exchange
rate, acquired with the proceeds of distributions on, and amounts realized with
respect to disposition of, such Preferred Shares. The Registered Capital for
Preferred Shares purchased in the form of a Preferred ADSs, or purchased in
Brazil and deposited with the Depositary in exchange for a Preferred ADS, will
be equal to their purchase price (in U.S. dollars) paid by the purchaser. The
Registered Capital for Preferred Shares that are withdrawn upon surrender of
Preferred ADSs, will be the U.S. dollar equivalent of (i) the average price of
the Preferred Shares on the Brazilian stock exchange on which the greatest
number of such Preferred Shares was sold on the day of withdrawal, or (ii) if no
Preferred Shares were sold on such day, the average price of Preferred Shares
that were sold in the fifteen trading sessions immediately preceding such
withdrawal. The U.S. dollar value of the Preferred Shares is determined on the
basis of the average Commercial exchange rate quoted by the Central Bank on such
date (or, if the average price of Preferred Shares is determined under clause
(ii) of the preceding sentence, the average of such average quoted rates on the
same fifteen dates used to determine the average price of the Preferred Shares).

A non-Brazilian holder of Preferred Shares may experience delays in effecting
the registration of Registered Capital, which may delay remittances abroad. Such
a delay may adversely affect the amount, in U.S. dollars, received by the
non-Brazilian holder.

U.S. Federal Income Tax Considerations

As used below, a "US holder" is a beneficial owner of a Preferred Share or
Preferred ADR that is, for US federal income tax purposes, (i) a citizen or
resident alien individual of the United States, (ii) a corporation (or an entity
treated as a corporation) organized under the law of the United States, any
State thereof or the District of Columbia, (iii) an estate the income of which
is subject to US federal income tax without regard to its source or (iv) a trust
if (1) a court within the United States is able to exercise primary supervision
over the administration of the trust, and one or more United States persons have
the authority to control all substantial decisions of the trust, or (2) the
trust was in existence on August 20, 1996 and properly elected to continue to be
treated as a United States person. For purposes of this discussion, a "non-US
holder" is a beneficial owner of a Preferred Share or Preferred ADR that is (i)
a nonresident alien individual, (ii) a corporation (or an entity treated as a
corporation) created or organized in or under the law of a country other than
the United States or a political subdivision thereof or (c) an estate or trust
that is not a US Holder.

In general, for US federal income tax purposes, the owner of a Preferred ADR
will be treated as the owner of the Preferred Share represented by the Preferred
ADR, and a deposit or withdrawal of a Preferred Share in exchange for a
Preferred ADR will not be a taxable transaction for US federal income tax
purposes.

                                       72
<PAGE>

Taxation of Dividends

US holders. In general, subject to the passive foreign investment company rules
discussed below, a distribution on a Preferred Share or Preferred ADR (including
for this purpose a distribution of interest on capital stock) will constitute a
dividend for US federal income tax purposes to the extent made from the
company's current or accumulated earnings and profits as determined under US
federal income tax principles. If a distribution exceeds the company's current
and accumulated earnings and profits, it will be treated as a non-taxable
reduction of basis to the extent of the US holder's tax basis in the Preferred
Share or Preferred ADR on which it is paid, and to the extent it exceeds that
basis it will be treated as capital gain. For purposes of this discussion, the
term "dividend" means a distribution that constitutes a dividend for US federal
income tax purposes.

The gross amount of any dividend on a Preferred Share or Preferred ADR (which
will include the amount of any Brazilian taxes withheld) will be subject to US
federal income tax as foreign source dividend income. The amount of a dividend
paid in Brazilian currency will be its value in US dollars based on the
prevailing spot market exchange rate in effect on the day the US holder receives
the dividend or, in the case of a dividend received in respect of a Preferred
ADR, on the date the Depositary receives it, whether or not the dividend is
converted into US dollars. Any gain or loss realized on a conversion or other
disposition of the Brazilian currency generally will be treated as US source
ordinary income or loss. Any Brazilian withholding tax will be treated as a
foreign income tax eligible for credit against a US holder's US federal income
tax liability, subject to generally applicable limitations under US federal
income tax law. For purposes of computing those limitations separately for
specific categories of income, a dividend generally will constitute foreign
source "passive income" or, in the case of certain holders, "financial services
income." A foreign tax credit may not be allowed for withholding tax imposed in
respect of certain short-term or hedged positions in a Preferred Share or
Preferred ADR. Alternatively, any Brazilian withholding tax may be taken as a
deduction against taxable income. A dividend will not be eligible for the
corporate dividends received deduction.

Subject to certain exceptions for short-term and hedged positions, a dividend an
individual receives on a Preferred ADR before January 1, 2009 will be subject to
a maximum tax rate of 15% if the dividend is a "qualified dividend." A dividend
on a Preferred ADR will be a qualified dividend if (i) the Preferred ADRs are
readily tradable on an established securities market in the United States, and
(ii) the company was not, in the year prior to the year the dividend was paid,
and is not, in the year the dividend is paid, a passive foreign investment
company ("PFIC"), foreign personal holding company ("FPHC") or foreign
investment company ("FIC"). The Preferred ADRs are listed on the New York Stock
Exchange and will qualify as readily tradable on an established securities
market in the United States so long as they are so listed. Based on existing
guidance, it is not entirely clear whether a dividend on a Preferred Share will
be treated as a qualified dividend, because the Preferred Shares themselves are
not listed on a US exchange. Based on the company's audited financial statements
and relevant market and shareholder data, the company believes it was not a
PFIC, FPHC or FIC for US federal income tax purposes for its 2003 taxable year.
In addition, based on the company's audited financial statements and its current
expectations regarding the value and nature of its assets, the sources and
nature of its income, and relevant market and shareholder data, the company does
not anticipate becoming a PFIC, FPHC or FIC for its 2004 taxable year. The US
Treasury has announced its intention to promulgate rules pursuant to which
holders of stock of non-US corporations, and intermediaries though whom such
stock is held, will be permitted to rely on certifications from issuers to
establish that dividends are treated as qualified dividends. Because those
procedures have not yet been issued, it is not clear whether the company will be
able to comply with them. Special limitations on foreign tax credits apply to
dividends subject to the reduced rate of tax. Holders of Preferred ADRs and
Preferred Shares should consult their own tax advisers regarding the
availability of the reduced dividend tax rate in the light of their own
particular circumstances.

Non-US holders. A dividend paid to a non-US holder on a Preferred Share or
Preferred ADR will not be subject to US federal income tax unless the dividend
is effectively connected with the conduct of trade or business by the non-US
holder within the United States (and is attributable to a permanent
establishment or fixed base the non-US holder maintains in the United States if
an applicable income tax treaty so requires as a condition for the non-US holder
to be subject to US taxation on a net income basis on income from the Preferred
Share or Preferred ADR). A non-US holder generally will be subject to tax on an
effectively connected dividend in the same manner as a US Holder. A corporate
non-US holder may also be subject

                                       73
<PAGE>

under certain circumstances to an additional "branch profits tax," the rate of
which may be reduced pursuant to an applicable income tax treaty.

Taxation of Capital Gains

US holders. Subject to the passive foreign investment company rules discussed
below, on a sale or other taxable disposition of a Preferred Share or Preferred
ADR, a US holder will recognize capital gain or loss in an amount equal to the
difference between the US holder's adjusted basis in the Preferred Share or
Preferred ADR and the amount realized on the sale or other disposition, each
determined in US dollars. Any gain a US holder recognizes generally will be US
source income for US foreign tax credit purposes, and, subject to certain
exceptions, any loss generally will be a US source loss. If a Brazilian tax is
withheld on a sale or other disposition of a Preferred Share, the amount
realized will include the gross amount of the proceeds of that sale or
disposition before deduction of the Brazilian tax. The generally applicable
limitations under US federal income tax law on crediting foreign income taxes
may preclude a US holder from obtaining a foreign tax credit for any Brazilian
tax withheld on a sale of a Preferred Share.

In general, any adjusted net capital gain of an individual in a taxable year
ending before January 1, 2009 is subject to a maximum tax rate of 15%. In later
years, the maximum tax rate on the net capital gain of an individual will be
20%. The deductibility of capital losses is subject to limitations. Non-US
holders. A non-US holder will not be subject to US federal income tax on gain
recognized on a sale or other disposition of a Preferred Share or Preferred ADR
unless (i) the gain is effectively connected with the conduct of trade or
business by the non-US holder within the United States (and is attributable to a
permanent establishment or fixed base the non-US holder maintains in the United
States if an applicable income tax treaty so requires as a condition for the
non-US holder to be subject to US taxation on a net income basis on income from
the Preferred Share or Preferred ADR), or (ii) in the case of a non-US holder
who is an individual, the holder is present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions apply. Any effectively connected gain of a corporate non-US holder
may also be subject under certain circumstances to an additional "branch profits
tax," the rate of which may be reduced pursuant to an applicable income tax
treaty.
Passive Foreign Investment Company Rules

A special set of US federal income tax rules applies to a foreign corporation
that is a PFIC for US federal income tax purposes. As noted above, based on the
company's audited financial statements and relevant market and shareholder data,
the company believes it was not a PFIC for US federal income tax purposes for
its 2003 taxable year. In addition, based on the company's audited financial
statements and its current expectations regarding the value and nature of its
assets, the sources and nature of its income, and relevant market and
shareholder data, the company does not anticipate becoming a PFIC for its 2004
taxable year.

In general, a foreign corporation is a PFIC if at least 75% of its gross income
for the taxable year is passive income or if at least 50% of its assets for the
taxable year produce passive income or are held for the production of passive
income. In general, passive income for this purpose means, with certain
designated exceptions, dividends, interest, rents, royalties (other than certain
rents and royalties derived in the active conduct of trade or business),
annuities, net gains from dispositions of certain assets, net foreign currency
gains, income equivalent to interest, income from notional principal contracts
and payments in lieu of dividends. The determination of whether a foreign
corporation is a PFIC is a factual determination made annually and is therefore
subject to change. Subject to certain exceptions, once stock in a foreign
corporation is stock in a PFIC in the hands of a particular shareholder that is
a United States person, it remains stock in a PFIC in the hands of that
shareholder.

If the company is treated as a PFIC, contrary to the tax consequences described
in "US Federal Income Tax Considerations--Taxation of Dividends" and "--US
Federal Income Tax Considerations--Taxation of Capital Gains" above, a US holder
that does not make an election described in the succeeding two paragraphs would
be subject to special rules with respect to (i) any gain realized on a sale or
other disposition of a Preferred Share or Preferred ADR and (ii) any "excess
distribution" by the company to the US holder (generally, any distribution
during a taxable year in which distributions to the US holder on the Preferred
Share or Preferred ADR exceed 125% of the average annual taxable distributions
the US holder received on the Preferred Share or Preferred ADR during the
proceeding three taxable years or, if shorter, the US holder's holding period
for the Preferred Share or Preferred ADR). Under those rules, (i) the gain or
excess distribution would be allocated ratably over the US holder's holding
period for the Preferred Share or Preferred ADR, (ii) the amount allocated to
the taxable year in which the gain or excess distribution is realized would be
taxable as

                                       74
<PAGE>

ordinary income and (iii) the amount allocated to each prior year, with certain
exceptions, would be subject to tax at the highest tax rate in effect for that
year, and the interest charge generally applicable to underpayments of tax would
be imposed in respect of the tax attributable to each such year. A US holder who
owns a Preferred Share or Preferred ADR during any year the company is a PFIC
must file Internal Revenue Service Form 8621.

The special PFIC rules described above will not apply to a US holder if the US
holder makes a timely election to treat the company as a "qualified electing
fund" ("QEF") in the first taxable year in which the US holder owns a Preferred
Share or Preferred ADR and if the company complies with certain reporting
requirements. Instead, a shareholder of a QEF generally is currently taxable on
a pro rata share of the company's ordinary earnings and net capital gain as
ordinary income and long-term capital gain, respectively. Neither that ordinary
income nor any actual dividend from the company would qualify for the 15%
maximum tax rate on dividends described above if the company is a PFIC in the
taxable year the ordinary income is realized or the dividend is paid or in the
preceding taxable year. The company has not yet determined whether, if it were a
PFIC, it would make the computations necessary to supply US holders with the
information needed to report income and gain pursuant to a QEF election. It is,
therefore, possible that US holders would not be able to make or retain that
election in any year the company is a PFIC. Although a QEF election generally
cannot be revoked, if a US holder made a timely QEF election for the first
taxable year it owned a Preferred Share or Preferred ADR and the company is a
PFIC (or is treated as having done so pursuant to any of certain elections), the
QEF election will not apply during any later taxable year in which the company
does not satisfy the tests to be a PFIC. If a QEF election is not made in that
first taxable year, an election in a later year generally will require the
payment of tax and interest, and in certain circumstances the election may cease
to be available at a later date.

In lieu of a QEF election, a US holder of stock in a PFIC that is considered
marketable stock could elect to mark the stock to market annually, recognizing
as ordinary income or loss each year an amount equal to the difference as of the
close of the taxable year between the fair market value of the stock and the US
holder's adjusted basis in the stock. Losses would be allowed only to the extent
of net mark-to-market gain previously included in income by the US holder under
the election for prior taxable years. A US holder's adjusted basis in the
Ordinary Shares or ADSs will be adjusted to reflect the amounts included or
deducted with respect to the mark-to-market election. If the mark-to-market
election were made, the rules set forth in the second preceding paragraph would
not apply for periods covered by the election. A mark-to-market election will
not apply during any later taxable year in which the company does not satisfy
the tests to be a PFIC. In general, the ADRs will be marketable stock if the
ADRs are traded, other than in de minimis quantities, on at least 15 days during
each calendar quarter. However, there is no certainty that the Ordinary Shares
will be considered "marketable stock" for these purposes unless and until the
Internal Revenue Service designates the BOVESPA as having rules adequate to
carry out the purposes of the PFIC rules. There can be no assurance that the
Internal Revenue Service will make such a designation.

Information Reporting and Backup Withholding

Dividends paid on, and proceeds from the sale or other disposition of, a
Preferred Share or Preferred ADR to a US holder generally may be subject to
information reporting requirements and may be subject to backup withholding at
the rate of 28% unless the US holder provides an accurate taxpayer
identification number or otherwise establishes an exemption. The amount of any
backup withholding collected from a payment to a US holder will be allowed as a
credit against the US holder's US federal income tax liability and may entitle
the US holder to a refund, provided certain required information is furnished to
the Internal Revenue Service.

A non-US holder generally will be exempt from these information reporting
requirements and backup withholding tax but may be required to comply with
certain certification and identification procedures in order to establish its
eligibility for exemption.

F. DIVIDENDS AND PAYING AGENTS

Not Applicable.

G.  STATEMENTS OF EXPERTS

Not Applicable.

                                       75
<PAGE>

H. DOCUMENTS ON DISPLAY

Sadia's SEC filings, including this annual report and the exhibits thereto, are
available for inspection and copying at the public reference facilities
maintained by the Securities and Exchange Commission. Information can be
obtained either on the SEC website (www.sec.gov) or by phone 1-800-SEC-0330.
Company documents and statutory information are also available at Sadia's
website (www.sadia.com.br). Information regarding legal issues can be obtained
from the Company's U.S. legal counsel, Greenberg, Traurig LLP, at
1-212-801-9380.

I.  SUBSIDIARY INFORMATION

Not Applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative information about market risk

The Company is exposed to various market risks, including changes in foreign
currency exchange rates and interest rates. Market risk is the potential loss
arising from adverse changes in market rates and prices, such as foreign
currency exchange rates and interest rates.

Sadia's sales outside Brazil are largely U.S. dollar-denominated. Sales to both
domestic and overseas markets are affected on a regular basis to continuous
customers and the Company's strategy is to increase exports to new markets in
different regions. There are no significant firm commitments for future sales in
dollars.

