**As
      filed with the Securities and Exchange Commission on June 29,
      2007**





**SECURITIES
      AND EXCHANGE COMMISSION**




**Washington,
      D.C. 20549**




**FORM
      20-F**




o
            **REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT
                OF 1934**




**OR**




o
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the fiscal year ended December 31, 2006**




**OR**




o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the transition period from ____________ to ___________**




o
            **SHELL
                COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
                ACT OF 1934**


**Commission
      File Number: 333-7480**




**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V.**


**(Exact
      name of Registrant as specified in its charter)**





**Bachoco
      Industries**


**(Translation
      of Registrant’s name into English)**





**The
                United Mexican States**
              **(Jurisdiction
                of incorporation**
              **or
                organization)**




**Avenida
      Tecnológico No. 401**


**Ciudad
      Industrial C.P. 38010**


**Celaya,
      Guanajuato, México**


**(Address
      of principal executive offices)**





**Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act:**




**Title
                of each class**
            
            **Name
                of each exchange on which registered**American
                Depositary Shares, each representing twelve Series B
                Shares.
            
            New
                York Stock Exchange





**Securities
      registered or to be 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




Indicate
      the number of outstanding Shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual
      report:




Series
      B
      Capital Stock:  600,000,000
      Shares





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes o No
x




If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934.


Yes x  No
o





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 for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days:


Yes x  No
o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
                accelerated filer o
            Accelerated
                filer x
            Non-accelerated
                filer****o





Indicate
      by check mark which financial statement item the registrant has elected to
      follow:


Item
      17
o  Item
      18 x




If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).


Yes o  No
x












**TABLE
      OF CONTENTS**


**Page****PART
                  I**ITEM
                  1.
              
              IDENTITYOFDIRECTORS,
                  SENIORMANAGEMENTANDADVISERS
              1ITEM
                  2.
              
              OFFERSTATISTICSANDEXPECTEDTIMETABLE
              1ITEM
                  3.
              
              KEYINFORMATION
              1ITEM
                  4.
              
              INFORMATIONONTHECOMPANY
              10ITEM
                  5.
              
              OPERATINGANDFINANCIALREVIEWANDPROSPECTS
              25ITEM
                  6.
              
              DIRECTORS,
                    SENIORMANAGEMENTANDEMPLOYEES
              39ITEM
                  7.
              
              MAJORSTOCKHOLDERSANDRELATEDPARTYTRANSACTIONS
              46ITEM
                  8.
              
              FINANCIALINFORMATION
              48ITEM
                  9.
              
              THEOFFERANDLISTING
              51ITEM
                  10.
              
              ADDITIONALINFORMATION
              54ITEM
                  11.
              
              QUANTITATIVEANDQUALITATIVEDISCLOSURESABOUTMARKETRISK
              69ITEM
                  12.
              
              DESCRIPTIONOFSECURITIESOTHERTHANEQUITYSECURITIES
              71**PART
                  II**ITEM
                  13.
              
              DEFAULT,
                    DIVIDENDARREARAGESANDDELINQUENCIES
              71ITEM
                  14.
              
              MATERIALMODIFICATIONSTOTHERIGHTSOFSECURITYHOLDERSANDUSEOFPROCEEDS
              71ITEM
                  15.
              
              CONTROLSANDPROCEDURES
              71ITEM
                  16.
              
              [RESERVED]
              72ITEM
                  16A.
              
              AUDITCOMMITTEEFINANCIALEXPERT
              72ITEM
                  16B.
              
              CODEOFETHICS
              72ITEM
                  16C.
              
              PRINCIPALACCOUNTANTFEESANDSERVICES
              72ITEM
                  16D.
              
              EXEMPTIONSFROMTHELISTINGSTANDARDSFORAUDITCOMMITTEES
              73ITEM
                  16E.
              
              PURCHASESOFEQUITYSECURITIESBYTHEISSUERANDAFFILIATEDPURCHASERS
              73**PART
                  III**ITEM
                  17.
              
              FINANCIALSTATEMENTS
              73ITEM
                  18.
              
              FINANCIALSTATEMENTS
              73ITEM
                  19.
              
              EXHIBITS
              74




i


Industrias
      Bachoco, S.A.B. de C.V. is a holding company with no operations other than
      holding the stock of its subsidiaries. On April 2, 2007, we changed our name
      from Industrias Bachoco S.A. de C.V. to Industrias Bachoco, S.A.B. de C.V.
      by
      operation of law and amended article one of our bylaws. Its principal operating
      subsidiary is Bachoco, S.A. de C.V. (“BSACV”), which owns the principal
      operating assets of Industrias Bachoco, S.A.B. de C.V.  and
      accounted for 93.4% of consolidated total assets on December 31, 2006.
      References herein to “Bachoco,” “we,” “us,” “our,” “its” or the “Company” are,
      unless the context requires otherwise, to Industrias Bachoco, S.A.B. de C.V.
      and
      its consolidated subsidiaries as a whole.




We
      are
      incorporated under the laws of the United Mexican States (México), and all of
      our operations are in México. Our principal executive offices are located at
      Avenida Tecnológico No. 401, Ciudad Industrial C.P. 38010, Celaya, Guanajuato,
      México, and our telephone number is (011) (52) (461) 618-3555.




**Presentation
      of Information**




We
      publish our financial statements in Mexican pesos and present our financial
      statements in accordance with generally accepted accounting principles in México
      (“Mexican GAAP”). Mexican GAAP requires restatement of all financial statements
      to constant pesos as of the date of the most recent balance sheet presented.
      Except as otherwise indicated, all data in both the financial statements
      included below in Item 18 (which together with the attached notes
      constitute the “Consolidated Financial Statements”) and the selected financial
      information included throughout this Form 20-F (this “Annual Report”) have
      been restated in constant pesos as of December 31, 2006.




Mexican
      GAAP differs in certain respects from generally accepted accounting principles
      in the United States (“U.S. GAAP”). For a discussion of certain significant
      differences between Mexican GAAP and U.S. GAAP as they relate to us, together
      with a reconciliation of operating income, net income and total stockholders’
equity to U.S. GAAP, and a condensed statement of cash flows under U.S. GAAP,
      see Note 17 to the Consolidated Financial Statements. The effect of price-level
      restatement under Mexican GAAP has not been reversed in the reconciliation
      to
      U.S. GAAP. See Note 17 to the Consolidated Financial Statements.




References
      herein to “U.S. dollars,” “U.S.$” or “$” are to the lawful currency of the
      United States. References herein to “pesos” or “Ps.” are to the lawful currency
      of México. This Annual Report contains translations of certain peso amounts into
      U.S. dollars at specified rates solely for the convenience of the reader. Unless
      otherwise indicated, such U.S. dollar amounts have been translated from pesos
      at
      an exchange rate of Ps.10.7995 to U.S.$1.00, the exchange rate on December
      29,
      2006.




As
      used
      herein, the term “tonnes” refers to metric tons of 1,000 kilograms (equal to
      2,204.6 pounds) and the term “billion” refers to one thousand million
      (1,000,000,000). One square meter is equivalent to 10.764 square
      feet.




ii


**Market
      Data**




This
      Annual Report contains certain statistical information regarding the Mexican
      chicken, beef, egg, balanced feed (or “feed”) and swine markets and our market
      share. We have obtained this information from a variety of sources, including
      the producers’ associations *Unión
      Nacional de Avicultores* (“UNA”), *Consejo
      Nacional Agropecuario* (“CNA”); *Consejo
      Mexicano de Porcicultura* (“CMP”),
      as well as *Banco
      de México* (“Mexican
      Central Bank”), *Secretaría
      de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentos* (“Ministry
      of Agriculture, Livestock, Rural Development, Fishing and Food” or “SAGARPA”)
      and publications of the U.S. Department of Agriculture (“USDA”). The producers’
associations rely principally on data provided by their members. Information
      for
      which no source is cited was prepared by us on the basis of our knowledge of
      the
      Mexican chicken, egg, feed and  swine
      markets and the wide variety of information available regarding these markets.
      The methodology and terminology used by different sources are not always
      consistent, and data from different sources are not readily
      comparable.