Foreign Currency Risk

The Company's foreign currency exposure gives rise to market risks associated
with exchange rate movements against the U.S. dollar. Foreign currency
denominated liabilities as of December 31, 2003 consisted of debt denominated in
U.S. dollars. As of December 31, 2003, approximately 57% of the Company's cash,
cash equivalents and investments in debt securities were denominated in U.S.
dollars. Sadia's sales outside Brazil are largely U.S. dollar-denominated, and
sales within Brazil and most operating costs are reais denominated. At December
31, 2003 foreign currency and interest rate swap contracts totally hedge the
exposure arising from U.S. dollar-denominated debt. The Company evaluates on a
regular basis the macroeconomic situation and impact on Sadia's financial
position.

                                       76
<PAGE>

The table below provides information on Company's foreign currency as of
December 31, 2003.

<TABLE>
<CAPTION>

                             As of December 31, 2003
                             Expected Maturity Date
                                                                                                   Average
                                                                       After              Fair     Annual
                              2004    2005     2006    2007    2008    2008    Total      Value    Interest Rate
                              ----    ----     ----    ----    ----    ----    -----      -----
<S>                              <C>      <C>     <C>    <C>      <C>    <C>      <C>      <C>             <C>
(R$ in millions)
Assets:
Cash and cash equivalents:
Denominated in U.S. dollars     835.8        -       -       -       -       -      835.8    835.8          1.20%
Investments:
Denominated in U.S. dollars      49.0     57.2    80.3   200.9    10.2   712.9    1,110.5  1,110.5         17.48%
Total cash, cash  equivalents
and Investments                 884.8     57.2    80.3   200.9    10.2   712.9    1,946,3  1,946,3 -
Liabilities:
Short term debt:
Denominated in U.S. dollars     194.3        -       -       -       -       -      194.3    194.3          4.54%
Long term debt:
Denominated in U.S. dollars     657.4    447.1   277.4   320.4    72.6   105.7    1,910.6  1,910.6          5.52%
Total  short  and  long  term   851.7    447.1   277.4   320.4    72.6   105.7    2,104.9  2,104.9
debt
Foreign      currency     and                                                                      95% CDI
interest Rate swap  contracts                                                                      10.8%  p.a  in
notional Amount                 700.8    314.0   244.3     9.2     6.4       -    1,274.7     53.1 U.S. Dollars
</TABLE>

Average Paying Rate in reais 95% CDI Average Receiving Rate in U.S.Dollars 10.8%
p.a.

The Company incurred most of this debt principally to take advantage of the
opportunities that arise due to interest rate differentials between
real-denominated financial instruments (cash and cash equivalents) and its
foreign currency export credits. The Company believes that given its level of
assets and resources, it should have sufficient cash and sources of working
capital to meet its debt service.

Foreign currency denominated contracts constituting "export prepayments"
generally cannot be prepaid, since they are intended to be amortized using the
proceeds from designated export shipments. The amortization can be accelerated,
provided that the corresponding export shipment is itself accelerated. Other
foreign currency denominated financings, undertaken through the Company's
offshore subsidiaries, provides elective prepayment without premium or penalty.
Such prepayments, however, are subject to paying the lenders an indemnity for
"breakage" costs, which often may make prepayment prohibitively expensive.

The percentage of the Company's debt subject to fixed and floating interest
rates is as follows:

                                                        As of December 31, 2003
Floating rate debt
 . Denominated in reais                                                  12%
Fixed rate debt
 . Denominated in US dollars                                             78%
 . Denominated in reais                                                  10%
Total.................................................................. 100%


Sadia's foreign currency and interest swap contracts are effected to mitigate
the potential foreign currency exchange losses which would be generated by U.S.
dollar denominated liabilities in the event of a devaluation. The Company does
not use these swap contracts for trading or speculative purposes. The export
sales in U.S. dollars also mitigate the potential losses in the event of
devaluation.

                                       77
<PAGE>

Interest Rate Risk

Sadia's floating interest rate exposure is primarily subject to the variations
of LIBOR as it relates to U.S. dollar-denominated debt and to the variations of
the TJLP, an annual long-term interest rate that includes an inflation factor
and is determined quarterly by the Central Bank and other exchange variation. On
December 31, 2003, the TJLP was equivalent to 11.00% per year.

The interest rate on Company's cash and cash equivalents denominated in reais is
based primarily on Interbank Deposit Certificates, or CDI rate, the benchmark
interest rate set by the interbank market on a daily basis.

The table below provides information about Sadia's significant interest
rate-sensitive instruments. For variable interest rate debt, the rate presented
is the weighted average rate calculated as of December 31, 2003.

<TABLE>
<CAPTION>

                             As of December 31, 2003
                             Expected Maturity Date
                                                                                               Average
                                                                        After          Fair    Annual
                                        2004    2005  2006   2007  2008 2008   Total   Value   Interest Rate
                                       ---------------------------------------------------------------------
Assets:
Cash and cash equivalents:
<S>                                        <C>     <C>    <C>   <C>   <C>   <C>   <C>     <C>        <C>
 Denominated in reais                      91.5     -      -     -    -      -    91.5    91.5 -
 Denominated in reais                     890.7     -      -     -    -      -   890.7   890.7 100 % of CDI
 Denominated in U.S. dollars              138.0     -      -     -    -      -   138.0   138.0 -
 Denominated in U.S. dollars              697.8     -      -     -    -      -   697.8   697.8 1.20%

Investments in debt securities:
 Denominated in reais                      90.7  79.5      -     -    -   17.7   187.8   187.8         17.73%
 Denominated in U.S. dollars               49.0  57.2   80.3 200.9 10.3  712.8 1,110.5 1,110.5         17,48%
                                       -------------------------------------------------------
Total  cash,   cash   equivalents   and
Investments in debt securities
                                        1,957.7 136.6   80.3 200.9 10.2  730.5 3,116.3 3,116.3
                                       =======================================================
Liabilities:
Short term debt:
  Fixed rate
  Denominated in reais                    194.3     -      -     -    -      -   194.3   194.3         8.75 %
  Denominated in U.S. dollars           1,168.0     -      -     -    -      - 1,168.0 1,168.0          4.54%
                                       -------------------------------------------------------
Total short-term debt                   1,362.4     -      -     -    -      - 1,362.4 1,362.4
                                       =======================================================
Long term debt:
  Fixed rate
  Denominated in reais                      6.5   2.7    1.0   1.0  1.0  108.8   120.2   120.2     IGPM+9.57%
  Denominated in U.S. dollars             523.3 240.3  258.5 304.7 62.9  105.7 1,495.4 1,495.4          5.52%
Floating rate
  Denominated in reais                    134.1 236.7   18.9  15.8  9.7      -   415.2   415.2     TJLP+3,01%
                                       -------------------------------------------------------
Total long term debt                      663.9 479.8  277.9 321.1 73.4  214.5 2,030.8 2,030.8
                                       -------------------------------------------------------
Total debt                              2,026.2 479.8  277.9 321.1 73.4  214.5 3,393.1 3,393.1
                                       =======================================================
Foreign   currency  and  interest  rate
swap contracts  notional amount - reais
to US Dollars                             700.8 314.0  244.3   9.2  6.4      - 1,274.7    53.1
</TABLE>

Average Paying Rate in reais      95% CDI
Average Receiving Rate in Dollars 10.8%
p.a.

At December 31, 2003, the Company had foreign currency and interest rate swap
contracts to hedge its U.S. dollar denominated debt. Since a large portion of
its debt is denominated in U.S. dollars, the Company protects itself from the
effects of unfavorable exchange movements by entering into foreign currency and
interest rate swap contracts. The Company does not use derivatives for trading
or speculative purposes. See

                                       78
<PAGE>

note 17 of the consolidated financial Statements for discussion of the
accounting policies for derivatives and other financial instruments.

                                     PART II

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not Applicable.

ITEM 13. DEFAULTS, DIVIDENDS ARREARAGES AND DELINQUENCIES
None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS Not Applicable.

ITEM 15. CONTROL AND PROCEDURES

A.       DISCLOSURE CONTROLS AND PROCEDURES

The Company carried out an evaluation under the supervision and with the
participation of its management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of its
disclosure controls and procedures. There are inherent limitations to the
effectiveness of any system of disclosure controls and procedures, including the
possibility of human error and the circumvention or overriding of the controls
and procedures. Accordingly, even effective disclosure controls and procedures
can only provide reasonable assurance of achieving their control objectives.
Based upon and as of the date of our evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed in the reports the Company files and submits under the
Exchange Act is recorded, processed, summarized and reported as and when
required.

Furthermore, there were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

The certifications required by this Item have been filed as Exhibits 12.01 and
12.02.

B. MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Not applicable.

C.       ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

     Not applicable.

D.       CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.

     Not applicable.

ITEM 16. [RESERVED]


ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors of the Company has determined that Francisco Silverio
Morales Cespede is an audit committee financial expert within the meaning of
Sarbanes-Oxley and related regulations. The audit committee is not yet otherwise
fully in compliance with the requirements of Sarbanes-Oxley, but the Company
expects to be fully compliant by the required deadline of July 31, 2005. See
Item 6.C. Board Practices--"Audit Committee". The Company has, in compliance
with New York Stock Exchange Corporate

                                       79
<PAGE>

Governance Rule 303A.11, provided on its website a summary of how its corporate
governance practices differ from those followed by U.S. domestic companies under
the New York Stock Exchange listing standards, at www.sadia.com.br.

ITEM 16 B. CODE OF ETHICS

The Company has adopted a code of ethics called - "Diretrizes de Conduta Sadia"
("Sadia Conduct Guidelines"), that applies to the Company's principal executive
officer, principal financial officer, principal accounting officer or
controller.

The English version of the Code is attached as exhibit 11.1 of this Annual
Report and can be downloaded in Sadia's website (www.sadia.com).
Additionally, any person, upon request, can ask for a hard copy or electronic
file of such Code through the following ways:

MAIL ADDRESS:                                            PHONE REQUESTS:
Sadia S/A - Departamento de Relacoes com Investidores    55 11 3649-3465
Rua Fortunato Ferraz, 659/2o - CEP.: 05093-901           55 11 3649-3130
Vila Anastacio - Sao Paulo - SP - Brazil

ELECTRONIC MAIL ADDRESS:                                 FAX REQUESTS:
grm@sadia.com.br                                         55 11 3649-1785
                                                         55 11 3649-1535
There is no charge for any of these requests.


ITEM 16 C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT AND NON-AUDIT FEES

The following table sets forth the fees billed to the Company by it independent
auditors, Ernst and Young Auditores Independentes S.S., during the fiscal years
ended December 31, 2002 and 2003:

                                          Year ended December 31,
                                          2002               2003
                                          R$ Thousand
               Audit fees                 834.0              969.0
               Audit-related fees         188.0              144.0
               Tax fees                   6.0                114.0
               Other fees                 0.0                0.0
               Total fees                 1,028.0            1,227.0

Audit fees in the above table are the aggregate fees billed by Ernst and Young
Auditores Independentes S.S. in connection with the audit of the Company's
annual financial statements and review of the Company's quarterly financial
information.

Audit-related fees in the above table are the aggregate fees billed by Ernst and
Young Auditores Independentes S.S. for providing assistance in documenting
internal control policies and procedures over financial reporting.

Tax fees in the above table are fees billed by Ernst and Young Auditores
Independentes S.S. for tax compliance and tax advice.

Due to the mandatory rotation of audit firms as determined by Brazilian
Securities Commission - CVM for public companies in Brazil, the Company has
appointed KPMG Auditores Independentes as its independent auditors as from
fiscal year 2004.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

The Company's Audit Committee has established pre-approval and procedures for
the engagement of its independent auditors for audit and non-audit services.

                                       80
<PAGE>

The Audit Committee reviews the scope of the services to be provided, before
their commencement, in order to ensure that there are no independence issues and
the services are not prohibited services as defined by Sarbanes-Oxley Act of
2002. The services are pre-approved by the Audit Committee coordinator if the
related fees are not in excess of US$10,000. If the fees exceed this limit, the
services must be pre-approved by all members of the Audit Committee.


ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable

ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS

Not Applicable

                                    PART III

ITEM 17. FINANCIAL STATEMENTS
The Company has responded to Item 18 in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS
 Reference is made to Item 19 for a list of all financial Statements filed as
part of this Annual Report.

<TABLE>
<CAPTION>

ITEM 19. FINANCIAL STATEMENTS  AND EXHIBITS

<S>                                                                                                <C>
Report of Independent Auditors.................................................................F - 1

Consolidated Balance Sheets as of December 31, 2003 and 2002...................................F - 2

Consolidated Statements of Operations for Years Ended December 31, 2003, 2002
and 2001.......................................................................................F - 4

Consolidated Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 2003, 2002 and
2001............................................................................................F- 6

Consolidated Statements of Cash Flows for the  Years Ended December 31, 2003,
2002 and 2001..................................................................................F - 7

Notes to Consolidated Financial Statements.....................................................F - 8
</TABLE>

All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.

                                       81
<PAGE>

LIST OF EXHIBITS

1.01  Sadia Bylaws

2.01  Deposit Agreement dated as of December 30, 2002, by and among Sadia S.A.,
      The Bank of New York as Depositary and the Owners and Holders of American
      Depositary Receipts (such agreement is incorporated by reference to the
      Registration Statement on Form F-6 relating to the ADSs (File No.
      333-102013) filed with the Commission on December 19, 2002.

2.02  The total amount of long-term debt of the Company authorized under any
      instrument does not exceed 10% of the total assets of the Company and its
      subsidiaries, on a consolidated basis. The Company undertakes to furnish
      to the SEC all other instruments relating to long-term debt of the Company
      and its subsidiaries upon request of the SEC.

11.01 Code of Ethics

12.01 Certification by the Company's Chief Executive Officer required by Item 15

12.02 Certification by the Company's Chief Financial Officer required by Item 15

13.01 Certification pursuant to 18 U.S.C. Section 1350.

13.02 Certification pursuant to 18 U.S.C. Section 1350.

                                       82
<PAGE>

                                   SIGNATURES

The Company hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.



SADIA S.A.

Date: June 25, 2004

By: /s/Walter Fontana Filho                By: /s/Luiz Gonzaga Murat Jr.
  ------------------------------------       ----------------------------------
  Name: Walter Fontana Filho                 Name: Luiz Gonzaga Murat Jr.
  Title: Chief Executive Officer             Title: Chief Financial Officer

                                       83

<PAGE>
                                       FINANCIAL STATEMENTS

                                       SADIA S.A. AND SUBSIDIARIES


                                       DECEMBER 31, 2003 AND 2002
                                       WITH REPORT OF INDEPENDENT AUDITORS


                                      F-1
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS

                           December 31, 2003 and 2002



                                    Contents



Report of Independent Auditors.............................................F-3

Audited financial statements

Balance Sheets.............................................................F-5
Statements of Income.......................................................F-7
Statements of Changes in Shareholders' Equity..............................F-8
Statements of Changes in Financial Position................................F-9
Notes to Financial Statements..............................................F-10

                                      F-2
<PAGE>

A FREE TRANSLATION FROM PORTUGUESE INTO ENGLISH OF REPORT OF INDEPENDENT
AUDITORS ON FINANCIAL STATEMENTS PREPARED IN BRAZILIAN CURRENCY IN ACCORDANCE
WITH THE ACCOUNTING PRACTICES ADOPTED IN BRAZIL
-------------------------------------------------------------------------------


                         REPORT OF INDEPENDENT AUDITORS



The Board of Directors and Shareholders
SADIA S.A.


1.   We have audited the accompanying balance sheets of SADIA S.A. and SADIA
     S.A. AND SUBSIDIARIES as of December 31, 2003 and 2002, and the related
     statements of income, shareholders' equity and changes in financial
     position for the years then ended. These financial statements are the
     responsibility of the Company's management. Our responsibility is to
     express an opinion on these financial statements.

2.   Our audits were conducted in accordance with generally accepted auditing
     standards in Brazil and included: a) the planning of our work, taking into
     consideration the materiality of balances, the volume of transactions and
     the accounting and internal control systems of the Company; b) the
     examination, on a test basis, of documentary evidence and accounting
     records supporting the amounts and disclosures in the financial statements;
     and c) an assessment of the accounting practices used and significant
     estimates made by management, as well as an evaluation of the overall
     financial statement presentation.



3.   As described in Note 21c, in interpretation of Article 49 of the Brazilian
     Securities Commission (CVM) Resolution N(Degree) 371/ 2000 as of December
     31, 2001 the Company recorded an actuarial asset adjustment resulting from
     the surplus provided by the Attilio Xavier Fontana Foundation as an
     offsetting item to retained earnings in shareholders' equity without
     affecting the results for that year. At December 31, 2003, with the
     perspective that the actuarial asset would not be realized, the company
     decided to reverse it. With the support of the response from CVM to a
     formal technical consultation, the reversal of actuarial asset was recorded
     as an offset to retained earnings in shareholders' equity, without reducing
     therefore net income for the year ended December 31, 2003, in the amount of
     approximately R$70,500 thousand, net of corresponding tax effects.




                                      F-3
<PAGE>

4.   In our opinion, the financial statements referred to in the first paragraph
     present fairly, in all material respects, the financial position of SADIA
     S.A. and the consolidated financial position of SADIA S.A. and SUBSIDIARIES
     at December 31, 2003 and 2002, and the results of their operations,
     specifically except for the effect on the December 31, 2003 results caused
     by the subject mentioned in paragraph 3, the respective changes in their
     shareholders' equity and changes in their financial position for the years
     then ended, in accordance with the accounting practices adopted in Brazil.


                           Sao Paulo, February 3, 2004


                                  ERNST & YOUNG
                          Auditores Independentes S.S.
                            CRC 2SP015199/0-6 "S" SC


                              Sergio Ricardo Romani
                       Accountant CRC 1RJ072321/S-0 "S" SC

                                      F-4
<PAGE>

A FREE TRANSLATION FROM PORTUGUESE INTO ENGLISH OF FINANCIAL STATEMENTS PREPARED
IN BRAZILIAN CURRENCY IN ACCORDANCE WITH THE ACCOUNTING PRACTICES ADOPTED IN
BRAZIL
-------------------------------------------------------------------------------

                           SADIA S.A. AND SUBSIDIARIES

                                 BALANCE SHEETS
                           December 31, 2003 and 2002
                             (In thousands of reais)
<TABLE>
<CAPTION>


                                                              COMPANY                                CONSOLIDATED
                                              ---------------------------------------- -----------------------------------------
                                                     2003                2002                 2003                 2002
                                              ------------------- -------------------- -------------------- --------------------
ASSETS
CURRENT ASSETS:
<S>                                                     <C>                 <C>                  <C>                  <C>
  Cash                                                  91,130              131,850              230,403              142,983
  Short-term investments                               972,050            1,000,486            2,143,598            1,169,801
  Trade accounts receivable - domestic market          219,136              192,308              219,740              192,487
  Trade accounts receivable - foreign market           649,783              385,449              267,965              222,725
  Allowance for doubtful accounts                     (30,461)              (25,663)            (33,769)              (40,504)
  Recoverable taxes                                    138,106              127,559              140,260              130,586
  Inventories                                          880,896              859,075              920,564              877,366
  Other receivables                                     38,772               42,998               48,203               53,584
  Assets available for sale                              4,760               11,866                4,820               11,879
  Prepaid expenses                                       5,483                3,467                6,358                5,393
  Deferred tax credits                                  65,567               26,536               65,567               26,536
                                               ------------------- -------------------- -------------------- --------------------
Total current assets                                 3,035,222            2,755,931            4,013,709            2,792,836

NONCURRENT ASSETS:
  Receivables from related parties                      27,402               26,337                    -                    -
  Long-term investments                                154,575              153,674              236,960            1,002,352
  Deposits in court                                     74,972               69,044               75,078               69,044
  Recoverable taxes                                     74,143              112,440               74,526              113,701
  Deferred tax credits                                  78,448               68,476               81,039               69,125
  Pension plan                                               -              114,982                    -              114,982
  Assets available for sale                             14,910               20,801               14,910               20,801
  Other receivables                                     14,910               11,070               16,755               11,226
                                              ------------------- -------------------- -------------------- --------------------
                                                       439,360              576,824              499,268            1,401,231

PERMANENT ASSETS:
  Investments                                          670,615              321,099               17,232               12,512
  Property, plant and equipment                        886,549              894,572              889,331              902,918
  Deferred charges                                      67,045              105,748               68,126              107,018
                                              ------------------- -------------------- -------------------- --------------------
                                                     1,624,209            1,321,419              974,689            1,022,448

                                              ------------------- -------------------- -------------------- --------------------
TOTAL ASSETS                                         5,098,791            4,654,174            5,487,666            5,216,515
                                              =================== ==================== ==================== ====================


                                      F-5
<PAGE>


                                                              COMPANY                                CONSOLIDATED
                                              ---------------------------------------- -----------------------------------------
                                                     2003                2002                 2003                 2002
                                              ------------------- -------------------- -------------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Loans and financing                                1,096,522            1,477,348            1,415,337            2,002,504
  Trade accounts payable                               368,881              245,860              377,849              250,400
  Advances from customers                               13,441               17,023                  746                  890
  Salaries and social charges payable                   17,214               14,278               17,462               14,634
  Taxes payable                                         53,757               41,187               62,193               46,645
  Dividends payable                                     87,963               55,666               87,963               55,666
  Provision for vacations pay                           52,427               42,192               53,103               42,328
  Deferred taxes                                             -                  843                    -                  843
  Employee bonus accrual                               141,485               22,848              142,315               23,164
  Other payables                                        77,915               84,139              140,183              116,475
                                              ------------------- -------------------- -------------------- --------------------
Total current liabilities                            1,909,605            2,001,384            2,297,151            2,553,549

NONCURRENT LIABILITIES:
  Loans and financing                                1,501,216            1,197,077            1,502,994            1,205,160
  Taxes payable                                         31,235                   93               31,290                1,217
  Provision for contingencies                           63,915               54,927               68,013               57,273
  Provision for losses on investments                       62                   28                    -                    -
  Deferred taxes                                         9,802               46,684                9,802               46,684
  Employee benefit plan                                 71,868               63,142               71,868               63,142
  Other payables                                        15,904               27,151               19,139               27,473
                                              ------------------- -------------------- -------------------- --------------------
                                                     1,694,002            1,389,102            1,703,106            1,400,949

MINORITY INTEREST IN SUBSIDIARIES                            -                    -                 (13)                  363

SHAREHOLDERS' EQUITY:
  Capital                                            1,000,000              700,000            1,000,000              700,000
  Income reserves                                      470,450              468,413              470,450              468,413
  Treasury stock                                         (198)                (198)                (198)                (198)
  Retained earnings                                     24,932               95,473               17,170               93,439
                                              ------------------- -------------------- -------------------- --------------------
                                                     1,495,184            1,263,688            1,487,422            1,261,654


                                              ------------------- -------------------- -------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY           5,098,791            4,654,174            5,487,666            5,216,515
                                              =================== ==================== ==================== ====================
</TABLE>

See accompanying notes.

                                      F-6
<PAGE>


                           SADIA S.A. AND SUBSIDIARIES

                              STATEMENTS OF INCOME
                            Years ended December 31,
                         2003 and 2002 (In thousands of
                             reais, except per share
                                  information)

<TABLE>
<CAPTION>

                                                                     COMPANY                                 CONSOLIDATED
                                                    ---------------- --------------------- -------------------- --------------------
                                                       2003                  2002                 2003                 2002
                                                    ---------------- --------------------- -------------------- --------------------
Gross operating revenue:
<S>                                                       <C>                   <C>                  <C>                  <C>
  Domestic market                                         3,188,246             2,631,001            3,195,807            2,729,894
  Foreign market                                          2,373,268             1,771,902            2,659,628            1,959,380
                                                    ---------------- --------------------- -------------------- --------------------
                                                          5,561,514             4,402,903            5,855,435            4,689,274
Sales deductions:
  Value-added tax on sales                                (489,790)             (378,067)            (536,475)            (399,717)
  Sales deductions                                         (21,691)              (20,481)             (26,836)             (50,714)

                                                    ---------------- --------------------- -------------------- --------------------
Net operating revenue                                     5,050,033             4,004,355            5,292,124            4,238,843

Cost of goods sold                                      (3,733,235)           (2,961,394)          (3,738,355)          (2,938,999)
                                                    ---------------- --------------------- -------------------- --------------------
Gross profit                                              1,316,798             1,042,961            1,553,769            1,299,844

Operating income (expenses):
   Selling expenses                                       (816,453)             (728,411)            (943,660)            (882,796)
   Management compensation                                 (11,047)               (9,555)             (11,047)              (9,555)
   General and administrative expenses                     (47,398)              (43,550)             (47,401)             (44,736)
   Other operating income (expenses)                       (29,491)              (18,636)             (39,986)             (23,827)
   Financial income (expenses), net                       (162,687)             (239,024)              148,712            (183,363)
   Equity pickup                                            348,571               217,806             (63,678)               88,354
                                                    ---------------- --------------------- -------------------- --------------------
Operating income                                            598,293               221,591              596,709              243,921

Nonoperating income (expense)                              (17,888)                   591             (20,418)                1,463
                                                    ---------------- --------------------- -------------------- --------------------
Income before income and social contribution taxes          580,405                                    576,291
                                                                                  222,182                                   245,384

Current income and social contribution taxes               (37,002)                 3,653             (40,414)                  325
Deferred income and social contribution taxes                50,388                34,580               52,330               12,724
Employee bonus accrual                                    (141,300)              (24,289)            (141,793)             (24,678)
                                                    ---------------- --------------------- -------------------- --------------------
Net income                                                  452,491               236,126              446,414              233,755

Minority interest                                                 -                     -                (349)                (337)

                                                    ---------------- --------------------- -------------------- --------------------
Controlling shareholder equity interest                     452,491               236,126              446,763              234,092
                                                    ================ ===================== ==================== ====================

Earnings per thousand outstanding shares - in reais          662.80                345.87                   -                     -
</TABLE>


See accompanying notes.

                                      F-7
<PAGE>


                           SADIA S.A. AND SUBSIDIARIES

                        STATEMENT OF SHAREHOLDERS' EQUITY
                     Years ended December 31, 2003 and 2002
                             (In thousands of reais)

<TABLE>
<CAPTION>

                                                                    INCOME RESERVES
                                                       ---------------------------------------
                                                                                   RESEARCH AND
                                                         LEGAL      EXPANSION      DEVELOPMENT
                                             CAPITAL    RESERVE     RESERVE        RESERVE
                                         ----------   ----------    ----------    ----------

<S>                                         <C>           <C>          <C>            <C>
Balances at December 31, 2001               700,000       21,116       241,396        46,442
   Pension plan                                --           --            --            --
   Net income for the year                     --           --            --            --
   Appropriation of income:
      Income reserves                          --         11,806       135,847        11,806
      Interest on shareholders' equity         --           --            --            --
                                         ----------   ----------    ----------    ----------
Balances at December 31, 2002               700,000       32,922       377,243        58,248
   Capital increase                         300,000      (21,085)     (241,610)      (37,305)
   Pension plan                                --           --            --            --
   Net income for the year                     --           --            --            --
   Appropriation of income:
      Income reserves                          --         22,625       256,787        22,625
      Interest on shareholders' equity         --           --            --            --
                                         ----------   ----------    ----------    ----------
Balances at December 31, 2003             1,000,000       34,462       392,420        43,568
                                         ==========   ==========    ==========    ==========

                                                                     TOTAL
                                         TREASURY      RETAINED      SHAREHOLDERS'
                                         SHARES        EARNINGS      EQUITY
                                         ----------    ----------    ----------

Balances at December 31, 2001                  (198)      112,843     1,121,599
   Pension plan                                --         (17,370)      (17,370)
   Net income for the year                     --         236,126       236,126
   Appropriation of income:
      Income reserves                          --        (159,459)         --
      Interest on shareholders' equity         --         (76,667)      (76,667)
                                         ----------    ----------    ----------
Balances at December 31, 2002                  (198)       95,473     1,263,688
   Capital increase                            --            --            --
   Pension plan                                --         (70,541)      (70,541)
   Net income for the year                     --         452,491       452,491
   Appropriation of income:
      Income reserves                          --        (302,037)         --
      Interest on shareholders' equity         --        (150,454)     (150,454)
                                         ----------    ----------    ----------
Balances at December 31, 2003                  (198)       24,932     1,495,184
                                         ==========    ==========    ==========
</TABLE>

See accompanying notes.

                                                                F-8
<PAGE>


                           SADIA S.A. AND SUBSIDIARIES

                            STATEMENTS OF CHANGES IN
                            FINANCIAL POSITION Years
                        ended December 31, 2003 and 2002
                             (In thousands of reais)
<TABLE>
<CAPTION>


                                                                      COMPANY                             CONSOLIDATED
                                                         ------------------------------------- -----------------------------------
                                                               2003                  2002            2003                  2002
                                                         ---------------- -------------------- --------------- -------------------

SOURCES OF WORKING CAPITAL
From operations:
<S>                                                              <C>                  <C>             <C>                <C>
   Net income for the year                                       452,491              236,126         446,414            233,755
   Items that do not affect working capital:
      Minority interest in operating results                           -                    -             349                337
      Depreciation, amortization and depletion                   134,990              113,924         137,062            122,485
      Long-term interest and variations                           47,475              235,917         176,751           (47,784)
      Result of disposal of permanent assets                      18,341                5,618          24,348              4,471
      Equity pickup                                            (350,469)            (217,681)          64,292           (89,314)
      Deferred income tax                                       (46,854)             (18,240)        (48,796)           (14,084)
                                                         ---------------- -------------------- --------------- -------------------
                                                                 255,974              355,664         800,420            209,866
From third parties:
   Sale of permanent assets                                        5,025                3,025           5,032              4,353
   Dividends / interest on shareholders' equity received           4,023                3,195               -                  -
   Increase in liabilities / (decrease) in assets                370,829             (11,795)         935,137           (30,224)
   Transfer from permanent to current assets                           -                2,398               -              3,300
   Incorporated working capital - Granja Rezende                       -              184,425               -                  -
                                                         ---------------- -------------------- --------------- -------------------
Total sources of working capital                                 635,851              536,912       1,740,589            187,295

APPLICATIONS OF WORKING CAPITAL
Investment acquisitions                                            3,036               15,505               -                  -
Property, plant and equipment acquisitions                       100,919              111,550         102,124            111,927
Additions to deferred charges                                      7,729                8,425           8,096              9,425
Dividends / interest on shareholders' equity paid                150,454               76,667         150,454             76,667
Pension plan                                                           -               17,370               -             17,370
Transfer from current to permanent assets                          2,643                    -           2,644                  -
                                                         ---------------- -------------------- --------------- -------------------
Total applications of working capital                            264,781              229,517         263,318            215,389

                                                         ---------------- -------------------- --------------- -------------------
Working capital increase (decrease)                              371,070              307,395       1,477,271           (28,094)
                                                         ================ ==================== =============== ===================

Change in working capital
   At end of year                                              1,125,617              754,547       1,716,558            239,287
   At beginning of year                                          754,547              447,152         239,287            267,381
                                                         ---------------- -------------------- --------------- ------------------
                                                         ---------------- -------------------- --------------- ------------------
Working capital increase (decrease)                              371,070              307,395       1,477,271           (28,094)
                                                         ================ ==================== =============== ==================
</TABLE>

See accompanying notes.