**Forward-Looking
      Statements**




We
      may
      from time to time make written or oral forward-looking statements in our
      periodic reports to the Securities and Exchange Commission on Forms 20-F and
      6-K, in our annual report to stockholders, in offering circulars and
      prospectuses, in press releases and other written materials and in oral
      statements made by one of our officers, directors or employees to analysts,
      institutional investors, representatives of the media and others.




Examples
      of such forward-looking statements include, but are not limited to: (i)
      projections of revenues, income (or loss), earnings (or loss) per Share, capital
      expenditures, dividends, capital structure or other financial items or ratios;
      (ii) statements of our plans, objectives or goals or those of our management,
      including those relating to new contracts; (iii) statements about future
      economic performance; and (iv) statements of assumptions underlying such
      statements. Words such as “believe,” “anticipate,” “plan,” “expect,” “intend,”
“target,” “estimate,” “project,” “predict,” “forecast,” “guideline,” “should”
and similar expressions are intended to identify forward-looking statements
      but
      are not the exclusive means of identifying such statements.




Forward-looking
      statements involve inherent risks and uncertainties, and a number of unexpected
      changes could cause actual results to deviate from our plans, objectives,
      expectations, estimates and intentions. We recognize that the accuracy of our
      predictions and our ability to follow through on our intentions depend on
      factors beyond our control. The potential risks are many and varied, but include
      unexpected changes in:




·
            economic,
                weather and political conditions;




·
            raw
                material prices;




·
            competitive
                conditions; and




·
            demand
                for chicken, eggs, feed and swine.




iii


**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**




**Selected
      Financial Data**




The
      information set forth below is derived from Bachoco’s Consolidated Financial
      Statements, which are included in Item 18. In this disclosure, we explain
      the figures and year-to-year changes in our Consolidated Financial
      Statements.




In
      preparing the Consolidated Financial Statements, we followed Mexican GAAP,
      which
      differs in certain respects from U.S. GAAP. Note 17 to the Consolidated
      Financial Statements provides a description of the main differences between
      Mexican GAAP and U.S. GAAP as they relate to us; a reconciliation to U.S. GAAP
      of total stockholders’ equity, net income and operating income, and a condensed
      statement of cash flows under U.S. GAAP as of December 31, 2005 and 2006 and
      for
      the years ended December 31, 2004, 2005 and 2006. Our financial statements
      were
      prepared pursuant to Bulletin B-10, as amended, and Bulletin B-12, issued by
      the
      Mexican Institute of Public Accountants, which became effective on January
      1,
      1990.




Bulletin
      B-10 is designed to account for the effects of inflation on financial
      disclosures by requiring us to:




·
            restate
                non-monetary assets at current replacement cost or by using the Mexican
                National Consumer Price Index (“NCPI”), except for the biological assets
                (see Note 4 of the Financial
                Statement);




·
            restate
                non-monetary liabilities using the
                NCPI;




·
            restate
                the components of stockholders’ equity using the NCPI;
                and




·
            record
                gains or losses in purchasing power that result from the monetary
                liabilities or assets that we hold.




Bulletin
      B-10 also requires restatement of all financial statements in constant pesos
      as
      of the date of the most recent balance sheet presented. Except as otherwise
      indicated, we have restated all financial information taken from the financial
      statements or derived from them, as explained below, in constant pesos as of
      December 31, 2006. Bulletin B-12 requires that the statement of changes in
      financial position reconcile the differences between the restated historical
      balance sheet and the current balance sheet. The effects of price-level
      restatement under Mexican GAAP have not been reversed in the reconciliation
      to
      U.S. GAAP. See Note 17 to the Consolidated Financial Statements.




1




**As
                of and for the year ended December 31,****2002**
            
            
            **2003**
            
            
            **2004**
            
            
            **2005**
            
            
            **2006**
            
            
            **2006(2)****(millions
                of constant pesos as of December 31, 2006)(1)**
            
            
            **(millions
                of U.S. dollars)**Income
                Statement Data**Mexican
                GAAP:**Net
                revenues
            
            Ps.
            12,180.5
            
            Ps.
            12,159.5
            
            Ps.
            14,299.2
            
            Ps.
            15,051.9
            
            Ps.
            14,987.6
            
            
            1,387.8Cost
                of sales
            
            
            9,035.5
            
            
            9,891.6
            
            
            11,596.5
            
            
            10,827.2
            
            
            11,616.3
            
            
            1,075.6Gross
                profit
            
            
            3,145.0
            
            
            2,267.9
            
            
            2,702.7
            
            
            4,224.7
            
            
            3,371.3
            
            
            312.2Operating
                income
            
            
            1,460.5
            
            
            488.8
            
            
            917.9
            
            
            2,291.9
            
            
            1,374.7
            
            
            127.3Comprehensive
                financing income (loss)
            
            
            16.9
            
            
            141.5
            
            
            (
                76.9
            )
            
            (
                71.3
            )
            
            59.2
            
            
            5.5Majority
                net income
            
            
            1,741.0
            
            
            610.2
            
            
            759.7
            
            
            1,839.3
            
            
            873.4
            
            
            80.9Majority
                net income per Share(3)
            
            
            2.90
            
            
            1.02
            
            
            1.27
            
            
            3.07
            
            
            1.46
            
            
            0.13Majority
                net income per ADS(4)
            
            
            34.82
            
            
            12.20
            
            
            15.19
            
            
            36.79
            
            
            17.47
            
            
            1.62Dividends
                per Share(5)
            
            
            0.55
            
            
            0.58
            
            
            0.44
            
            
            0.42
            
            
            0.59
            
            
            0.05Weighted
                average Shares outstanding (thousands)
            
            
            595,796
            
            
            598,738
            
            
            599,260
            
            
            599,694
            
            
            599,571
            
            
            599,571**U.S.
                GAAP:**Net
                revenues
            
            Ps.
            12,180.5
            
            Ps.
            12,183.8
            
            Ps.
            14,322.0
            
            Ps.
            15,024.8
            
            Ps.
            14,977.1
            
            
            1,386.8Cost
                of sales
            
            
            9,035.5
            
            
            9,891.6
            
            
            11,596.5
            
            
            10,827.2
            
            
            11,616.3
            
            
            1,075.6Gross
                profit
            
            
            3,144.9
            
            
            2,292.2
            
            
            2,725.5
            
            
            4,197.6
            
            
            3,360.8
            
            
            311.2Operating
                income
            
            
            1,476.0
            
            
            528.2
            
            
            953.9
            
            
            2,258.7
            
            
            1,336.8
            
            
            123.8Comprehensive
                financing income (loss)
            
            
            12.9
            
            
            131.6
            
            
            (
                68.3
            )
            
            (
                59.4
            )
            
            67.6
            
            
            6.3Majority
                net income
            
            Ps.
            1,761.2
            
            Ps.
            569.0
            
            Ps.
            796.0
            
            Ps.
            1,824.7
            
            Ps.
            863.1
            
            
            79.9Majority
                net income per Share(3)
            
            
            2.94
            
            
            0.95
            
            
            1.33
            
            
            3.0
            
            
            5.8
            
            
            0.5Majority
                net income per ADS(4)
            
            
            35.22
            
            
            11.38
            
            
            15.92
            
            
            36.5
            
            
            35.0
            
            
            3.2Dividends
                per Share(5)
            
            
            0.55
            
            
            0.58
            
            
            0.44
            
            
            0.42
            
            
            0.59
            
            
            0.05**Statement
                of Financial Position Data****Mexican
                GAAP:**Cash
                and cash equivalents
            
            Ps.
            1,994.5
            
            Ps.
            1,774.8
            
            Ps.
            2,513.9
            
            Ps.
            3,296.0
            
            Ps.
            3,454.1
            
            
            319.8Total
                assets
            
            
            13,599.4
            
            
            14,029.7
            
            
            14,531.8
            
            
            15,392.0
            
            
            16,923.1
            
            
            1,567.0Short-term
                debt(6)
            