                                                                F-9
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS
                           December 31, 2003 and 2002
                             (In thousands of reais)

  1.  OPERATIONS

     The Company's principal business activities are organized into three
     operational segments: the industrial processing and distribution of food
     products, and the production of pork and poultry (chickens and turkeys) for
     sale in Brazil and abroad. The industrially processed products segment has
     been the principal focus of the Company's investments over the recent years
     and comprises products such as oven-ready frozen food, refrigerated pizzas
     and pasta, margarine, industrially processed poultry and pork by-products,
     breaded products, a diet line and pre-sliced ready-packed products.


  2.  PREPARATION AND PRESENTATION OF THE FINANCIAL STATEMENTS

      The financial statements are the responsibility of the Company's
      management and were prepared in compliance with the provisions of Brazil's
      Corporation Law and the norms of the Brazilian Securities Commission -
      CVM. Financial statements and notes are stated in thousands of reais,
      unless otherwise indicated.

      The financial statements are prepared on the basis of assessments to
      determine the values of certain assets and liabilities, as well as
      necessary provisions that reflect the Management's best estimates, which
      may however vary in relation to real data and values.

      Pension plans, employees' benefits and corresponding deferred taxes were
      reclassified in the balance sheet for December 31, 2002 in order to allow
      better comparability with the balance sheet for December 31, 2003.

  3.  SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES

      a) Operating income and expenses

         These are recognized on the accrual basis. Sales and related costs
         are recognized at the time of delivery of products.

                                      F-10
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES
                   NOTES TO FINANCIAL STATEMENTS (Continued)
                         December 31, 2003 and 2002
                            (In thousands of reais)

  3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES (Continued)

      b) Long- and short-term investments

            Investment funds in local and foreign currency are stated at market
            value according to the respective fund shares on the date of the
            balance sheet.

            Long- and short-term investments in local currency are stated at
            cost plus earnings to the balance sheet date, not exceeding market
            value.

            Long- and short-term investments in foreign currency are stated at
            acquisition cost plus interest earned and the realization of the
            investment discount based on the time between acquisition and
            maturity. These notes are classified based on the respective
            expected redemption and a comparison with market value is presented
            in Note 16b.

            These investments also include the portion receivable from swap
            contracts shown by the difference between the nominal value of these
            contracts and those updated by the variation of the US dollar plus
            interest earned up to the date of the financial statements, as well
            as receivables arising from future currency contracts shown by the
            difference of the nominal value updated by the US dollar quotation
            on the date of future maturity and on the date of the financial
            statements, not exceeding market value. The payable portion of these
            contracts is classified under loans and financing.

      c) Allowance for doubtful accounts
            The allowance for doubtful accounts is calculated on estimated
            losses in an amount considered sufficient to cover possible losses
            on receivables.

      d)    Inventories
            These are stated at their average acquisition or production cost,
            not exceeding replacement or realizable value. The elimination of
            unrealized result in consolidated inventories is stated in item k)
            below.

                                      F-11
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                         December 31, 2003 and 2002
                            (In thousands of reais)

  3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES (Continued)

      e)    Investments

            Investments in subsidiaries are stated by the equity method in the
            Company's statements, based on their equities on the same date,
            presented in Note 7, and applying the same accounting practices. The
            gains or losses due to changes in the participation percentages are
            presented in nonoperating results.

            The financial statements of foreign subsidiaries is translated into
            Brazilian reais, based on the following criteria:

       o    Balance sheet accounts at the exchange rate at the end of the
            period.

       o    Statement of income accounts at the exchange rate at the end of each
            month.

            Other investments are stated at acquisition cost, reduced by an
            adjustment to cover losses considered permanent.

      f)    Property, plant and equipment

            These are stated at acquisition or construction cost, less
            accumulated depreciation, inflation adjusted until December 31,
            1995. Depreciation is computed by the straight-line method at annual
            rates taking into consideration the useful economic life of the
            assets, adjusted for the number of operating shifts, as shown in
            Note 8. Interest accrued on construction projects' financing,
            modernization and expansion of industrial units is allocated to the
            costs of the corresponding construction in progress.

      g)    Deferred charges

            Represent pre-operating costs incurred in the implementation of
            management software, plant expansion and modernization, which are
            amortized over 5 years as from the beginning of operation.

      h)    Current and non-current liabilities

            Current and non-current liabilities are stated at known or estimated
            values increased by related charges and monetary and exchange
            variations through the balance sheet date.


                                      F-12
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                         December 31, 2003 and 2002
                            (In thousands of reais)

  3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES (Continued)

      i)    Income and social contribution taxes

            Are computed on a monthly basis at the tax rates in force. The
            reconciliation of income and social contribution taxes as well as
            the composition of deferred income and social contribution taxes on
            loss carryforwards and timing differences are shown in Note 13.

      j)    Employees' benefits

            Employees' benefits are stated based on actuarial studies prepared
            annually at close of year, as detailed in note 21d.

      k)    Consolidated financial statements

            The consolidated financial statements include the accounts of Sadia
            S.A. and its direct and indirect subsidiaries, including investments
            in joint ventures. Consolidated direct or indirect subsidiaries and
            the corresponding shareholdings of the Company are as follows:

                                                          SHAREHOLDINGS IN
                                                    -------------------------
                                                         2003           2002
                                                    -------------------------
          SADIA INTERNATIONAL LTD.                    100.00%        100.00%
             SadiaUruguayS.A.                         100.00%        100.00%
             SadiaAlimentosS.A.                         0.01%              -
             SadiaArgentinaS.A.                             -          0.02%
             SadiaChileS.A.                            60.00%         60.00%
             SadiaAlimentosS.A.                        99.99%              -
             SadiaArgentinaS.A.                             -         99.98%
             SadiaItaliaS.R.L.                         99.99%         99.99%
             ChurrascariaBeijingBrazilLtd.(*)          50.00%         50.00%
             ConcordiaFoodsLtd.(*)                     50.00%         50.00%
             SadiaEuropeLtd.                          100.00%        100.00%
          CONCORDIA S.A. C.V.M.C.C.                    99.99%         99.99%
          REZENDE OLEO LTDA.                          100.00%        100.00%
             RezendeMarketingeComunicacoesLtda.         0.09%          0.09%
             ConcordiaS.A.C.V.M.C.C.                   0.001%         0.001%
          REZENDE MARKETING E COMUNICACOES LTDA.       99.91%         99.91%
          SADIA G.M.B.H.                              100.00%        100.00%
             LaxnessF.C.P.A.Lda.                      100.00%        100.00%
          EZFOOD SERVICOS S.A. (*)                     33.33%         33.33%

          (*) "Joint-Ventures"


                                      F-13
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                         December 31, 2003 and 2002
                            (In thousands of reais)

  3. SUMMARY OF THE PRINCIPAL ACCOUNTING PRACTICES (Continued)

      k)    Consolidated financial statements--Continued

            Transactions and balances between the companies included in the
            consolidation have been eliminated. Minority interest was excluded
            from shareholders' equity and net income and is presented separately
            in the consolidated balance sheet and statement of income.

            In the case of joint ventures, the assets, liabilities and
            shareholders' equity, and the end of year balance were consolidated
            proportionately to the Company's shareholdings.

            Reconciliation of shareholders' equity and net income of the Company
            to the consolidated shareholders' equity and net income is as
            follows:
<TABLE>
<CAPTION>

                                                                                        NET INCOME          SHAREHOLDERS' EQUITY
                                                                                  ------------------------------------------------
                                                                                             2003           2003         2002
                                                                                  ------------------------------------------------
<S>                                                                                        <C>           <C>          <C>
          Financial Statements - Company                                                   452,491       1,495,184    1,263,688

          Elimination  of  unrealized  profits  on  inventories  in  intercompany
          operations, net of taxes.                                                        (7,762)        (9,796)      (2,034)
          Reversal of the elimination of unrealized result in inventories, net
          of taxes, resulting from intercompany operations at December 31, 2002.
                                                                                            2,034          2,034          -
                                                                                  ------------------------------------------------
          Financial Statements - Consolidated                                              446,763       1,487,422    1,261,654
                                                                                  ================================================
</TABLE>


                                      F-14
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                         December 31, 2003 and 2002
                            (In thousands of reais)
<TABLE>
<CAPTION>

  4.  LONG- AND SHORT-TERM INVESTMENTS
                                                INTEREST %
                                                  (ANNUAL                        COMPANY                      CONSOLIDATED
                                                              -----------------------------------------------------------------
                                                 AVERAGE)                  2003            2002           2003           2002
                                              ---------------------------------------------------------------------------------
Short-term investments
LOCAL CURRENCY
<S>                                                     <C>             <C>             <C>            <C>             <C>
Investment funds                                        17.73           856,749         173,263        890,837         201,243
Bank deposit certificates                               17.73            38,101         723,999         38,101         723,999
Treasury bills - LFT                                    18.15            52,711               -         52,711               -
Others                                                                        -             501              -             501
                                                              -----------------------------------------------------------------
                                                                        947,561         897,763        981,649         925,743
FOREIGN CURRENCY
Interest-bearing current account                         1.20                 -               -        697,814          95,914
Investment funds                                        17.82                 -               -        368,883               -
Swap contracts                                                            1,914          45,720          1,914          45,720
Future markets contracts                                                 13,998               -         71,347          20,590
                                                              -----------------------------------------------------------------
                                                                         15,912          45,720      1,139,958         162,224
                                                              -----------------------------------------------------------------
                                                                        963,473         943,483      2,121,607       1,087,967
Short-term portion of long-term investments
FOREIGN CURRENCY
National Treasury Notes - NTN                           11.00             8,577          57,003          8,577          57,003
Brazil Global 09                                        12.72                 -               -              -          17,176
Brazil C Bearer Bonds                                    8.00                 -               -            304           7,527
Global Notes - private                                  10.00                 -               -         13,110             128
                                                              -----------------------------------------------------------------
                                                                          8,577          57,003         21,991          81,834
                                                              -----------------------------------------------------------------
TOTAL SHORT-TERM                                                   972,050            1,000,486      2,143,598       1,169,801
                                                              =================================================================
Long-term investments
LOCAL CURRENCY
Bank deposit certificates                               23.98                 -          52,101              -          52,101
Treasury bills  - LFT                                   18.15            79,481               -         79,481               -
National Treasury Securities - CTN                      12.00            17,660          14,524         17,660          14,524
Others                                                                        -             696              -             696
                                                              -----------------------------------------------------------------
                                                                         97,141          67,321         97,141          67,321
FOREIGN CURRENCY
Investment funds                                        17.82                 -               -         65,987               -
National Treasury Notes - NTN                           11.00             8,577          67,579          8,577          67,579
Brazil Global 09                                        12.72                 -               -              -         622,753
Brazil C Bearer Bonds                                    8.00                 -               -         16,702         234,728
Global Notes - private                                  10.00                 -               -         13,110          16,028
Swap contracts                                                           57,434          75,777         57,434          75,777
                                                              -----------------------------------------------------------------
                                                                         66,011         143,356        161,810       1,016,865
                                                              -----------------------------------------------------------------
TOTAL LONG-TERM                                                         163,152         210,677        258,951       1,084,186
Short-term portion of long-term investments                             (8.577)        (57,003)       (21,991)        (81,834)
                                                              -----------------------------------------------------------------
LONG-TERM PORTION                                                       154,575         153,674        236,960       1,002,352
                                                              =================================================================
</TABLE>

                                      F-15
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                         December 31, 2003 and 2002
                            (In thousands of reais)

  4. LONG- AND SHORT-TERM INVESTMENTS (Continued)
      Long-term investments as of December 31, 2003 mature as follows:

<TABLE>
<CAPTION>

                                                            COMPANY    CONSOLIDATED
                                                        ----------------------------
      MATURITY                                                 2003            2003
                                                        ----------------------------
<S>                                                           <C>            <C>
           Short-term portion of long-term investments        8,577          21,991
           2005                                             105,731         105,731
           2006                                              29,790          29,790
           2007                                                 821             821
           2008                                                 573             573
           2009                                                   -               -
           2010 and afterwards                               17,660         100,045
                                                        ----------------------------
                                                            163,152         258,951
                                                        ============================
</TABLE>

      During the year the Company sold part of its Brazilian public debt bonds
      portfolio (Brazil C Bearer Bonds and Brazil Global 09), realizing earnings
      of approximately R$86,500, mainly resulting from the rise in value of
      these bonds.

      As part of its financial risk management strategy, on December 30, 2003,
      the Company used its Brazilian public bonds portfolio (Brazil Global and
      Brazil C Bearer Bonds) and private company Global Notes, reduced by the
      respective financings linked to these bonds, in order to acquire shares in
      three foreign investment funds, managed by unrelated financing
      institutions. The Company is presently the only shareholder although the
      investment funds are open-ended.

      The Concordia Foreign Investment Fund Class A and Taurus Fund Limited
      investment funds are market floated and settled daily. The Concordia
      Foreign Investment Fund Class B will be valued according to the stock
      profit curve and will be held to maturity as a result of the hedge
      strategy.

      The breakdown of bonds and respective financing used in paying net assets
      of investment funds on December 30 2003 is as follows:

                                      F-16
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)
<TABLE>
<CAPTION>

  4. LONG- AND SHORT-TERM INVESTMENTS (Continued)
                                                        FINANCIAL                        PAID-IN
                                                        BALANCE          SALES         SHAREHOLDERS'
                                                        12/30/03         INCOME          EQUITY
                                                  ------------------ ------------- ------------------
      Concordia Foreign Investment Class A
<S>                                                         <C>             <C>           <C>              <C>
         Brazil Global                                      621,268         8,751         630,019
         Brazil C Bears Bonds                                97,958         1,702          99,660
         Private Global Notes                                79,762         2,277          82,039
         Financings                                       (479,154)             -       (479,154)
                                                  ------------------ ------------- ---------------
                                                            319,834        12,730         332,564
      Concordia Foreign Investment Class B
         Brazil Global                                      150,227             -         150,227
         Brazil C Bears Bonds                                16,584             -          16,584
         Financings                                       (101,232)             -       (101,232)
                                                  ------------------ ------------- ---------------
                                                             65,579             -          65,579
      Taurus Fund Limited
         Brazil Global                                       19,525         2,005          21,530
         Private Global Notes                                48,250         2,115          50,365
         Financings                                        (36,704)             -        (36,704)
                                                  ------------------ ------------- ---------------
                                                             31,071         4,120          35,191
                                                  ------------------ ------------- ---------------
                                                            416,484        16,850         433,334
                                                  ================== ============= =============


  5.  INVENTORIES
                                                                  COMPANY                         CONSOLIDATED
                                                   -----------------------------------------------------------------
                                                           2003                2002          2003              2002
                                                   -----------------------------------------------------------------
Finished goods and products for resale                   228,317           191,308         267,888          209,163
Livestock and poultry for slaughtering and sale
                                                         391,069           413,904         391,069          413,904
Raw materials                                            128,544           124,774         128,561          124,806
Storeroom                                                 19,838            24,991          19,838           24,991
Packaging materials                                       28,766            31,188          28,766           31,188
Stock in transit                                           6,656             2,480           6,727            2,882
Work in process                                           75,347            67,580          75,347           67,580
Advances to suppliers                                      1,413               647           1,422              649
Imports in transit                                           946             2,203             946            2,203
                                                   -----------------------------------------------------------------
                                                         880,896           859,075         920,564          877,366
                                                   =================================================================
</TABLE>

                                      F-17
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

  6.  RECOVERABLE TAXES
<TABLE>
<CAPTION>
                                                         COMPANY                           CONSOLIDATED
                                          -------------------------------------------------------------------
                                                2003                 2002              2003            2002
                                          -------------------------------------------------------------------
<S>                                             <C>                 <C>                <C>           <C>
IPI (federal VAT)                               102,165             152,308            102,519       152,662
ICMS (state VAT)                                 52,635              63,839             54,175        65,665
Income and social contribution taxes             39,584              17,720             40,212        19,731
Others                                           17,865               6,132             17,880         6,229
                                          -------------------------------------------------------------------
                                                212,249             239,999            214,786       244,287
                                          ===================================================================
SHORT-TERM PORTION                              138,106             127,559            140,260       130,586
LONG-TERM PORTION                                74,143             112,440             74,526       113,701
</TABLE>

      IPI (federal VAT)

      Corresponds to presumed IPI tax credit on packaging and inputs and
      presumed IPI credit for reimbursement of PIS/PASEP and COFINS taxes on
      exports and IPI credit premium.

      ICMS (stated VAT)

      The balance to be offset against taxes of the same nature generated by
      operations at various plants.

      Income and social contribution taxes
      Represent withholding income tax on long- and short-term investments and
      income and social contribution tax prepayments via offsetting against
      federal taxes and contributions.

<TABLE>
<CAPTION>

7.          INVESTMENTS
                                                                              NET INCOME
                                                              SHAREHOLDER'S   (LOSS) FOR          EQUITY       INVESTMENT BALANCES
                                                                                                               -------------------
      Investments                               OWNERSHIP        EQUITY        THE YEAR           PICK-UP       2003         2002
                                             --------------------------------------------------------------------------------------
<S>                                               <C>                 <C>             <C>        <C>           <C>        <C>
      Sadia International Ltd.                    100.00%             141,127         19,003     (18,117)      141,127    159,244
      Concordia S.A. CVMCC                          99.99%             41,056          7,127        9,118       41,055     35,960
      Sadia G.M.B.H.                              100.00%             485,517        391,152      362,311      485,517    123,207
      Rezende Oleo Ltda.                          100.00%                (33)           (33)         (33)            -          -
      Rezende Marketing e Comun. Ltda.             99.91%                (30)            (2)          (2)            -          -
      EzFood Servicos S.A.                         33.33%               4,594        (8,146)      (2,808)        1,532      1,304
                                                                                             -------------------------------------
      Total in subsidiaries                                                                       350,469      669,231    319,715
      Other investments                                                                                -        1,384      1,384
                                                                                             -------------------------------------
      Total investments of the Company                                                            350,469      670,615    321,099
      Other investments of  subsidiaries/affiliates                                                    -        15,849     11,128
      Investments eliminated on consolidation                                                   (414,761)     (669,232)  (319,715)
                                                                                             ------------------------------------
      Total consolidated investments                                                             (64,292)       17,232     12,512
                                                                                             ====================================
</TABLE>

                                      F-18
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

  7.  INVESTMENTS--Continued

      Company: - investments valued by the equity method generated a net
      accumulated gain at December 31, 2003 of R$350,469; (operating equity
      pickup of R$348,571, loss on the translation of investments in foreign
      currency of R$65,960 and non-operating equity pickup of R$1,898).

      Consolidated: - investments valued by the equity method generated a net
      accumulated loss at December 31, 2003 of R$64,292; (operating equity
      pickup of R$63,678 of loss on translation of investments in foreign
      currency, recorded as operating result, and non-operating equity pickup of
      R$614).

<TABLE>
<CAPTION>

  8.  PROPERTY, PLANT AND EQUIPMENT
                                        AVERAGE                    COMPANY                             CONSOLIDATED
                                                    -----------------------------------------------------------------------------
                                          RATE            2003                2002               2003               2002
                                      -------------------------------------------------------------------------------------------
<S>                                         <C>               <C>                  <C>               <C>                 <C>
      Buildings                             4%                676,687              674,162           677,733             678,849
      Machinery and equipment             15%                 750,938              761,911           753,685             769,675
      Installations                       10%                 167,331              166,161           167,566             166,244
      Vehicles                            27%                  16,050               18,656            16,458              18,710
      Forestation and reforestation        -                   16,299               14,276            16,299              14,276
      Trademarks and patents              10%                   1,769                1,963             1,783               1,977
      Construction in progress             -                   96,672               54,495            96,673              54,495
      Advances to suppliers                -                    7,523                7,384             7,546               7,386
      Rights of use                        -                      247                  227             1,492                 785
                                                    -----------------------------------------------------------------------------
                                                            1,733,516            1,699,235         1,739,235           1,712,397
      Depreciation/Amortization                             (846.967)            (804,663)         (849,904)           (809,479)
                                                    -----------------------------------------------------------------------------
                                                              886,549              894,572           889,331             902,918
                                                    =============================================================================
</TABLE>

      The portion of interest accrued on financing modernization projects and
      expansion of the industrial units was stated at cost of the respective
      construction in progress in the amount of R$4,903 (R$5,768 in 2002).

      Certain Company assets are not being used in current operations and
      therefore are available for sale. These assets are stated at their
      estimated net realizable value of R$19,730 (R$32,680 in 2002), net of
      potential costs of sale.

      Company management has been adopting initiatives for the sale of these
      assets and, in accordance with expected income realization, classified
      R$4,820 (R$11,879 in 2002) in short-term and R$14,910 (R$20,801 in 2002)
      in long-term.


                                      F-19
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)
<TABLE>
<CAPTION>

  9.  DEFERRED CHARGES
                                                              COMPANY                     CONSOLIDATED
                                              -------------------------------------------------------------
                                    RATE              2003            2002            2003           2002
                                ---------------------------------------------------------------------------
<S>                                  <C>            <C>             <C>             <C>            <C>
      Preoperating expenses          25%            228,065         224,380         230,115        231,627
      Products development           20%              8,524           8,524           8,524          8,524
      Others                         20%                125              57             213            130
                                              -------------------------------------------------------------
                                                    236,714         232,961         238,852        240,281
      Accumulated amortization                    (169,669)       (127,213)       (170,726)      (133,263)
                                              -------------------------------------------------------------
                                                     67,045         105,748          68,126        107,018
                                              =============================================================
</TABLE>

      The Company revised its assumptions for the amortization of preoperating
      expenses incurred in the implementation of management software, reducing
      the amortization period from 5 to 4 years. This change in the amortization
      estimate results from the planned implementation of a new version of the
      software as from 2005. This change generated an additional amortization
      for the year in the amount of R$11,657.

<TABLE>
<CAPTION>

10.   LOANS AND FINANCING - SHORT-TERM
                                                                                             COMPANY             CONSOLIDATED
                                                                               ----------------------------------------------------
                                                                                     2003         2002        2003        2002
                                                                               ----------------------------------------------------
<S>                                                                                 <C>          <C>         <C>          <C>
Short-term
FOREIGN CURRENCY
     Credit lines for the development of foreign trade, with interest rates from
     4.15% to 5.11% p.a., guaranteed by promissory notes or sureties.
                                                                                          -            -     310,662      522,065
Advance on Foreign Exchange Contracts subject to Libor - 06 months (1.21% in
December 2003) and interest of 3.03% p.a., guaranteed by promissory notes or
sureties.                                                                           153,616      740,876     153,616      740,876
Swap contracts                                                                       33,652            -      33,652            -
Future markets contracts                                                                  -            -       8,153            -
                                                                               ---------------------------------------------------
                                                                                    187,268      740,876     506,083    1,262,941
LOCAL CURRENCY
Rural credit lines and working capital loans with interest of 8.75% p.a.
                                                                                    194,338      191,709     194,338      191,709
Swap contracts                                                                       51,000            -      51,000            -
                                                                               ---------------------------------------------------
                                                                                    245,338      191,709     245,338      191,709
                                                                               ---------------------------------------------------
                                                                                    432,606      932,585     751,421    1,454,650
</TABLE>
                                      F-20
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

10. LOANS AND FINANCING - SHORT-TERM (Continued)
<TABLE>
<CAPTION>
                                                                                         COMPANY               CONSOLIDATED
                                                                                ---------------------------------------------------
                                                                                     2003         2002        2003        2002
                                                                                ---------------------------------------------------
<S>                                                                               <C>          <C>           <C>         <C>
SHORT-TERM PORTION OF LONG-TERM DEBT
FOREIGN CURRENCY
------------------------------------
     IFC (International Finance Corporation) funding in foreign currency for
     investments payable in installments, of which R$128,656 is subject to
     interest at the rate of 8.52% p.a., R$48,949 at 9.05% p.a., guaranteed
     by real estate mortgages.                                                      177,605       66,621       177,605      66,621

     Export financing composed by prepayment subject to Libor variation for
     6-month deposits (1.21% in December 2003) plus annual interest of 5.65%,
     guaranteed by promissory notes or sureties.
                                                                                    284,645       98,670       284,645      98,670
BNDES (National Bank for Economic and Social Development), credit lines for
investments and exports, composed as follows: FINEM in the amount of R$18,867
subject to weighted average of exchange variation of currencies traded by BNDES
- UMBNDES and fixed interest of 3.50% p.a. and FINAME EXIM in the amount of
R$28,569 subject to weighted average of exchange variation of currencies traded
by BNDES-UMBNDES and fixed interest of 3.86%, guaranteed by mortgage bond and
real estate mortgage.                                                                47,436       32,473        47,436      32,473
                                                                                     13,613        8,431        13,613      11,522
Others                                                                          ---------------------------------------------------
                                                                                    523,299      206,195       523,299     209,286
                                                                                ---------------------------------------------------

LOCAL CURRENCY
--------------
BNDES  (National Bank for Economic and Social  Development),  credit lines for
investments  and  exports,  composed  as  follows:  FINAME in the amount of R$
9,604 subject to Long-Term  Interest Rate -TJLP (11.0% p.a. in December  2003)
and interest of 3.27% p.a.,  FINAME-EXIM  in the amount of R$ 102,377  subject
to TJLP (11.0% p.a. in December  2003) and interest of 2.89% p.a. and FINEM in
the amount of R$ 22,092  subject to TJLP (11.0%  p.a.  in  December  2003) and
interest of 3.50% p.a., guaranteed by mortgage bond and real estate mortgage.       134,073      332,116       134,073     332,116

PESA - Special Aid for Agribusiness payable in installments, subject to IGPM
variation and annual interest of 9.76%, guaranteed by sureties.
                                                                                      6,244        6,120         6,244       6,120
Others                                                                                  300          332           300         332
                                                                                ---------------------------------------------------
                                                                                    140,617      338,568       140,617     338,568
                                                                                ---------------------------------------------------
SHORT-TERM PORTION OF LONG-TERM DEBT                                                663,916      544,763       663,916     547,854
TOTAL SHORT-TERM                                                                ---------------------------------------------------
                                                                                  1,096,522    1,477,348     1,415,337   2,002,504
                                                                                ==================================================
</TABLE>

At December 31, 2003 the weighted average interest on short-term loans was 5.19%
p.a. (5.12% p.a. in 2002).

                                      F-21
<PAGE>


                          SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

11. LOANS AND FINANCING - LONG-TERM (Continued)
<TABLE>
<CAPTION>
                                                                                        CONTROLADORA              CONSOLIDADO
                                                                                ---------------------------------------------------
                                                                                     2003         2002        2003        2002
                                                                                ---------------------------------------------------
FOREIGN CURRENCY
----------------
<S>                                                                               <C>           <C>         <C>          <C>
IFC (International Finance Corporation) funding in foreign currency for
investments in property, plant and equipment, of which R$128,656 is subject to
interest at the rate of 8.52% p.a. and R$48,949 at 9.05% p.a., guaranteed by
real estate mortgages.                                                              177,605       419,951     177,605      419,951

Export financing composed by prepayment, payable in installments up to 2010,
subject to Libor variation for 6-month deposits (1.21% in December 2003) plus
annual interest of 5.65%, guaranteed by promissory notes or sureties.             1,196,174       527,345   1,196,174      527,345

BNDES (National Bank for Economic and Social Development), payable from 2004 to
2009, composed as follows: FINEM in the amount of R$61,179 subject to weighted
average of exchange variation of currencies traded by BNDES - UMBNDES and fixed
interest of 3.50% and FINAME EXIM in the amount of R$46,806 subject to weighted
average of exchange variation of currencies traded by BNDES - UMBNDES and fixed
annual interest of 3.86%, guaranteed by mortgage bonds and real estate
mortgages.                                                                          107,985       142,429     107,985      142,429

Swap contracts                                                                        5,867             -       7,645            -
Others                                                                               13,613        25,077      13,613       36,251
                                                                                --------------------------------------------------
                                                                                  1,501,244     1,114,802   1,503,022    1,125,976
LOCAL CURRENCY
--------------
BNDES  (National Bank for Economic and Social  Development),  credit lines for
investments  and  exports,  payable  from 2004 to 2008,  composed  as follows:
FINAME in the amount of  R$25,754  subject to  Long-Term  Interest  Rate -TJLP
(11.0% p.a.  in December  2003) and  interest  of 3.27% p.a.,  FINAME-EXIM  in
the amount of  R$321,631  subject to TJLP (11.0%  p.a.  in December  2003) and
interest  of 2.89% p.a.  and FINEM in the amount of  R$67,800  subject to TJLP
(11.0% p.a.  in December  2003) and  interest  of 3.50%  p.a.,  guaranteed  by
mortgage bonds and real estate mortgages.                                           415,185       518,595     415,185      518,595

PESA - Special Aid for Agribusiness payable in installments from 2004 to 2020,
subject to IGPM variation and annual interest of 9.76% p.a., guaranteed
by sureties.                                                                        114,233       105,130     114,233      105,130

Swap contracts                                                                      128,513             -     128,513            -
Others                                                                                5,957         3,313       5,957        3,313
                                                                                --------------------------------------------------
                                                                                    663,888       627,038     663,888      627,038
                                                                                --------------------------------------------------
                                                                                  2,165,132     1,741,840   2,166,910    1,753,014
Short-term portion of long-term debt                                               (663,916)     (544,763)   (663,916)    (547,854)
                                                                                --------------------------------------------------
TOTAL LONG-TERM                                                                   1,501,216     1,197,077   1,502,994    1,205,160
                                                                                ==================================================
</TABLE>
                                      F-22
<PAGE>

<TABLE>
<CAPTION>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

11. LOANS AND FINANCING - LONG-TERM (Continued)

    Loans and financing in foreign currency are indexed to the U.S. dollar and
    BNDES currency baskets (UMBNDES).

    The non-current portions of financings at December 31, 2003 mature as
    follows:
                                                                                       COMPANY                 CONSOLIDATED
                                                                                ----------------------------------------------
    MATURITY                                                                            2003                      2003
                                                                                ----------------------------------------------
     <S>                                                                            <C>                        <C>
     SHORT-TERM PORTION OF LONG-TERM DEBT                                              663,916                   663,916
     2005                                                                              614,195                   615,973
     2006                                                                              277,987                   277,987
     2007                                                                              321,160                   321,160
     2008                                                                               73,375                    73,375
     2009                                                                               53,559                    53,559
     2010 ONWARDS                                                                      160,940                   160,940
                                                                                ----------------------------------------------
                                                                                     2,165,132                 2,166,910
                                                                                ==============================================
</TABLE>

     The IFC funding involves certain restrictive covenants for distribution of
     dividends additional to minimum mandatory dividends when obligations, such
     as certain consolidated financial ratios, are not met. At December 31,
     2003, the Company did not meet the obligation in connection with
     consolidated short and long-term indebtedness ratios; for this reason, the
     Company reclassified the portion of long-term debt amounting to R$152,886
     to short-term.

12.  CONTINGENCIES

     The Company and its subsidiaries is a party to several claims of labor,
     civil and tax nature in progress, resulting from its normal business
     activities. The respective provisions for contingencies were constituted
     based on the evaluation by the Company's legal counsel, which deemed that
     an unfavorable outcome is likely. Whenever necessary, judicial deposits
     were made.

     The Company's fiscal and corporate books are subject to inspection by tax
     authorities for different statutes of limitations, according to applicable
     law.

     The Company management believes that the provision for contingencies shown
     below is sufficient to cover any losses arising from legal actions.