            
            138.4
            
            
            65.7
            
            
            107.2
            
            
            96.4
            
            
            9.4
            
            
            0.9Long-term
                debt
            
            
            86.2
            
            
            105.0
            
            
            78.0
            
            
            54.0
            
            
            34.2
            
            
            3.2Stockholders’
                equity
            
            
            11,141.1
            
            
            11,377.5
            
            
            11,693.1
            
            
            13,013.5
            
            
            13,592.0
            
            
            1,258.6**U.S.
                GAAP:**Cash
                and cash equivalents
            
            Ps.
            1,994.5
            
            Ps.
            1,774.8
            
            Ps.
            2,513.9
            
            Ps.
            3,296.0
            
            Ps.
            3,454.1
            
            
            319.8Total
                assets
            
            Ps.
            13,657.5
            
            Ps.
            14,048.3
            
            Ps.
            14,531.8
            
            Ps.
            15,980.5
            
            Ps.
            16,945.2
            
            
            1,569.1Short-term
                debt(6)
            
            
            138.4
            
            
            65.7
            
            
            107.2
            
            
            96.4
            
            
            9.4
            
            
            0.9Long-term
                debt
            
            
            86.2
            
            
            105.0
            
            
            78.0
            
            
            54.0
            
            
            34.2
            
            
            3.2Stockholders’
                equity
            
            
            11,144.6
            
            
            11,346.2
            
            
            11,704.7
            
            
            13,010.0
            
            
            13,544.1
            
            
            1,254.1**Selected
                Operating Data**Sales
                volume (thousands of tonnes):Chicken
            
            
            665.4
            
            
            655.4
            
            
            733.0
            
            
            773.0
            
            
            773.7Eggs
            
            
            131.7
            
            
            132.1
            
            
            138.1
            
            
            140.6
            
            
            143.4Swine
            
            
            9.0
            
            
            8.5
            
            
            9.1
            
            
            9.6
            
            
            8.9Balanced
                Feed
            
            
            324.7
            
            
            316.2
            
            
            320.7
            
            
            389.6
            
            
            484.4Gross
                margin (%)
            
            
            25.8
            %
            
            18.7
            %
            
            18.9
            %
            
            28.1
            %
            
            22.5
            %Operating
                margin (%)
            
            
            12.0
            %
            
            4.0
            %
            
            6.4
            %
            
            15.2
            %
            
            9.2
            %Net
                margin (%)
            
            
            14.3
            %
            
            5.0
            %
            
            5.3
            %
            
            12.2
            %
            
            5.8
            %Total
                employees
            
            
            18,306
            
            
            18,495
            
            
            18,896
            
            
            20,432
            
            
            21,035





(1)
            Except
                per share and per ADS amounts and operating
                data.




(2)
            Peso
                amounts have been translated into U.S. dollars, solely for the convenience
                of the reader, at the rate of Ps.10.7995 per U.S.
                dollar.




(3)
            Net
                income per share has been computed based on the weighted average
                number of
                common Shares outstanding.




(4)
            Net
                income per ADS has been computed by multiplying net income per share
                by
                twelve, to reflect the ratio of twelve Shares per
                ADS.




(5)
            Dividends
                per share have been computed by dividing the total amount of dividends
                paid (in constant pesos as of December 31, 2006) by the weighted
                average
                Shares outstanding.




(6)
            Includes
                notes payable to banks and current portion of long term
                debt.




2


**Exchange
      Rates**




The
      Mexican peso remained stable during the first four months of 2002. Its
      volatility increased, however, during the rest of the year. Growth in the
      Mexican economy was sluggish in 2002 and the beginning of 2003, and the peso
      depreciated by 12.2% against the U.S. dollar between December 31, 2001 and
      December 31, 2002.




The
      Mexican peso showed high levels of volatility during the first four months
      of
      2003; it appreciated and remained stable during the middle of the year and
      in
      the last four months of the year the Mexican peso increased in its volatility.
      Overall, the peso declined in 2003.




In
      2004,
      the Mexican peso showed volatility for the first four months of the year with
      a
      general trend to depreciate with respect to the U.S. dollar. In the following
      months, the Mexican peso fluctuated around the same exchange rate level before
      finishing the year stronger against the dollar as compared to the exchange
      rate
      at the end of 2003.




During
      2005, the Mexican peso continued showing volatility mainly at the beginning
      and
      at the end of the year, with a general trend to appreciate with respect to
      the
      U.S. dollar. At the end of 2005, the Mexican peso finished stronger against
      the
      U.S. dollar.




During
      2006, the Mexican economy showed signs of stability with an annual inflation
      rate of 4.1%. After showing volatility during the first part of the year, the
      Mexican peso showed a reasonably stable peso-dollar exchange rate with a final
      depreciation of 1.6%, compared with the exchange rate at the end of
      2005.




The
      following table sets forth for the periods indicated the high, low, average
      and
      year-end exchange rates for the purchase and sale of U.S. dollars (presented
      in
      each case as the average between such purchase and sale rates):




**Exchange
                Rate****(1)**
              **(in
                current pesos per U.S. dollar)****Year
                Ended December 31,**
            
            **High**
            
            **Low**
            
            **Average****(2)**
            
            **Year
                End**2002
            
            
            10.43
            
            
            9.00
            
            
            9.66
            
            
            10.432003
            
            
            11.41
            
            
            10.11
            
            
            10.79
            
            
            11.242004
            
            
            11.64
            
            
            10.81
            
            
            11.29
            
            
            11.152005
            
            
            11.41
            
            
            10.41
            
            
            10.89
            
            
            10.632006
            
            
            11.46
            
            
            10.43
            
            
            10.91
            
            
            10.80





(1)
            The
                exchange rates are the noon buying rates in New York City for cable
                transfers in pesos as certified for customs purposes by the Federal
                Reserve Bank of New York (the “noon buying
                rate”).




(2)
            Average
                of month-end rates for each period
                shown.





**Exchange
                Rate****(1)******
              **(in
                current pesos per U.S. dollar)****Period**
            
            **High**
            
            **Low**December
                2006
            
            
            10.99
            
            
            10.77January
                2007
            
            
            11.09
            
            
            10.77February
                2007
            
            
            11.16
            
            
            10.92March
                2007
            
            
            11.18
            
            
            11.01April
                2007
            
            
            11.03
            
            
            10.92May
                2007
            
            
            10.93
            
            
            10.74





(1)
            The
                exchange rates are the noon buying rates in New York City for cable
                transfers in pesos as certified for customs purposes by the Federal
                Reserve Bank of New York.





On
      June
      27, 2007, the exchange rate for cable transfers in pesos as certified for
      customs purposes by the Federal Reserve Bank of New York was Ps.10.867 per
      $1.00
      US dollar.




3





**Risk
      Factors**




***Risks
      Relating to México, Other Emerging Market Countries and the U.S.
      Economy***




*México
      has experienced adverse economic conditions*




·
            In
                2002,*México’s
                gross domestic product, or GDP, increased by 0.9% and the inflation
                rate
                was 5.7%.*




·
            In
                2003, GDP increased by 1.3% and the inflation rate was 3.98%.




·
            In
                2004, México’s GDP increased by 4.4% and the inflation rate was 5.19%.




·
            In
                2005, México’s GDP improved and increased by 3.0%, and the inflation rate
                was 3.33%, lower than expected.




·
            In
                2006, GDP increased by 4.8% while the inflation rate was
                4.05%.




Should
      the Mexican economy fall into a recession or if inflation and interest rates
      increase significantly, consumers may find it difficult to pay for the products
      we offer. This and other effects of recession or increased inflation and
      interest rates could have adverse consequences on our business, financial
      condition and results of operations.




*Depreciation
      or fluctuation of the peso relative to the U.S. dollar could adversely affect
      our financial condition and results of operations*




The
      single largest component of our cost of sales, our feed, is comprised partially
      of ingredients we purchase in the United States, where prices are denominated
      in
      U.S. dollars. In addition, the prices of ingredients we purchase in México may
      be influenced by U.S. commodity markets. Therefore, should the peso fall
      relative to the U.S. dollar, both the cost of our operations and our debt
      payments would increase. Any future depreciation or devaluation of the peso
      may
      result in further net foreign exchange losses.