                                      F-23
<PAGE>

<TABLE>
<CAPTION>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

12.  CONTINGENCIES (Continued)
                                                                                         COMPANY               CONSOLIDATED
                                                                                ---------------------------------------------------
                                                                                    2003          2002         2003        2002
                                                                                ---------------------------------------------------
     <S>                                                                           <C>           <C>          <C>         <C>
     Tax claims                                                                    32,665        27,248       36,729      29,572
     Civil claims                                                                  17,705        16,261       17,706      16,261
     Labor claims                                                                  13,545        11,418       13,578      11,440

                                                                                ---------------------------------------------------
                                                                                   63,915        54,927       68,013      57,273
                                                                                ===================================================
</TABLE>

     Tax Litigation

     The main tax contingencies involve the following cases:

     INCOME AND SOCIAL CONTRIBUTION TAXES ON NET PROFIT

     Provision for income and social contribution taxes on net profit amounting
     to R$6,078, set up on the acquisition of the subsidiary Granja Rezende
     (merged in 2002).

     STATE VAT (ICMS)

     The Company is a defendant in several administrative cases involving ICMS,
     mainly in the States of Sao Paulo, Rio de Janeiro and Amazonas (SUFRAMA),
     totaling a probable contingency estimated at R$21,155.

     NATIONAL INSTITUTE OF SOCIAL SECURITY (INSS)

     The Company filed a refutation against collection of the contribution to
     the National Institute of Social Security (INSS) on salaries of third
     parties rendering services in civil construction work at the Uberlandia
     Unit, due to joint liability. This case started before the acquisition of
     Granja Rezende by Sadia. This contingency was estimated at R$919.

     OTHER TAX CONTINGENCIES

     Several cases related to payment of IOF (Tax on Financial Operations), PIS
     (Social Integration Program Tax), COFINS (Tax for Social Security
     Financing) and others totaling a probable loss of R$8,577.

                                      F-24
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

12.  CONTINGENCIES (Continued)

     Tax Litigation - Continued

     IPI Credit Premium - Decree Law No. 491/69

     Sadia S.A., successor of the merged companies Sadia Concordia S.A. and
     Frigobras Companhia Brasileira de Frigorificos S.A., has been claiming
     through judicial proceedings the benefit of the IPI credit premium on
     exports, under Decree Law No. 491/69, for the period from 1981 to 1990.

     In May 2002 Sadia Concordia and Frigobras obtained final unappealable
     decisions from the Regional Federal Court of the 1st Region, based on the
     decision of unconstitutionality handed down at the Plenary Meeting of the
     Federal Supreme Court - STF. Based on these decisions and on the opinion of
     legal advisors that there is no possibility of appealing on the part of the
     Federal Government, the Company recognized the tax credit referring to the
     legal action involving Sadia Concordia and Frigobras.

     The Company is still awaiting the judgment of the judicial proceeding
     involving Frigobras for the period from December 1988 to October 1990 to
     recognize the corresponding tax credit.

     Civil Litigation

     Represents principally proceedings involving claims for indemnification for
     losses and damages, including pain and suffering, arising from work-related
     accidents and consumer relations in the amount of R$9,673 and several civil
     claims in connection with issues related to poultry genetics in the amount
     of R$8,033 at December 31, 2003.

     Labor Claims

     There are approximately 1,600 labor claims against the Company. These
     claims involve mainly the payment of overtime, and health exposure or
     hazard premium, none of them involving a significant amount on an
     individual basis.

                                      F-25
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

13.  INCOME AND SOCIAL CONTRIBUTION TAXES

     Income tax and social contribution tax were calculated at applicable rates,
     as shown below:

     a)  Reconciliation of expenses related to income and social contribution
         taxes
         -----------------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                         COMPANY               CONSOLIDATED
                                                                                ----------------------------------------------------
                                                                                    2003           2002           2003          2002
                                                                                ----------------------------------------------------
         <S>                                                                      <C>           <C>          <C>            <C>
         Income before taxation/profit sharing                                      580,405      222,182       576,291       245,384
         Employees' and executives profit sharing                                 (141,300)     (24,289)     (141,793)      (24,678)
         Interest on shareholders' equity                                         (145,310)     (65,063)     (145,310)      (65,063)
                                                                                ----------------------------------------------------
         Income before income and social contribution taxes                         293,795      132,830       289,188       155,643
         Income and social contribution taxes at nominal rate                      (99,890)     (45,162)      (98,324)      (52,919)
         Adjustment to calculate the effective rate
         Permanent differences:
          Equity pickup                                                             119,160       74,012       114,950        57,242
          Interest on shareholders' equity of subsidiaries                                -            -         1,367         1,086
          Others                                                                      (376)          762         (569)         (981)
         Provision for income and social contribution taxes on foreign
          subsidiary profits                                                        (5,508)        8,621       (5,508)         8,621
                                                                                ----------------------------------------------------
         Income and social contribution taxes at effective rate                      13,386       38,233        11,916        13,049
                                                                                ====================================================
</TABLE>

     b)  Composition of deferred income and social contribution taxes
         ------------------------------------------------------------
<TABLE>
<CAPTION>
                                                                                           COMPANY                   CONSOLIDATED
                                                                                ----------------------------------------------------
                                                                                    2003            2002           2003         2002
                                                                                ----------------------------------------------------
         Assets:
         Deferred taxes:
         <S>                                                                       <C>           <C>           <C>          <C>
         Provision for contingencies                                                 24,644        18,948        24,644       18,948
           Employees bonus accrual                                                   47,751             -        47,751            -
           Provision for deferred taxes on exchange variation                         9,860             -         9,860            -
           Provision for loss on property, plant and equipment                        4,123             -         4,123            -
           Allowance for doubtful accounts                                            4,971             -         4,971            -
           Tax losses                                                                21,297        42,490        21,297       42,490
           Summer plan depreciation                                                   4,556         5,972         4,556        5,972
           Others                                                                     2,378         6,134         4,969        6,783
           Employees' benefits plan                                                  24,435        21,468        24,435       21,468
                                                                                ----------------------------------------------------
         Total deferred tax assets                                                  144,015        95,012       146,606       95,661

         Liabilities:
         Deferred taxes:
           Depreciation - rural activity                                              9,802         8,433         9,802        8,433
           Pension Plan - CVM/371                                                         -        39,094             -       39,094
                                                                                ----------------------------------------------------
         Total deferred tax liabilities                                               9,802        47,527         9,802       47,527
                                                                                ----------------------------------------------------
         Total taxes, net                                                           134,213        47,485       136,804       48,134
                                                                                ====================================================
         Short-term portion, net                                                     65,567        25,693        65,567       25,693
         Long-term portion, net                                                      68,646        21,792        71,237       22,441
</TABLE>
                                      F-26
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


13.  INCOME AND SOCIAL CONTRIBUTION TAXES (Continued)

     c)  Projections for realization of deferred income and social contribution
         taxes
                                                   CONSOLIDATED
           MATURITY                                    2003
                                              ---------------------
                                              ---------------------
           2004                                         65,857
           2005                                         13,019
           2006                                         10,670
           2007                                          6,928
           2008                                          7,721
           2009 and afterwards                          42,411
                                              ---------------------
                                              ---------------------
                                                       146,606
                                              =====================
14.  SHAREHOLDERS' EQUITY

     a)  Capital
         -------

         Subscribed and paid-in capital is represented by the following number
         of shares at December 31, 2003 and 2002:

           Common shares                           257,000,000
           Preferred shares                        426,000,000
                                              ----------------------
           Total shares                            683,000,000
           Preferred shares in treasury              (304,288)
                                              ----------------------
           Total outstanding shares                682,695,712
                                              ======================
     b)  Statutory reserves
         ------------------

         Under the bylaws, 5% of net income is allocated to Research and
         Development, and 15% to 60% of net income is allocated to Expansion,
         with both cases subject to the approval of the General Shareholder's
         Meeting.

     c)  Treasury stock
         --------------

         The company's treasury stock consists of 304 lots of 1,000 preferred
         shares for future sale and/or cancellation.

                                      F-27
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


14.  SHAREHOLDERS' EQUITY (Continued)

     d)  Shareholders' remuneration
         --------------------------
<TABLE>
<CAPTION>
                                                                                    2003          2002
                                                                                -----------------------
         <S>                                                                      <C>           <C>
         Net income for the year                                                  452,491       236,126
         Legal reserve                                                            (22,625)      (11,806)
                                                                                -----------------------
         Calculation basis                                                        429,866       224,320
         DISTRIBUTIONS TO SHAREHOLDERS:
         - Interest on shareholder's equity (net of tax withholdings of R$
           7,061) paid on 08/15/2003:                                              40,013         -

         - Interest on shareholder's equity (net of tax withholdings of R$
           15,508) provisioned on 12/31/2003, to be paid on 02/16/2004:            87,872         -

         - Dividends and interest on shareholder's equity (net of tax
           withholdings of R$9,761) paid in 2002.                                    -           66,906
                                                                                -----------------------
         TOTAL                                                                   127,885         66,906
                                                                                =======================
         Percentage in relation to the calculation basis                          29.75%        29.83%
         Interest on shareholder's equity/dividends per thousand shares - R$:
         Preferred shares                                                       R$ 193.98     R$ 101.48
         Common shares                                                          R$ 176.36     R$  92.25
</TABLE>

     e)  Market value
         ------------

         The market value of Sadia S.A. shares according to the 2003 average
         quotation of shares negotiated on the Sao Paulo Stock Exchange -
         BOVESPA, corresponded to R$3,980.00 per thousand shares at December
         31, 2003 (R$1,360.00 at December 31, 2002). Net equity on that date
         was R$2,190.12 per thousand shares (R$1,851.03 at December 31,
         2002).

     f)  Appropriation of net income for the year
         ----------------------------------------
         The company's net income for 2003 amounted to R$452,491, which was
         appropriated as follows: Income reserves in the amount of R$302,037
         is composed as follows: a) Legal reserve - R$22,625; b) Expansion
         reserve - R$256,787 and c) research and development reserve - R$22,625.
         Interest on shareholders' equity and dividends were distributed to
         shareholders in the total amount of R$150,454.

                                      F-28
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


14.  SHAREHOLDERS' EQUITY (Continued)

         g) Shareholdings (unaudited)
            ------------------------

            o Composition of shareholders of Sadia S.A. with more than 5% of
              voting shares, including individuals, at December 31, 2003 is as
              follows:
<TABLE>
<CAPTION>
SHAREHOLDERS                                              COMMON           %        PREFERRED         %         TOTAL          %
                                                       ----------------------------------------------------------------------------
<S>                                                    <C>               <C>       <C>               <C>     <C>               <C>
Fundacao Attilio F. X. Fontana (*)                      24,998,558      9.73%        6,970,000      1.64%     31,968,558      4.68%
Osorio Henrique Furlan (*)                              14,378,172      5.59%          557,127      0.13%     14,935,299      2.19%
Sunflower Participacoes S.A. (*)                        32,018,789     12.46%                -          -     32,018,789      4.69%
Other shareholders (*)                                 103,720,372     40.36%       43,756,612     10.27%    147,476,984     21.59%
Bradesco Vida e Previdencia S.A.                        18,191,148      7.08%                -          -     18,191,148      2.66%
Other shareholders                                      63,692,961     24.78%      374,411,973     87.89%    438,104,934     64.15%
Treasury stock                                                   -          -          304,288      0.07%        304,288      0.04%
                                                       ----------------------------------------------------------------------------
TOTAL                                                  257,000,000       100%      426,000,000       100%    683,000,000       100%
                                                       ============================================================================
(*) Shareholder agreement participants
</TABLE>

            o Shareholding of Sunflower Participacoes S.A. at December 31, 2003
              is as follows:
<TABLE>
<CAPTION>
SHAREHOLDERS                                              COMMON           %        PREFERRED         %         TOTAL          %
                                                       ----------------------------------------------------------------------------
<S>                                                     <C>             <C>                                   <C>            <C>
Maria Aparecida Cunha Fontana                           14,084,143      43.99%           -            -       14,084,143     43.99%
Attilio Fontana Neto                                     5,716,562      17.85%           -            -        5,716,562     17.85%
Walter Fontana Filho                                     6,739,660      21.05%           -            -        6,739,660     21.05%
Vania Cunha Fontana                                      5,478,424      17.11%           -            -        5,478,424     17.11%
                                                       ----------------------------------------------------------------------------
TOTAL                                                   32,018,789        100%           -            -       32,018,789       100%
                                                       ============================================================================
</TABLE>

            o Shareholding of Bradesco Vida e Previdencia S.A. at December 31,
              2003:
<TABLE>
<CAPTION>
SHAREHOLDERS                                              COMMON           %           PREFERRED      %         TOTAL           %
                                                       ----------------------------------------------------------------------------
<S>                                                    <C>                <C>                        <C>     <C>               <C>
Bradesco Seguros S.A.                                  791,364,365        100%           -           0%      791,364,365       100%
                                                       ----------------------------------------------------------------------------
TOTAL                                                  791,364,365        100%           -           0%      791,364,365       100%
                                                       ============================================================================
</TABLE>

            o Shareholding of Bradesco Seguros S.A. at December 31, 2003:
<TABLE>
<CAPTION>
SHAREHOLDERS                                              COMMON           %           PREFERRED      %         TOTAL           %
                                                       ----------------------------------------------------------------------------
<S>                                                        <C>          <C>                                      <C>         <C>
Banco Bradesco S.A.                                        625,315      99.70%             -         -           625,315     99.70%
Other shareholders                                           1,862       0.30%             -         -             1,862      0.30%
                                                       ----------------------------------------------------------------------------
TOTAL                                                      627,177        100%             -         -           627,177       100%
                                                       ============================================================================
</TABLE>

                                      F-29
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


14.  SHAREHOLDERS' EQUITY (Continued)

     g) Shareholdings (unaudited)
        ------------------------

            o Shareholding of Banco Bradesco S.A. at December 31, 2003:
<TABLE>
<CAPTION>
SHAREHOLDERS                                        COMMON           %         PREFERRED         %              TOTAL          %
                                               -----------------------------------------------------------------------------------
<S>                                            <C>                  <C>    <C>                  <C>     <C>                  <C>
Cidade de Deus Cia. Cial. de
Participacoes                                  381,004,321,232    47.69%       103,800,000     0.01%      381,108,121,232  24.03%
Fundacao Bradesco                              128,962,162,121    16.14%    18,965,391,856     2.41%      147,927,553,977   9.33%
Banco Bilbao Vizcaya Argentaria S.A.            39,947,002,894     5.00%    39,346,968,271     5.00%       79,293,971,165   5.00%
Other shareholders                             249,026,571,625    31.17%   728,523,205,301    92.58%      977,549,776,926  61.64%
                                               ----------------------------------------------------------------------------------
TOTAL                                          798,940,057,872      100%   786,939,365,428      100%    1,585,879,423,300    100%
                                               ==================================================================================
</TABLE>

            o Shareholding of Cidade de Deus Cia. Comercial de Participacoes at
              December 31, 2003:
<TABLE>
<CAPTION>
SHAREHOLDERS                                        COMMON           %         PREFERRED         %              TOTAL         %
                                               ----------------------------------------------------------------------------------
<S>                                              <C>              <C>                                       <C>            <C>
Nova Cidade de Deus Participacoes S.A.           2,024,355,762    43.16%                 -         -        2,024,355,762  43.16%
Fundacao Bradesco                                1,533,275,100    32.69%                 -         -        1,533,275,100  32.69%
Lia Maria Aguiar                                   417,744,408     8.91%                 -         -          417,744,408   8.91%
Lina Maria Aguiar                                  417,744,408     8.91%                 -         -          417,744,408   8.91%
Other shareholders                                 296,732,822     6.33%                 -         -          296,732,822   6.33%
                                               ----------------------------------------------------------------------------------
TOTAL                                            4,689,852,500      100%                 -         -        4,689,852,500    100%
                                               ==================================================================================
</TABLE>

            o Shareholding of Nova Cidade de Deus Cia. Participacoes S.A. at
              December 31, 2003:
<TABLE>
<CAPTION>
SHAREHOLDERS                                        COMMON           %         PREFERRED         %              TOTAL        %
                                               ----------------------------------------------------------------------------------
<S>                                                <C>            <C>          <C>            <C>             <C>          <C>
Fundacao Bradesco                                   79,788,134    46.30%       182,599,157    98.35%          262,387,291  73.29%
Elo Participacoes S.A.                              92,534,341    53.70%                 -         -           92,534,341  25.85%
Caixa Beneficente dos Funcionarios do Bradesco               -         -         3,066,950     1.65%            3,066,950   0.86%
                                               ----------------------------------------------------------------------------------
TOTAL                                              172,322,475      100%       185,666,107      100%          357,988,582    100%
                                               ==================================================================================
</TABLE>

            o Shareholding of Elo Participacoes S.A. at December 31, 2003:

NO SHAREHOLDER ON AN INDIVIDUAL BASIS HAS MORE THAN 5% OF THE COMPANY'S VOTING
SHARES
<TABLE>
<CAPTION>
                                                     COMMON           %           PREFERRED         %              TOTAL       %
                                               ----------------------------------------------------------------------------------
<S>                                                <C>                            <C>                           <C>
TOTAL                                              103,033,675                    61,148,836                    164,182,511
                                               ==================================================================================
</TABLE>

                                      F-30
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

14.  SHAREHOLDERS' EQUITY (Continued)

     g) Shareholding (unaudited) (Continued)
        ------------------------

            o Shares held by controlling shareholders, board of directors
              members, directors and audit committee members of Sadia S.A. at
              December 31, 2003:
<TABLE>
<CAPTION>
                                                      COMMON     %            PREFERRED       %            TOTAL         %
                                               ----------------------------------------------------------------------------------
<S>                                            <C>                            <C>                            <C>
Controlling shareholders                       175,115,891    68.14%          51,283,739        12.04%       226,399,630   33.15%
Board of directors members *                     8,208,978     3.19%           6,014,347         1.41%        14,223,325    2.08%
Directors *                                         11,915     0.00%             376,001         0.09%           387,916    0.06%
Audit committee members                              1,629     0.00%                 528         0.00%             2,157    0.00%
                                               ----------------------------------------------------------------------------------
TOTAL                                          183,338,413                    57,674,615                     241,013,028
                                               ==================================================================================
(*) Excludes shareholders who are members of the controller group

            o Shares held by controlling shareholders, board of directors
              members, directors and audit committee members of Sadia S.A. at
              December 31, 2002:
</TABLE>
<TABLE>
<CAPTION>
                                                  COMMON         %            PREFERRED       %            TOTAL         %
                                               ----------------------------------------------------------------------------------
<S>                                            <C>            <C>             <C>               <C>          <C>            <C>
Controlling shareholders                       172,540,340    67.14%          56,574,662        13.28%       229,115,002    33.55%
Board of directors members *                     8,705,831     3.39%           6,006,182         1.41%        14,712,013     2.15%
Directors *                                         11,915     0.00%             641,001         0.15%           652,916     0.10%
Audit committee members                             11,859     0.00%             301,913         0.07%           313,772     0.05%
                                               ----------------------------------------------------------------------------------
TOTAL                                          181,269,945                    63,523,758                     244,793,703
                                               ==================================================================================
(*) Excludes shareholders who are members of the controller group
</TABLE>

            o Outstanding shares of Sadia S.A. at December 31, 2003:
<TABLE>
<CAPTION>
                                                  COMMON         %            PREFERRED       %            TOTAL         %
                                               ----------------------------------------------------------------------------------
<S>                                             <C>           <C>            <C>                <C>          <C>           <C>
Outstanding shares                              81,884,109    31.86%         374,411,973        87.89%       456,296,082   66.81%
                                               ----------------------------------------------------------------------------------
TOTAL                                          257,000,000      100%         426,000,000         100%        683,000,000    100%
                                               ==================================================================================
</TABLE>

15.   FINANCIAL INCOME (EXPENSES), NET
<TABLE>
<CAPTION>
                                                                                        COMPANY                 CONSOLIDATED
                                                                                -------------------------------------------------
                                                                                   2003          2002         2003       2002
                                                                                -------------------------------------------------
FINANCIAL EXPENSES:
-------------------
<S>                                                                              <C>          <C>          <C>         <C>
Interest                                                                         (325,759)    (183,882)    (341,066)   (214,952)
Monetary variations - liabilities                                                 (17,010)     (32,256)     (17,021)    (36,009)
Exchange variations - liabilities                                                  265,750    (392,593)      264,367   (413,113)
Others                                                                            (87,104)     (52,494)     (91,321)    (66,758)
                                                                                -------------------------------------------------
                                                                                 (164,123)    (661,225)    (185,041)   (730,832)
FINANCIAL INCOME:
-----------------
Interest                                                                           252,224       85,331      443,299     182,253
Monetary variations - assets                                                        10,573       49,949        5,490      60,426
Exchange variations - assets                                                     (281,446)      277,794    (147,856)     284,127
Others                                                                              20,085        9,127       32,820      20,663
                                                                                -------------------------------------------------
                                                                                     1,436      422,201      333,753     547,469
                                                                                -------------------------------------------------
                                                                                 (162,687)    (239,024)      148,712   (183,363)
                                                                                =================================================
</TABLE>

                                      F-31
<PAGE>

                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)

16.  RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

     Company operations are exposed to market risks, principally in relation to
     exchange rate variations, credit risk and grain purchase prices. These
     risks are permanently monitored by specific committees, composed of members
     of the Board of Directors who are responsible for defining the Board's risk
     management strategy by determining the position and exposure limits.

a)   Exchange rate risk
     ------------------
     The exchange rate risk for loans, financing and any other payables
     denominated in foreign currency is hedged by short-term investments
     denominated in foreign currency and by derivative financial instruments,
     such as rate swaps (dollar to CDI) and future market agreements, in
     addition to receivables in U.S. dollars from exports, which also reduce
     exchange variations by serving as a "natural hedge".

     The company's exposure to the foreign currency variations (principally U.S.
     dollars) is presented below:
<TABLE>
<CAPTION>
                                                                                               Consolidated
                                                                                ---------------------------------------
     ASSETS AND LIABILITIES IN FOREIGN CURRENCY                                         2003                    2002
                                                                                ---------------------------------------
     <S>                                                                            <C>                     <C>
     Cash and short-term investments                                                 1,440,480               1,190,192
     Trade accounts receivable                                                         254,982                 207,946
     Trade accounts payable                                                            (31,091)                (42,396)
     Loans and financing                                                            (2,009,105)             (2,388,917)
     Swap contracts (dollar to CDI)                                                    990,107                 812,280
                                                                                ---------------------------------------
                                                                                       645,373               (220,895)
                                                                                =======================================
</TABLE>
     Consolidated hedge contracts outstanding at December, 31, 2003 with their
     respective payment schedules are as follows:
<TABLE>
<CAPTION>
                                                     POSITION                                PAYMENT SCHEDULE
                                               -------------------------------------------------------------------------------------
     DERIVATIVE INSTRUMENTS                         12/31/03          2004          2005          2006          2007          2008
                                               -------------------------------------------------------------------------------------
     EXCHANGE RATE CONTRACTS
     <S>                                          <C>               <C>           <C>           <C>            <C>           <C>
     Base value - R$                                990,107          416,135       314,038       244,282         9,218         6,434
     Vase value - US$                               329,953          126,999       107,863        90,169         2,899         2,023

     Receivables/payables
        Asset                                        59,348            1,914        26,250        29,790           821           573
        Liability                                 (220,810)         (86,430)      (60,538)      (69,607)       (2,494)       (1,741)

     FUTURES CONTRACTS - U.S.  DOLLARS
     Purchased position  - US$                       34,000                -             -             -             -             -
     Sold position - US$                            169,000                -             -             -             -             -

     Future contracts - corn (Volume-R$)
     -----------------------
     Long position                                      269                -             -             -             -             -
     Short position                                      91                -             -             -             -             -

     FUTURES MARKET CONTRACTS
     Receivables                                     13,998                -             -             -             -             -
     Payables                                        (8,153)               -             -             -             -             -
</TABLE>
                                      F-32
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


16.  RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

c)   Credit risk
     -----------

     The Company is potentially exposed to credit risk in relation to its trade
     accounts receivable, long- and short-term investments and derivative
     instruments. The Company limits the risk in relation to these financial
     instruments by subjecting them to the control of highly rated financial
     institutions that operate within the limits pre-established by credit and
     financing committees.

     The concentration of credit risk with respect to accounts receivable is
     minimized due to the pulverization of the client base and the credit
     concession to clients with solid financial and operational ratios.
     Generally, the Company does not require a guarantee for accounts
     receivable. Allowance for doubtful accounts was established based on losses
     on receivables expected by the management.

     Expenses with doubtful accounts totaled R$5,030 for the year ended December
     31, 2003 (R$24,956 in 2002).

     In an effort to reduce its credit risk and financial indebtedness, the
     Company structured an operation in 2003 to obtain a rotating credit line in
     the amount of up to US$55 million with a validity of 12 months and
     renewable by mutual agreement for 12 additional months through the transfer
     of the Company's export receivables and with an operation cost interest
     rate of 2.125% p.a. + Libor. Credit insurance was purchased for a period of
     up to 13 months from the closing date of operation in order to eliminate
     credit risks (client and country), covering 90% of the bank payments in
     case of damages. In December 2003, the value of transferred receivables
     amounted to approximately US$45 million.

     In addition, a Credit Rights Investment Fund (CRIF) was established in the
     domestic market. The fund, which is managed by Concordia S.A. Corretora de
     Valores Mobiliarios, Cambio e Commodities and has a total paid-in
     shareholders' equity of R$150,000, holds the following interest: R$120,000
     by Banco Rabobank, R$20,000 by Attilio Fontana Foundation and R$10,000 by
     Sadia S.A., whose resources are allocated to the acquisition of Sadia S.A.
     domestic market receivables with a discounted cost equivalent to 95% of the
     CDI for the senior quota. In December 2003, the value of receivables
     acquired by the fund amounted to approximately R$106,000.

                                      F-33
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


16.  RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)

c)   Grain purchase price risks
     --------------------------
     The Company operations are exposed to volatility in price of grains (corn
     and soybean) used in the preparation of fodder for its breeding stock. The
     price variation results from factors that are beyond management control,
     such as climatic factors, the harvest volume, transport and storage costs
     and government agricultural policies, among others. The Company maintains a
     risk management strategy in accordance with its inventory policy through
     physical control, which includes advanced purchases in harvest periods
     aligned with future market operations.

d)   Estimated market value
     ----------------------
     Financial assets and liabilities are presented in the balance sheet at cost
     plus accrued income and expenses and are stated according to their
     corresponding expected realization or settlement.

     The consolidated nominal value of the derivatives at December 31, 2003,
     estimated based on market price quotations for similar contracts,
     approximated corresponding book values. Estimated market values of
     financial instruments as compared to accounting balances are presented in
     the table below:

<TABLE>
<CAPTION>
                                                                                   Consolidated
                                                      ----------------------------------------------------------------------------
                                                                   2003                                    2002
                                                      ----------------------------------------------------------------------------
                                                                                MARKET                                    MARKET
                                                      BOOK VALUE                 VALUE             BOOK VALUE             VALUE
                                                      ----------------------------------------------------------------------------
     <S>                                                <C>                    <C>                 <C>                 <C>
     Cash                                                 230,403                230,403             142,983             142,983
     Short-term investments - local currency            1,078,790              1,078,790             993,064             993,064
     Short-term investments - foreign currency          1,301,768              1,302,726           1,179,089           1,002,421
     Trade accounts receivable                            487,705                487,705             415,212             415,212
     Loans and financing                                2,918,331              2,918,331           3,207,664           3,207,664
     Trade accounts payable                               377,849                377,849             250,400             250,400
</TABLE>

e)   Financial Indebtedness
     ----------------------
     Financial indebtedness comprises financial assets (cash, banks and
     short-term investments) and financial liabilities (loans), adjusted by the
     nominal values of currency exchange contracts (dollar x CDI) in the value
     of R$416,135 (R$284,147 at December 31, 2002) in the short-term and
     R$573,972 (R$528,133 at December 31, 2002) in the long-term, as shown
     below:

                                      F-34
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


16.  RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
                                                                        Consolidated
                              -----------------------------------------------------------------------------------------------------
                                                      2003                                                  2002
                              -----------------------------------------------------------------------------------------------------
                                                                        NET                                                 NET
                                  ASSETS          LIABILITIES         BALANCE           ASSETS          LIABILITIES       BALANCE
                              -----------------------------------------------------------------------------------------------------
      SHORT-TERM
      ----------
      <S>                       <C>                 <C>               <C>             <C>                 <C>             <C>
      Local currency             1,073,340           802,090           271,250         1,057,623           814,424         243,199
      Foreign currency           1,300,661           613,247           687,414           255,161         1,188,080        (932,919)
                              -----------------------------------------------------------------------------------------------------
                                 2,374,001         1,415,337           958,664         1,312,784         2,002,504        (689,720)
                              =====================================================================================================
      LONG-TERM
      ---------
      Local currency                97,141         1,097,243        (1,000,102)           67,321           816,603        (749,282)
      Foreign currency             139,819           405,751          (265,932)          935,031           388,557         546,474
                              -----------------------------------------------------------------------------------------------------
                                   236,960         1,502,994        (1,266,034)        1,002,352         1,205,160        (202,808)
                              -----------------------------------------------------------------------------------------------------
      NET DEBT                   2,610,961         2,918,331          (307,370)        2,315,136         3,207,664        (892,528)
                              =====================================================================================================
</TABLE>

17.  NON-OPERATING RESULTS

     The non-operating results are substantially represented by the decrease due
     to obsolescence and provisions for losses from fixed, deactivated assets.

18.  EMPLOYEES' AND EXECUTIVES PROFIT SHARING

     The Company grants its employees and executives sharing in profits
     (employees) and results (executives) connected to specific objectives that
     are established and agreed upon at the beginning of each year.

19.  INSURANCE (UNAUDITED)

     The Company and its subsidiaries have adopted a policy of maintaining
     insurance coverage at levels that the management considers adequate to
     cover any risks related to liability or damages involving their assets. Due
     to the characteristics of the operations carried out in multiple locations,
     the management takes out insurance for maximum possible loss in a single
     event, which covers fire, comprehensive general liability and miscellaneous
     risks (storms, lightning and floods). The Company also takes out insurance
     for the transportation of goods, personal injury and vehicles.