·
            In
                2003, the peso depreciated against the U.S. dollar by 7.3%****at
                year-end, and the average value of the peso against the U.S. dollar
                during
                2003 was 10.5% lower than in 2002.




·
            In
                2004, the Mexican peso appreciated with respect to the U.S. dollar
                by 0.8%
                at year end, whereas the average value of the Mexican peso against
                the
                U.S. dollar was 4.4% lower, since the peso appreciated at the end
                of the
                year.




·
            In
                2005, the Mexican peso appreciated with respect to the U.S. dollar
                by 4.9%
                at the end of the year and also the average value of the Mexican
                peso was
                3.6% higher.




·
            In
                2006, the Mexican peso was reasonably stable in its peso-dollar exchange
                rate with a final depreciation of 1.6%, compared to the end of 2005.
                The
                average value of the Mexican peso was 0.10% lower than the average
                of
                2005.




Severe
      devaluation or depreciation of the peso may also result in disruption of the
      international foreign exchange markets and may limit our ability to transfer
      or
      to convert pesos into U.S. dollars for the purpose of making timely payments
      of
      interest and principal on our indebtedness. While the Mexican government does
      not currently restrict, and for many years has not restricted, the right or
      ability of Mexican or foreign persons or entities to convert pesos into U.S.
      dollars or to transfer other currencies out of México, the government could
      institute restrictive exchange rate policies in the future. Currency
      fluctuations will probably continue to affect our revenues and
      expenses.




4




Furthermore,
      fluctuations in the exchange rate between the peso and the U.S. dollar will
      also
      affect the U.S. dollar equivalent of the peso price of our Shares (the “Shares”
or “Series B Shares”) in the Mexican Stock Exchange and the price of American
      Depository Shares (“ADSs”) on the New York Stock Exchange. Because we pay cash
      dividends in pesos, exchange rate fluctuations will affect the U.S. dollar
      amounts received by holders of American Depository Receipts (“ADRs”) upon
      conversion of such cash dividends by the Depositary.




*High
      levels of inflation and high interest rates in México could adversely affect our
      financial condition and results of operations*




México
      has experienced high levels of inflation and high domestic interest rates in
      the
      past. The annual rate of inflation, as measured by changes in the National
      Consumer Price Index was 5.7% in 2002, 3.98% in 2003, 5.19% in 2004, 3.33%
      in
      2005 and 4.05% in 2006. Inflation for the first four months of 2006 was 0.96%
      according to the Mexican Central Bank.




According
      to Banamex, the average interest rates on 28-day Mexican treasury bills, or *Cetes* ,
      was
      6.23%, 6.82%, 9.20% and 7.19% during 2003, 2004, 2005 and 2006 respectively.
      On
      May 21, 2007, the 28-day *Cetes* rate was
      7.23%. High interest rates in México could adversely affect our costs. Our
      earnings may also be affected by changes in interest rates due to the impact
      those changes have on our variable-rate debt instruments and beneficed by the
      interest we earn in our cash balance.




*Political
      events in México could affect Mexican economic policy and our
      operations*




In
      July
      2006, we had presidential election, where Felipe Calderón was elected as the new
      President of México. President Calderón’s election initially met resistance from
      members of the political opposition in the form of legal challenges and
      protests. These protests could return as President Calderón seeks to enact his
      legislative agenda. We cannot predict the impact that future protests may have
      on the Mexican government or on business conditions in México. Although
      President Calderón’s party, the *Parido
      Accíon Nacional* ,
      or PAN,
      obtained a plurality of the seats in the Mexican Congress after the election,
      no
      party succeeded in securing a majority in either chamber of the Mexican
      Congress. The absence of a clear majority by a single party and the lack of
      alignment between the president-elect and the legislature are likely to continue
      until the next Congressional election in 2009. This situation may result in
      government gridlock and political uncertainty, which could have an adverse
      effect on our business, financial position and results of operations. We cannot
      provide any assurance that future political developments in México, over which
      we have no control, will not have an adverse effect on our financial position
      or
      results of operations.




*Developments
      in other emerging market* ****** *countries
      may adversely affect our business or the market price of our
      securities*




The
      market value of securities of Mexican companies is, to varying degrees, affected
      by economic and market conditions in other emerging market countries. Although
      economic conditions in such countries may differ significantly from economic
      conditions in México, investors’ reactions to developments in any of these other
      countries may have an adverse effect on the market value of securities of
      Mexican issuers. We cannot assure you that the market value of our securities
      will not be adversely affected by events elsewhere, especially in emerging
      markets.




5




*Developments
      in the U.S. economy may adversely affect our business*




Economic
      conditions in México are heavily influenced by the condition of the U.S. economy
      due to various factors, including commercial trade pursuant to the North
      American Free Trade Agreement (“NAFTA”), U.S. investment in México and
      emigration from México to the United States. Events and conditions affecting the
      U.S. economy may adversely affect our business, results of operations, prospects
      and financial condition.




***Risks
      Relating to our Organization***




*The
      chicken industry is characterized by long-term price declines and cyclical
      periods*




The
      Mexican chicken industry, like the chicken industry in other countries, has
      been
      characterized by a long-term decline in prices in real terms. The industry
      has
      undergone cyclical periods of higher prices and profitability, followed by
      overproduction, leading to periods of lower prices and
      profitability.  Real
      prices for eggs and swine in México have also declined over the long term and
      have varied cyclically. The market that we serve is subject to volatility with
      respect to supply, which affects prices. We cannot assure you that future
      cyclicality, excess supply and downturns in real prices will not adversely
      affect our results.




*The
      price of feed ingredients is subject to significant volatility*




The
      largest single component of our cost of sales is the cost of ingredients used
      to
      prepare feed, including sorghum, soybean meal, corn, fish meal, meat meal and,
      for certain chicken products, marigold extract. The price of most of our feed
      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. Given the long-term
      declining trends in real chicken prices, we may experience difficulty or delays
      in passing any increase in grain costs to customers. Accordingly, increases
      in
      the prices of the main ingredients used in the preparation of feed may have
      a
      material adverse effect on our margins and results of operations. Since we
      purchase many feed ingredients in U.S. dollars, from time to time we may acquire
      financial instruments to protect us against exchange rate fluctuations that
      may
      affect future purchases of feed ingredients.




*Our
      operations depend on raising animals and meat processing, which are subject
      to
      risks such as disease, contamination and adverse weather
      conditions*




Our
      operations involve raising animals and are subject to a variety of risks,
      including disease, contamination and adverse weather conditions. Chickens,
      in
      particular, are susceptible to infections by a variety of microbiological
      agents. Since 1983, the avian influenza virus (“AIV”) has been widespread in the
      United States and in México. During 2003, AIV was widespread in Asian countries
      and the United States. México, to avoid having the disease spread from the
      United States, imposed certain restrictions on the importation of chicken from
      affected U.S. states. The AIV was still present in Asian countries and the
      United States. At the present México has been eliminating some restrictions on
      the importation of chicken from certain U.S. states as the sanitary conditions
      in those states improve. In 2004 and 2005, AIV was still present in Asian
      countries and the United States. During 2004 and 2005, México has been
      eliminating some restrictions on the importation of chicken from certain U.S.
      states as the sanitary conditions in those states improve. In October 2005,
      México lifted importation restrictions on all U.S. states, except for 11
      counties in the state of Texas.




In
      the
      past we have experienced limited outbreaks of various diseases that have
      resulted in higher mortality rates.




6




During
      2005, there was an ample diffusion on the media worldwide of the widespread
      of a
      particular strain of AIV (H5N1), mainly in Asia and some European countries,
      which affected consumption of chicken in those countries. At the present time,
      this strain has not been found in the United States or in Latin
      America.




Meat
      and
      eggs are subject to contamination during processing and distribution. We do
      not
      believe that contamination of individual shipments during distribution would
      have a material adverse effect on our operations. Contamination during
      processing, however, could affect a larger number of our poultry products and
      therefore could have a more significant impact on operations.




In
      2002,
      we experienced a loss of chickens at our Peninsula Complex due to the effects
      of
      Hurricane Isidore. Future hurricanes or other adverse weather conditions could
      result in additional losses of inventory and damage to our plants and equipment.
      Our facilities near México’s coast are most vulnerable to the risk of severe
      weather




*The
      use of nutritional supplements and the possibility of contamination expose
      us to
      risk of loss of consumer confidence in the chicken industry*




To
      reduce
      contamination, we use specialized feedstock and nutritional supplements that
      have been approved by the Mexican government and meet international industry
      standards. We cannot assure you, however, that in the future we will not be
      materially adversely affected by claims or consumer concerns arising out of
      the
      use of these products in raising our animals.




Our
      sales
      are entirely dependent on consumer preferences, and the loss of consumer
      confidence in the products sold by Mexican meat and egg producers as a result
      of
      disease, contamination or other reasons, even if not related to our own
      products, could have a material adverse effect on the results of our
      operations.




*We
      face significant competition from other chicken producers in all of our
      geographic markets and product lines*




We
      are
      México’s largest chicken producer, but we face significant competition from
      other producers in all of the markets in which we sell our products. In 2006,
      we
      accounted for approximately 29.9% of total chicken production in México. There
      are two other major vertically integrated chicken producers in México, which
      together with Bachoco account for more than 50.0% of Mexican chicken production,
      with the balance distributed among approximately two hundred small- and
      medium-sized integrated and non-integrated producers.




Each
      of
      the two other major companies has substantial financial resources and strengths
      in particular product lines and regions. We expect to continue to face strong
      competition in every market, as our existing or new competitors are likely
      to
      broaden their product lines and extend their geographic coverage. Accordingly,
      we cannot assure you that our performance will not be adversely affected by
      increased competition.




*We
      face increased competition from U.S. producers*




In
      January 2003, import quotas and most tariffs on poultry, eggs and swine were
      eliminated through NAFTA. Poultry producers in the United States have developed
      extremely low-cost production methods and have been successful in exporting
      primarily frozen and value-added poultry to other countries, especially in
      periods of overcapacity in the United States. As tariff barriers decline under
      NAFTA, U.S. producers can be expected to increase exports to México, which could
      have a material adverse effect on our performance.




7




In
      July
      2003, the Mexican government imposed temporary restrictions on chicken leg
      quarters imported from the U.S. and both governments confirmed this safeguard
      in
      July 2003. The safeguard consists of a five-year limited poultry import measure.
      The measure, which became effective in 2003, includes quotas and an initial
      tariff of 98.8% on chicken leg quarters that will slowly decrease until it
      reaches 0% in 2008.




*We
      are a holding company with no substantial operations and depend on our
      subsidiaries for cash flow*




We
      are a
      holding company with no substantial operations and, consequently, we are
      dependent on dividends and other payments from subsidiaries for virtually all
      of
      our cash flow, including cash flow to pay taxes, service debt, make equity
      investments, finance the growth of subsidiaries and pay dividends to
      stockholders. Together with Mexican law, our ability to pay dividends may,
      in
      the future, be limited by financial covenants in debt instruments that we,
      or
      our subsidiaries, may acquire.




***Risks
      Relating to the ADS, and the Shares in the Mexican
      Market***




*The
      Robinson Bours family controls our management and their interests may differ
      from other security holders*




Certain
      members of the Robinson Bours family hold the power to elect a majority of
      the
      members of our Board of Directors and have the power to determine the outcome
      of
      certain other actions requiring the approval of our stockholders, including
      whether or not dividends are to be paid and the amount of such dividends. The
      Robinson Bours family has established two Mexican trusts, which they control
      (“Control Trust”), that together hold 496,500,000  Shares
      outstanding on December 31, 2006.




*Future
      sales of Shares by the controlling stockholders may affect prevailing market
      prices for the ADSs and the Shares trading at the Mexican
      Market.*




The
      prevailing market prices for the ADSs and Shares could decline if
      either:




·
            the
                Robinson Bours family were to sell substantial amounts of their Shares,
                whether




·
            directly,
                or




·
            indirectly,
                through the Mexican trusts through which they hold Shares;
                or




·
            the
                perception arose that such a sale could
                occur.




*The
      protections afforded to minority stockholders in México are different from those
      in the United States*




Under
      Mexican law, the protections afforded to minority stockholders are different
      from those in the United States. In particular, the law concerning fiduciary
      duties of directors is not well developed, there is no procedure for class
      actions or stockholder derivative actions, and there are different procedural
      requirements for bringing stockholder lawsuits. As a result, in practice it
      may
      be more difficult for our minority stockholders of Bachoco to enforce their
      rights against us or our directors or our controlling stockholder than it would
      be for stockholders of a U.S. company.




8




*Our
      bylaws restrict the ability of non-Mexican stockholders to invoke the protection
      of their governments with respect to their rights as
      stockholders*




As
      required by Mexican law, our bylaws provide that non-Mexican stockholders shall
      be considered as Mexicans with respect to their ownership interests in Bachoco
      and shall be deemed to have agreed not to invoke the protection of their
      governments in certain circumstances. Under this provision, a non-Mexican
      stockholder is deemed to have agreed not to invoke the protection of its own
      government by asking such government to interpose a diplomatic claim against
      the
      Mexican government with respect to the stockholder’s rights as a stockholder,
      but is not deemed to have waived any other rights it may have, including any
      rights under the U.S. securities laws, with respect to its investment in
      Bachoco. If you invoke such governmental protection in violation of this
      agreement, your Shares could be forfeited to the Mexican
      government.




*Our
      bylaws may only be enforced in México*




Our
      bylaws provide that legal actions relating to the execution, interpretation
      or
      performance of the bylaws may be brought only in Mexican courts. As a result,
      it
      may be difficult for non-Mexican stockholders to enforce their stockholder
      rights pursuant to the bylaws.




*It
      may be difficult to enforce civil liabilities against us or our directors,
      officers and controlling persons*




We
      are
      organized under the laws of México, and most of our directors, officers and
      controlling persons reside outside the United States. In addition, all of our
      assets and their assets are located in México. As a result, it may be difficult
      for investors to affect service of process within the United States on such
      persons or to enforce judgments against them. This pertains also to any action
      based on civil liabilities under the U.S. federal securities laws. There is
      doubt as to the enforceability against such persons in México, whether in
      original actions or in actions to enforce judgments of U.S. courts, of
      liabilities based solely on the U.S. federal securities laws.




*Non-Mexican
      stockholders may not be entitled to participate in future preemptive rights
      offerings*




Under
      Mexican law and our bylaws, if we issue new Shares for cash as part of a capital
      increase, we must grant our stockholders the right to purchase a sufficient
      number of Shares to maintain their existing ownership percentage in the Company
      (“preemptive rights”). We can allow holders of ADSs in the United States to
      exercise preemptive rights in any future capital increase only in one of the
      following two circumstances:




·
            we
                file a registration statement with the Securities and Exchange Commission
                with respect to that future issuance of Shares;
                or




·
            the
                offering qualifies for an exemption from the registration requirements
                of
                the Securities Act.




We
      make
      no promises that we will file a registration statement with the Securities
      and
      Exchange Commission to allow holders of ADSs in the United States to participate
      in a preemptive rights offering. As a result, the equity interests of such
      holders in the Company may be diluted proportionately. In addition, under
      current Mexican law, it is not practicable for the depositary to sell preemptive
      rights and distribute the proceeds from such sales to ADS holders.




9




*Corporate
      disclosure and accounting in México may differ from other
      countries*




There
      may
      be less, or different, publicly available information about issuers of
      securities in México than is regularly published by or about issuers of
      securities in other countries with highly developed capital markets. In
      addition, due to country-by-country differences in accounting and other
      reporting principles and standards, our corporate disclosures may differ in
      content from disclosures made under other principles and standards, such as
      U.S.
      GAAP.




**ITEM
                4.**
            **Information
                on the Company**




**General**




Our
      legal
      name is Industrias Bachoco, S.A.B. de C.V., and we frequently refer to ourselves
      commercially as Bachoco. We were incorporated in México on April 17, 1980. Our
      headquarters are located at Avenida Tecnológico No. 401, Ciudad Industrial
      38010, Celaya, Guanajuato, México, telephone (011)(52)(461) 618-3500. We have
      four principal product lines: chicken, table eggs, balanced feed and swine
      and
      other lines. All of our production and sales are made in México.