                                      F-35
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


20.  TRANSACTIONS WITH RELATED PARTIES

     Transactions with related parties are carried at normal market prices and
     conditions similar to those with third parties. Intercompany balances
     presented in the balance sheet as of December 31, 2003 and 2002 are set out
     below.
     <TABLE>
     <CAPTION>
                                                                         Balance Sheet Accounts
                                 ------------------------------------------------------------------------------------------------
                                          CURRENT               NONCURRENT                  CURRENT                NONCURRENT
     COMPANY                              ASSETS                  ASSETS                  LIABILITIES            LIABILITIES
                                 ------------------------------------------------------------------------------------------------
                                     2003        2002        2003          2002        2003        2002        2003        2002
                                 ------------------------------------------------------------------------------------------------
     <S>                           <C>        <C>          <C>           <C>       <C>         <C>
     Sadia International Ltd.       42,862     213,978      28,036        27,110    (13,001)    (23,036)           -           -
     Sadia Argentina S.A.                -       2,243           -             -           -           -           -           -
     Sadia Alimentos S.A.              276           -           -             -           -           -           -           -
     Sadia Uruguay S.A.                591       1,021           -             -           -           -           -           -
     Sadia Chile S.A.                1,241         611           -             -           -           -           -           -
     Laxness F. C. P. A. S.A.      495,978     125,584           -             -           -           -           -           -
     Concordia C.V.M.C.C.            1,710       2,716           -             -           -           -           -           -
     BRF Trading S.A.                    -          80           -             -           -           -           -           -
     Rezende Oleo Ltda.                  -           -           -             -           -           -       (685)       (823)
     Rezende Marketing Ltda.             -           -          51            50           -           -           -           -
                                 -----------------------------------------------------------------------------------------------
                                   542,658     346,233      28,087        27,160    (13,001)    (23,036)       (685)           -
                                 ===============================================================================================


                                                                  Statement of Income Accounts
                                 -----------------------------------------------------------------------------------------------
     COMPANY                              PURCHASE                          SALE                          FINANCIAL
                                 -----------------------------------------------------------------------------------------------
                                     2003         2002            2003              2002             2003            2002
                                 -----------------------------------------------------------------------------------------------
     Sadia International Ltd.        -             -             339,173           972,636         (1,340)         (1,495)
     Sadia Argentina S.A.            -             -               1,463             2,561               -               -
     Sadia Alimentos S.A.            -             -               3,158                 -               -               -
     Sadia Uruguay S.A.              -             -               3,588             2,924               -               -
     Sadia Chile S.A.                -             -               9,511            10,556               -               -
     Laxness F. C. P. A. S.A.        -             -           1,342,215           290,786               -               -
     Granja Rezende S.A.             -       (447,549)                 -            33,612               -               -
                                 -----------------------------------------------------------------------------------------------
                                     -       (447,549)         1,699,108         1,313,075         (1.340)         (1.495)
                                 ===============================================================================================
     </TABLE>


21.  PRIVATE PENSION PLAN

a)   Social security plan
     --------------------
     The Company and its subsidiary Concordia S.A. C.V.M.C.C. are the sponsors
     of a supplementary defined contribution social security plan for employees
     managed by the Attilio Francisco Xavier Fontana Foundation.

     The supplementary pension benefit is defined as the difference between (i)
     the benefit wage (updated average of the last 12 participation salaries,
     limited to 80% of the last participation salary) and (ii) the amount of the
     pension paid by the National Institute of Social Security. The
     supplementary benefit is updated on the same base date and in accordance
     with the rates applicable to the main activity category of the Company,
     discounting actual gains.

                                      F-36
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


21.  PRIVATE PENSION PLAN (Continued)

a)   Social security plan (Continued)
     --------------------

     The actuarial system is that of capitalization for supplementary retirement
     and pension benefits and of simple apportionment for supplementary
     disability compensation. The Company's contribution is based on a fixed
     percentage of the payroll of active participants, as annually recommended
     by independent actuaries and approved by the trustees of the Attilio
     Francisco Xavier Fontana Foundation.

     At December 31, 2003 and 2002, the parent company contributions totaled
     R$1,892 and R$1,642 respectively, and for the consolidated portion, R$1,908
     and R$1,741.

     According to the Foundation's statutes, the sponsoring companies are
     jointly liable for the obligations undertaken by the foundation on behalf
     of its participants and dependents. At December 31, 2003 the foundation had
     a total of 26,769 participants (31,456 in December 2002), of which 23,486
     were active participants (28,293 in December 2002).

     Information on the actuarial calculation of the social security plan is
     presented below:

                                                         12/31/03   12/31/02
                                                       ----------------------
     COMPOSITION OF NET ASSETS
        Present value of the actuarial liabilities        561,366    469,687
        Fair value of plan assets                       (756,642)  (545,770)
        Unrecognized actuarial (gains) / losses            74,870   (38,899)
                                                       ----------------------
        NET ACTUARIAL ASSETS                            (120,406)  (114,982)
                                                       ======================
     RECONCILIATION OF PRESENT LIABILITY VALUE
        Liability value at the beginning of year          469,687    390,377
        Gross current cost of services (with interest)     16,806     16,244
        Interest in actuarial liabilities                  51,855     43,135
        Benefits paid during the year                    (24,096)   (19,643)
        Liabilities - (Gains) / Losses                     47,114     39,574
                                                       ----------------------
     LIABILITY VALUE AT THE END OF YEAR                   561,366    469,687

     RECONCILIATION OF FAIR VALUE OF ASSETS
        Fair value of assets at the beginning of year     545,770    497,258
        Benefits paid during the year                    (24,096)   (19,643)
        Participant contributions during the year           5,955      5,089
        Sponsor contributions made during the year          2,071      1,887
        Asset earnings for the year                       226,942     61,179
                                                       ----------------------
      FAIR VALUE OF ASSETS AT THE END OF YEAR             756,642    545,770

     CALCULATION OF (GAINS) / LOSSES
        Value of losses at the beginning of year           38,899          -
        Losses in actuarial liabilities                    47,114     39,574
        Gains in plan assets                            (160,410)      (435)
        Gains in employee contributions                     (473)      (240)
                                                       ----------------------
     (GAINS) / LOSSES AT THE END OF YEAR                 (74,870)     38,899


                                      F-37
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


21.  PRIVATE PENSION PLAN (Continued)
                                                         12/31/03      12/31/02
                                                         ----------------------
     ACTUARIAL ASSUMPTIONS ADOPTED IN THE CALCULATION
        Nominal discount rate for actuarial liabilities    11.30%      11.30%
        Expected nominal earnings rate on assets           12.35%      12.35%
        Estimated nominal growth rate for salaries          7.10%       7.10%
        Expected nominal growth rate for benefits           5.00%       5.00%
        Biometric table of general mortality                       AT83
        Biometric table of disability leave                     TASA 1927
        Expected rotation rate                                    3% AA
        Probability of applying for retirement                   55 YEARS

b)   Defined contribution plan
     -------------------------

     As from January 1, 2003, the Company began to adopt a new supplementary
     social security plans under the defined contribution arrangement for all
     those employees hired by Sadia and its subsidiaries. Under the terms of the
     regulation, plans are funded on an equitable basis so that the portion paid
     by the Company is equal to the payment made by the employee in accordance
     with a contribution scale based on salary bands that vary between 1.5% and
     6% of the employee's remuneration, observing a contribution limit that is
     updated annually. The contributions made by the Company in 2003 totaled
     R$599.

c)   Actuarial asset reversal
     ------------------------

     With the object of increasing the visibility of Sponsor Company commitment
     to Social Security Funds, the Brazilian Securities Commission - CVM
     published Resolution N (degree) 371 on December 13, 2000. The Resolution
     requires the recording of employee benefits and is aimed principally at
     recognizing the actuarial liabilities resulting from these benefits.

     At December 31, 2001, the Company officially recognized the actuarial
     asset, as prescribed by Resolution N(degree) 371 and not applicable to the
     long-term, in compensation of shareholders' equity and without effecting
     the result for that year. The effect on shareholders' equity after taxes
     was an increase of R$ 70,541. This asset was recorded based on the prospect
     of its realization through the future reduction in Foundation
     contributions. During 2002 and 2003, the Company reduced its contributions
     to the Foundation to the minimum prescribed by legislation. However, the
     plan assets continued to have a high valuation, principally the portfolio
     shares, which have generated an even higher actuarial surplus and made the
     realization of the assets recorded in 2001 improbable.

                                      F-38
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


21.  PRIVATE PENSION PLAN (Continued)

c)   Actuarial asset reversal (continued)
     ------------------------

      In this way, Sadia decided to reverse the initial adjustment of the
      actuarial asset in the amount of R$70,541, net of income and social
      contribution taxes as an offset to shareholders' equity without affecting
      2003 results. With the support of the technical consultation performed by
      the CVM (process number RJ2003/12478), Management decided that the direct
      reversal in shareholders' equity instead of the annual results was the
      best way to correctly interpret the instruction and reflect the present
      operational situation of the Company without affecting its results and
      consequently its shareholders, who could have been affected in case of
      recording profits and losses, which would in turn reduce the results for
      the fiscal year.

d)   Employee Benefit Plan
     ---------------------

     In addition to the pension plan, the Company's human resources policy
     addresses the following benefits:

     o   Payment of the penalty in connection with the Government Severance
         Indemnity Fund for Employees upon retirement;
     o   Seniority bonus;
     o   Payment of indemnification for dismissal;
     o   Payment of indemnification for retirement.

     These benefits are due to a single payment upon the employee's retirement
     or dismissal, with the values resulting from the actuarial calculation. The
     amount accrued at December 31, 2003 reaches R$71,868 (R$63,142 at December
     31, 2002).


                                      F-39
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


22.  ADDITIONAL INFORMATION

     The statements of cash flow and added value are presented as additional
     information to the annual financial information.

     a)  Statement of Cash Flow

     The statement of cash flow was prepared by the indirect method based on
     accounting records in accordance with the instructions established in the
     NPC 20 of the Brazilian Institute of Independent Auditors - IBRACON.
<TABLE>
<CAPTION>
                                                                                   COMPANY                      CONSOLIDATED
                                                                     ---------------------------------------------------------------
                                                                            2003            2002            2003            2002
                                                                     ---------------------------------------------------------------
<S>                                                                    <C>                <C>          <C>             <C>
         NET INCOME FOR THE YEAR                                           452,491         236,126        446,763         234,092
         ADJUSTMENTS TO RECONCILED NET INCOME TO CASH GENERATED BY
         OPERATING ACTIVITIES:
           Variation in minority interest                                        -               -            349             337
           Accrued interest, net paid interest                             (11,677)        276,105         55,065         185,569
           Depreciation, amortization and depletion allowances             134,990         113,924        137,062         122,485
           Equity pickup                                                  (350,469)       (217,681)        64,292        (89,314)
           Deferred taxes                                                  (86,728)        (24,470)       (88,670)           2,978
           Contingencies                                                     8,988          15,053         10,740             484
           Permanent asset disposals                                        18,341           6,154         24,348           5,293
         VARIATION IN OPERATING ASSETS AND LIABILITIES:
           Trade notes receivable                                         (286,364)        (93,303)       (79,228)            200
           Inventories                                                     (21,821)       (348,007)       (43,198)       (215,729)
           Recoverable taxes, prepaid expenses and others                   77,901          28,710          7,473        (59,431)
           Assets for sale                                                  12,997        (22,396)         12,950               -
           Judicial deposits                                                (5,928)        (13,225)        (6,034)        (12,331)
           Trade accounts payable                                          123,021          20,853        127,449          74,648
           Advances from customers                                          (3,582)           (116)          (144)         (1,273)
           Taxes payable, salaries payable and others                      136,606          67,971        171,547          85,488
                                                                     ---------------------------------------------------------------
         NET CASH GENERATED BY OPERATING ACTIVITIES                        198,766          45,698        840,764         333,496
         INVESTMENT ACTIVITIES:
           Funds from the sale of permanent assets                           5,025           4,934          5,032           7,530
           Investments in subsidiaries                                      (3,036)        (15,505)             -               -
           Purchase of permanent and deferred assets                      (108,648)       (119,975)      (110,220)       (121,352)
           Short-term investments                                       (1,661,418)     (1,293,202)    (4,011,977)     (1,498,696)
           Investment redemption                                         1,612,495         587,120      3,496,783         773,391
                                                                     ---------------------------------------------------------------
         NET CASH FROM INVESTMENT ACTIVITIES                              (155,582)       (836,628)      (620,382)       (839,127)
         LOANS:
           Loans received                                                 1931,861       1,764,512      2,710,949       2,002,265
           Loans repaid                                                (1,920,413)        (796,566)    (2,748,559)     (1,325,787)
           Dividends paid                                                 (95,352)         (73,794)       (95,352)        (73,794)
                                                                     ---------------------------------------------------------------
         NET CASH FROM LOANS                                              (83,904)         894,152       (132,962)        602,684
         Cash at beginning of year                                        131,850           28,628        142,983          45,930
         Cash at end of year                                               91,130          131,850        230,403         142,983
                                                                     ---------------------------------------------------------------
         NET INCREASE (DECREASE) IN CASH                                  (40,720)         103,222         87,420          97,053
                                                                     ===============================================================
</TABLE>


                                      F-40
<PAGE>
                           SADIA S.A. AND SUBSIDIARIES

                    NOTES TO FINANCIAL STATEMENTS (Continued)
                           December 31, 2003 and 2002
                             (In thousands of reais)


22.  ADDITIONAL INFORMATION (Continued)

     b)  Statement of Consolidated Added Value

         The added-value statement presents generation and distribution of
         revenues as presented in the statement of income for the period. Said
         revenues were basically distributed among human resources, third-party
         capital, government and shareholders.

         The added-value statement was prepared based on the model provided by
         the Institute for Accounting, Actuarial and Financial Research of the
         University of Sao Paulo.

                                                             Consolidated
                                                    ---------------------------
                                                         2003             2002
                                                    ---------------------------
          Revenues/Income                             6,038,271      5,252,017
          ---------------
                                                    ---------------------------
          - Revenues generated by operations          5,828,599      4,638,559
          . Sale of products, goods and services      5,828,599      4,638,559
          - Income from third parties                   209,672        613,458
                                                    ---------------------------
          . Other operating results                    (39,985)       (23,827)
          . Financial income                            333,753        547,469
          . Equity pickup                              (64,292)         89,314
          . Other nonoperating results                 (19,804)            502
          Raw materials from third parties          (2,902,888)    (2,230,186)
          Services rendered by third parties        (1,053,651)      (976,235)
                                                    ---------------------------
          Added value to be distributed               2,081,732      2,045,596
          Distribution of added value                 2,081,732      2,045,596
                                                    ---------------------------
          - Human resources                             780,441        545,510
          - Interest on third-party capital             156,165        703,148
          - Government                                  556,619        415,743
                                                    ---------------------------
          . ICMS                                        396,657        308,395
          . PIS/COFINS                                  139,728         91,160
          . Income and social contribution taxes       (11,916)       (13,049)
          . CPMF and others                              32,150         29,237
          - Shareholders (Dividends)                    150,454         76,667
          - Retention                                   438,053        304,528
                                                    ---------------------------
          . Depreciation/Amortization/Depletion         137,062        122,485
          . Retained profits                            295,961        157,087
          . Others                                        5,030         24,956

                                      F-41
<PAGE>

<TABLE>
<CAPTION>

     BOARD OF DIRECTORS
       <S>                                        <C>
       Romano Ancelmo Fontana Filho               Chairman
       Attilio Fontana Neto                       Member
       Osorio Henrique Furlan                     Member
       Ottoni Romano Fontana Filho                Member
       Sergio Fontana dos Reis                    Member
       Marise Pereira Fontana Cipriani            Member
       Karlos Heinz Rischbieter                   Member
       Alcides Lopes Tapias                       Member
       Vicente Falconi Campos                     Member
       Roberto Faldini                            Member
       Victor Bayard de Maura Fontana             Member

     OFFICERS
      Walter Fontana Filho                       Chief Executive Officer
      Eduardo Fontana D'Avila                    Industrial Director
      Gilberto Tomazoni                             Marketing and Sales Director
      Luiz Gonzaga Murat Junior                  Chief Financial Officer and Investor Relations Director
      Flavio Riffel Schmidt                      Information Technology Director
      Alfredo Felipe da Luz Sobrinho             Institutional and Legal Relations Director
      Adilson Serrano Silva                      Human Resources Director
      Antonio Paulo Lazzaretti                   Development of Processes and Products Director
      Artemio Fronza                             Grain and Fodder Purchase Director
      Flavio Luis Favero                         Industrialized Production Director
      Gilberto Meirelles Xando Baptista          Marketing Director
      Guilhermo Henderson Larrobla               International Sales Director - Middle East
      Paulo Francisco Alexandre Striker          Logistics Director
      Roberto Banfi                              International Sales Director
      Ronaldo Korbag Muller                      Poultry Production Director
      Valmor Savoldi                             Supply Director
      Claudio Lemos Pinheiro                     Jairo Aldir Wurlitzer               Giovanni F. Lipari
      Corporate Controllership Manager           Accounting Manager                  Accountant
                                                 CRC/SC 13.937                       CRC 1SP201389/0-7


</TABLE>

                                      F-42