We
      are
      the largest poultry producer in México. In 2006, we produced more
      than  8.0
      million chickens per week and accounted for approximately  29.9%
      of
      total chicken production in México. As a vertically integrated producer, we
      control virtually all aspects of the production and distribution process, which
      enables us to exercise cost controls and to maintain high standards of quality,
      service and efficiency. With over 700 production and distribution facilities
      dispersed throughout México, our operations include the following:




·
            preparing
                balanced feed;




·
            breeding,
                hatching and growing chickens; and




·
            processing,
                packaging and distributing chicken
                products.




Sales
      of
      chicken products accounted for 77.6% of our net revenues in 2006. Please also
      see the table under Item 5. “General—Results of Operations for the Years Ended
      December 31, 2005 and 2006.”




We
      are
      also a significant producer of commercial balanced feed. We sell our feed both
      through distributors and directly to small producers. During 2006, we sold
      approximately 480,000 tonnes of balanced feed to external customers, which
      amounted to 9.0% of our total revenues for that year.




Currently
      Bachoco is the second largest producer of table eggs products. In 2006, we
      sold
      approximately 143,000 tons. Table egg sales accounted for 9.2% of our net
      revenues in 2006.




As
      part
      of our other product lines we also sell swine on the hoof to meat packers for
      pork product production. In 2006, sales of swine and other lines accounted
      for
      4.2% of our net revenues.




The
      remaining portion of our net revenues in 2006 consisted of miscellaneous
      poultry-related products.




10


The
      following table sets forth, for each of the periods presented, the volume of
      chicken, balanced feed, table eggs and swine that we sold:




**Bachoco
                Sales Volume**
              **(in
                thousands of tonnes)****Year
                Ended December 31,****2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006**Chicken
            
            
            665.4
            
            
            655.5
            
            
            733.0
            
            
            773.0
            
            
            773.7Eggs
            
            
            131.7
            
            
            132.1
            
            
            138.1
            
            
            140.6
            
            
            143.4Swine(1)
            
            
            9.0
            
            
            8.5
            
            
            9.1
            
            
            9.6
            
            
            8.9Balanced
                Feed
            
            
            324.7
            
            
            316.2
            
            
            320.7
            
            
            389.6
            
            
            484.4





*(1)
      Swine are the only product sold by the ton in the swine and other lines product
      line.*




In
      the
      Mexican poultry industry few producers operate in multiple regions. We believe
      we have the broadest geographic market coverage in the Mexican poultry industry
      and that we are one of the largest poultry suppliers in the México City
      metropolitan region (which accounts for a significant portion of overall Mexican
      chicken consumption). We currently compete in every major product category
      and
      channel of distribution for poultry products within the regions that we serve.
      We expect to continue to do so in order to meet growing consumer demand and
      needs.




**Background
      and Ownership Structure**




Founded
      in 1952 by the Robinson Bours family as a small commercial table egg operation
      in the state of Sonora, we grew by expanding our existing facilities and
      acquiring additional facilities from other poultry producers. In 1974, we
      established operations in Celaya, located in the agricultural region of Bajio,
      to begin serving the México City metropolitan region. Beginning in 1988, our
      management recognized the potential for growth in Mexican chicken consumption,
      as well as the advantages of a large, vertically integrated operation.  As
      a
      result, we began to seek opportunities for geographic expansion and to increase
      production capacity and market share. We extended our market coverage
      (particularly in 1993 and 1994) by purchasing fixed assets and inventory from
      major regional producers that faced financial difficulties. Following each
      acquisition, we made substantial investments to apply our production and
      distribution methods and reap the benefits of vertical integration and economies
      of scale, improving the performance of the acquired facilities.




In
      April
      1995, Robinson Bours stockholders created a trust (the “Control Trust”), the
      principal purpose of which was to hold a controlling interest in our Series
      B
      Shares. Before September 2006, our common stock (“Common Stock”) consisted of
      Series B Shares and Series L Shares of limited voting stock (“Series L Shares”)
      (collectively, the “Old Shares”). The Old Shares were grouped into units. Each
      Unit (the “Unit” or “UBL”) consisted of one Series B Share and one Series L
      Share. Each B Unit (“B Unit” or “UBB”) consists of two Series B Shares.




In
      September 1997, we made an initial public offering of Units representing 17.25%
      of the outstanding Old Shares. Following such offering, the Control Trust held
      Units and B Units representing 68.0% of the outstanding Series B Shares.




11


In
      September 2006, we separate the UBL and UBB units trading on the Mexican
      Exchange into their component L and B Shares. The Series L Shares was converted
      into Series B Shares, on a one -to -one basis, thereby creating a single Share
      class, the Series B Shares, which represent our entire Common Stock This change
      did not modify the face value of the Shares. These Shares are trading on the
      Mexican stock market. The ADS still consist of twelve underlying Shares, but
      they are all Series B Shares, with full rights.




As
      of
      December 31, 2006, the Robinson Bours Stockholders owned B Shares representing
      82.75% of the Series B Shares outstanding. As a result, the Robinson Bours
      Stockholders continue to have the power to control the Company.




Members
      of the Robinson Bours family, together with certain of our executive officers,
      hold a majority of the seats on our Board of Directors.




In
      April
      2002, Javier Robinson Bours Castelo assumed the position of Chairman of the
      Board of Directors, replacing Enrique Robinson Bours Almada.




In
      November 1998, we approved a stock repurchase plan (the “Repurchase Plan”),
      which allows us to repurchase up to 3% of the total Shares outstanding and
      trading on the ****** Mexican
      Stock Exchange ( *Bolsa
      Mexicana de Valores* ),
      in
      accordance with Mexican securities laws. To execute the Repurchase Plan, we
      created a reserve of Ps.292.9 million (expressed in constant pesos as of
      December 31, 2006), which reduced retained earnings on our balance sheet. As
      of
      May 31, 2007, currently we had repurchased zero Shares.




During
      2003, we implemented two important projects to expand the facilities at our
      Northwest Complex and Yucatán Peninsula Complex to increase production capacity
      in our chicken business. Both of these projects were completed by the end of
      the
      third quarter of 2004.  These
      facilities are ideally suited for the expansion projects due to their sanitary
      status and their geographical location. Both complexes were expanded to increase
      capacity by approximately 50%, which will increase opportunities for potential
      future exports as well as for meeting consumer demand in those regions and
      in
      other regions in México. The new facilities in both complexes have been equipped
      with the best technology available.




In
      July
      2004, we reached an agreement for renting the farms of UPAVAT and UPATEC, a
      small producer of table eggs in the state of Puebla, south of México City, with
      a capacity of about 0.75 million of lying hens. This operation allows us to
      start the production of table eggs in southern México.




On
      June
      29, 2005 we acquired certain assets of Grupo Sanjor, a private poultry company
      located in the Yucatan Peninsula, with production of approximately 300 thousand
      chickens per week and 100 thousand table egg laying hens, which allow us to
      reinforce our leadership in this region of the country.




In
      December 2006, we acquired most of the assets and working capital of “Del
      Mezquital” to start a new complex in the State of Sonora, located in northern
      México, close to the border of the United States.




In
      February 2007, we reached a business agreement with “Grupo Libra” a Company in
      Northeast of México that includes the buying of all their working capital and
      long term rent agreement of their facilities to strengthen our national
      presence.




12


**Business
      Strategy**




Over
      the
      past decade, we have substantially increased our chicken production,
      establishing ourselves in every major product category and distribution channel
      for chicken and expanding to cover a geographic market in México that is more
      widespread than any other chicken producer. We have also increased the
      efficiency of our production process and built a reputation for the freshness
      of
      our chicken products and quality of our customer service.




The
      Mexican poultry industry has experienced considerable consolidation in recent
      years, in which we have participated. We continue to evaluate possible
      acquisitions of other poultry producers or production facilities from time
      to
      time and may pursue certain opportunities consistent with our business
      strategy.




The
      key
      elements of our business strategy are as follows:




·
            **Increased
                market penetration through expanded distribution.**We
                have an extensive distribution network, supported by our own
                transportation fleet, superior knowledge of existing wholesale channels
                and strategically located cold storage warehouses and facilities.
                We have
                substantially increased our distribution routes during the past years.
                We
                plan to continue to develop and improve our distribution network
                and
                systems in every product category and throughout our expanded geographic
                coverage in México.




·
            **Increased
                service and market responsiveness.**We
                seek to remain a leader in the Mexican poultry market by maintaining
                high
                standards of customer service and continuing to be responsive to
                the
                changing needs of varying market segments. As part of this strategy,
                we
                have structured our operations in such a way as to enable us to vary
                the
                size, weight, color and presentation of our chicken products, depending
                upon the particular demands of the market segment. In addition, we
                have
                decentralized order and sales services from our headquarters to our
                cold
                storage warehouses and facilities, which serve as midpoints in the
                distribution chain to wholesalers and local customers. This strategy
                allows us to stay closer to our customer base and to better cultivate
                growing customer segments, such as food-service operators, supermarkets
                and food wholesale clubs.




·
            **Low-cost
                production and operating efficiency.**We
                are among México’s lowest-cost producers and distributors of chicken, due
                in part to economies of scale and vertically integrated operations.
                We
                pursue on-going programs to increase operating efficiencies and reduce
                operating costs.




·
            **Continued
                brand differentiation.**We
                have developed a brand image for premium fresh chicken and table
                eggs in
                México. Building on the success of our branded products to date, we
                seek
                to continue to promote our brand name through billboards, packaging,
                special publicity campaigns and through development of brand loyalty
                among
                wholesale and retail distributors.




13


**Capital
      Expenditures**




Over
      the
      last three years, we have financed our capital expenditures with resources
      generated by our operations. We made the following capital expenditures during
      the last three years:




·
            In
                2004, we made capital expenditures of Ps.471.2 million net, with
                which
                we:




·
            continued
                to update our transportation fleet, farms, processing plants and
                feed
                mills;




·
            improved
                and expanded our distribution
                network;




·
            increased
                capacity projects in our Northwest and Yucatán Peninsula Complex;
                and




·
            increased
                production capacity of table eggs in our Northwest Complex, at Mexicali,
                near the border with the U.S.




·
            In
                2005, we made capital expenditures of Ps.805.3 million net, with
                which
                we:




·
            continued
                to update our transportation fleet, farms, processing plants and
                feed
                mills




·
            increased
                  the capacity and updated our rendering plants, which expenditures
                continue
                to the present; and




·
                  made
                      the acquisition of certain assets of Grupo Sanjor.




·
            In
                2006, we made capital expenditures of Ps.863.2 million net, with
                which
                we:




·
            continued
                to update our transportation fleet, farms, processing plants and
                feed
                mills, which expenditures continue to the
                present;




·
            increased
                capacity, mainly for the production of live chickens and;




·
            building
                of a new feed mill in the state of
                Aguascalientes.




**Business
      Overview**




***Chicken
      Market***




Mexican
      consumers value distinct characteristics in their chicken. Virtually all chicken
      sold by us and other major chicken producers in México is fresh. Fresh chicken
      is a central ingredient in many traditional Mexican dishes and it is the leading
      meat consumed in México according to data from UNA. Traditionally, value-added
      chicken, such as heat-and-serve products, frozen dinners, chicken nuggets and
      other similar foods, have found limited acceptance among Mexican consumers
      due
      to historical consumer preferences for fresh chicken.




In
      recent
      years, the value-added chicken line is growing rapidly; we participate
      significantly in the market and try to lead the supplying of these products.
      According to UNA value-added chicken products currently account for
      approximately 6.0% of the chicken sold in México.




Mexican
      consumers also generally prefer chicken with pronounced yellow skin
      pigmentation, a characteristic found mainly in our public-market and
      supermarket-broiler chicken products that we attain by including marigold
      extract in our chicken feed. We have also noticed an increased demand for
      smaller, whole, fresh chicken from various fast-food outlets, principally
      chicken roasting shops ( *rosticerías* and *asaderos* ),
      which
      have developed rapidly in recent years.




14


According
      to data obtained from the UNA, total Mexican chicken consumption per capita
      increased by 15.0% from 2002 to 2006. Chicken is the leading meat consumed
      in
      México, and it accounted for approximately 33.4% of all meat produced in México
      in 2006. The following table sets forth total Mexican production of chicken,
      pork and beef for 2002 to 2006:




**Mexican
      Production of Chicken, Beef and Pork**


**(in
      thousands of tonnes)(1)**




**2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006**Chicken
            
            
            2,187
            
            
            2,290
            
            
            2,390
            
            
            2,498
            
            
            2,592Beef
            
            
            1,451
            
            
            1,496
            
            
            1,543
            
            
            1,559
            
            
            1,602Swine
            
            
            1,085
            
            
            1,100
            
            
            1,150
            
            
            1,088
            
            
            1,102


(1)  Source:
      UNA




The
      Mexican chicken industry, like chicken industries in other countries, is
      characterized by a long-term decline in real prices in real terms in conjunction
      with cyclical periods of higher profitability leading to overproduction followed
      by periods of lower prices and lower profitability. In 2002, chicken prices
      increased slightly by approximately 2.5% over 2001, as a result of the worldwide
      increase in the cost of feed ingredients at the end of the year. In 2003,
      chicken prices decreased by approximately 4.0% over 2002, mainly due to an
      oversupply in domestic production that was present mainly in the second half
      of
      the year and a decrease in the purchasing power of the average consumer. In
      2004, chicken prices increased by approximately 6.7%, mainly as a result of
      an
      increase in the cost of the main feed ingredients worldwide, and a more
      normalized supply in México during the second half of the year. In 2005, chicken
      prices decreased by approximately 1.7%, mainly as a result of a decrease in
      the
      cost of the main feed ingredients worldwide, and a strong oversupply during
      the
      last quarter of the year. We believe that Mexican chicken prices may decline
      further in real terms and that prices for chicken may also vary cyclically.
      In
      2006 prices declined 3.6% when compared to the previous year mainly as a result
      of an oversupply in the Mexican poultry market at the beginning of
      2006.




We
      believe that changes in Mexican chicken consumption correlate closely with
      changing chicken prices and their effect on consumer purchasing power. Chicken
      per capita consumption increased 3.1% in 2002, 4.9% in 2003, 3.3% 2004, 3.5%
      in
      2005 and 2.6% in 2006.




***Chicken
      Products***




Six
      main
      product categories exist for fresh chicken in México: live, public market,
      rotisserie, supermarket broiler, chicken parts and value-added
      products.




**“Live”** chicken
      is delivered alive to small independent slaughtering operations or to
      wholesalers that contract with independent slaughtering operations for
      processing. The freshly slaughtered chicken is then sold to chicken shops and
      other specialized retailers for sale to consumers and in some areas is sold
      directly to consumers by the slaughterhouse. According to UNA, live chicken
      accounts for approximately 27.0% by volume of the chicken sold by producers
      in
      México.




**“Public
      Market”** chicken
      is a whole broiler presented uneviscerated, generally sold within 48 hours
      after
      slaughter in public markets throughout México, but primarily concentrated in the
      México City metropolitan region. According to UNA, public market chicken
      accounts for approximately 24.0% by volume of the chicken sold by producers
      in
      México.




**“Rotisserie”** chicken
      is a whole broiler presented eviscerated and ready to cook. Rotisserie chicken
      is sold by wholesalers and directly by producers to small shops, stands
      ( *rosticerías* or *asaderos* )
      and
      supermarkets, which cook the chicken and sell it whole and freshly cooked to
      the
      end-consumer, providing an economical form of fast-food. According to UNA,
      rotisserie chicken accounts for approximately 26.0% by volume of the chicken
      sold by producers in México.




15




**“Supermarket
      Broiler”** chicken
      is a fresh whole broiler presented with the edible viscera packed separately.
      In
      most cases it is sold directly by producers to supermarkets and, in some
      regions, to other independent food shops. Mexican consumers’ preference for
      freshness requires regular deliveries of chicken to supermarkets and other
      food
      shops. According to UNA, supermarket broiler chicken accounts for approximately
      7.0% of the volume of the chicken sold by producers in México.




**“Chicken
      Parts”** refers
      to
      cut-up fresh chicken parts sold wrapped in trays or in bulk principally to
      supermarket chains, the fast-food industry and other institutional food-service
      providers. Producers generally sell directly to the supermarket chains and
      deliver the chicken directly to the outlet. Sales to the institutional market
      often require customized cutting and presentation. According to UNA, chicken
      parts account for approximately 10.0% by volume of the chicken sold by producers
      in México.




**“Value-added
      Products”** refers
      mainly to cut-up fresh chicken parts with a value-added treatment like
      marinating, either sold wrapped in trays or in bulk principally to supermarket
      chains. Producers generally sell directly to the supermarket chains and deliver
      the chicken directly to the store. Sales to the institutional market often
      require customized cutting and presentation. According to UNA, chicken parts
      account for approximately 6% by volume of the chicken sold by producers in
      México.




We
      sell
      value-added chicken products to supermarkets and other retailers. The following
      table sets forth, for the periods indicated, the sales volume in tonnes and
      as a
      percentage of the total volume of chicken sold for each of our principal lines
      of chicken products:




**Year
                Ended December 31,****2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006****Volume**
            
            **%
                of Total**
            
            **Volume**
            
            **%
                of Total**
            
            **Volume**
            
            **%
                of Total**
            
            **Volume**
            
            **%
                of Total**
            
            **Volume**
            
            **%
                of Total****(thousands
                of tonnes, except percentages)**Public
                Market and Rotisserie
            
            
            307.1
            
            
            46.2
            
            
            288.1
            
            
            44.0
            
            
            319.1
            
            
            43.5
            
            
            349.6
            
            
            45.2
            
            
            344.3
            
            
            44.5Supermarket
                Broiler, Chicken Parts and Other(1)
            
            
            191.6
            
            
            28.8
            
            
            194.9
            
            
            29.7
            
            
            219.6
            
            
            30.0
            
            
            219.1
            
            
            28.4
            
            
            228.2
            
            
            29.5Live
            
            
            166.7
            
            
            25.0
            
            
            172.5
            
            
            26.3
            
            
            194.4
            
            
            26.5
            
            
            204.3
            
            
            26.4
            
            
            201.2
            
            
            26.0Total
            
            
            665.4
            
            
            100.0
            %
            
            655.5
            
            
            100.0
            %
            
            733.1
            
            
            100.0
            %
            
            773.0
            
            
            100.0
            %
            
            773.7
            
            
            100.0
            %





(1)  “Other”
      comprises sales of value-added poultry products, viscera and other
      products.




Our
      product mix varies from region to region, reflecting different consumption
      and
      distribution patterns. Based on market demand, we believe that fresh, rather
      than frozen, chicken will continue to dominate the Mexican market. Furthermore,
      we believe that consumer demand for value-added fresh chicken products, such
      as
      rotisserie chicken, supermarket broilers and chicken parts, will increase over
      time. Accordingly, we continue to focus principally on producing fresh chicken,
      including value-added fresh chicken products.




16


***Chicken
      Marketing, Sales and Distribution***




We
      have
      developed an extensive distribution system that we believe is the largest and
      most modern of any chicken or egg producer in México. We use various
      distribution channels in every major product category to service different
      market segments. We use our own fleet to transport the majority of rotisserie
      chickens, supermarket broilers and other chicken products to our customers.
      We
      try to cooperate with existing distribution channels and do not compete with
      wholesale distributors, except in areas where we supply our own distribution
      capacity where needed for market penetration.




We
      distribute products from our nine processing plants (located in Celaya,
      Culiacán, Puebla, Lagos de Moreno, Coatzacoalcos, Mérida, Gómez Palacio,
      Monterrey and Hermosillo) to our cold-storage facilities and warehouses, which
      serve as a midpoint in distribution to wholesalers and local customers. From
      our
      cold-storage facilities, we service wholesalers (who in turn deliver to their
      customers) and transport certain products directly to supermarkets and
      food-service operations. Our distribution infrastructure includes 60
      cold-storage warehouses and facilities and a large fleet of vehicles. The
      decentralized sales force permits us to remain attuned to developments in the
      regions we serve and to develop close relationships with customers.




We
      have
      expanded our distribution network, which now covers almost all of
      México:




·
            In
                2002, we consolidated our presence in the northeastern part of the
                country, mainly in the state of Nuevo León, due to the consolidation of
                acquisitions, made at the end of
                2001.




·
            During
                2003, we implemented two important projects to expand the facilities
                at
                our Northwest Complex and Peninsula Complex to increase production
                capacity in our chicken business. These facilities are ideally suited
                for
                the expansion projects due to their sanitary status and their geographical
                location. Both complexes were expanded in the third quarter of 2004
                by
                approximately 50%, which increased opportunities for future exports
                as
                well as for meeting consumer demand in those regions and in other
                regions
                in México.




·
            During
                2004, we finished our projects to expand the facilities at our Northwest
                Complex and Peninsula Complex.




·
            In
                2005, we acquired assets of Grupo Sanjor, a private producer of chicken
                and table eggs located in the Yucatán Peninsula.




·
            At
                the end of 2006, we acquired assets of “Del Mezquital,” a private broiler
                producer located in the state of
                Sonora.




·
            At
                the beginning of 2007, we reached a business agreement with “Grupo Libra,”
                a chicken producer located in northeast
                México.




In
      the
      following paragraphs, we provide a description of our marketing, sales and
      distribution strategies for each of our major chicken products.




·
            ***Live
                Chicken***-
                We sell live chicken primarily to wholesalers, which contract out
                the
                processing to independent slaughterhouses and then resell the processed
                product as public market chicken. To a lesser extent, we sell to
                small
                independent slaughterhouses in the southeast, where live chicken
                continues
                to be the standard for consumption. Additionally, customers can purchase
                live chicken directly from us on our farms. However, we believe that
                the
                market as a whole is moving away from live
                chicken.




17




·
            ***Public
                Market Chicken***-
                We believe that we are the largest producer of public market chicken
                in
                México. We regularly sell to more than 50 of the approximately 200
                whole
                fresh chicken wholesalers operating in the México City region. Most of our
                wholesale customers rely primarily on us for public market chicken,
                although we have no exclusive supply agreements. Our principal focus
                in
                this market has been to provide superior distribution and service
                to
                selected wholesalers in order to maintain and further develop loyalty.
                Public market chicken is ordinarily sold to consumers without any
                packaging or other identification of the producer, but our distribution
                system encourages wholesalers to sell to retailers from our own “Bachoco”
                trailers, reinforcing our reputation for freshness and efficiency
                of
                service and fostering brand loyalty among retailers. We believe we
                have
                developed excellent relationships with the wholesalers we
                serve.




·
            ***Rotisserie
                Chicken***-We sell rotisserie chicken directly to*rosticerías*,*asaderos*and supermarkets. We attribute the growth in our sales of rotisserie
                chicken in large part to the rapid growth of the market for freshly
                cooked
                chicken sold by*rosticerías*and*asaderos*and in the rotisserie sections of supermarkets. We expect this market
                to
                continue to grow because of an ever-increasing consumer demand for
                convenient, low-priced and high-quality fast food. Success in supplying
                rotisserie chicken depends on consistency and good service, and only
                larger producers with more modern processing facilities and distribution
                capacity can compete in this market. We expect to expand sales of
                rotisserie chicken by leveraging our increasingly developed transportation
                and distribution network.




·
            ***Supermarket
                Broiler Chicken***-
                We sell supermarket broilers, as well as chicken parts and eggs,
                directly
                to the principal supermarkets, convenience store chains and wholesale
                clubs in México. In order to build consumer loyalty for our supermarket
                broiler chicken, we emphasize our brand image as well as our superior
                service, reinforced by frequent delivery to ensure freshness. Each
                chain
                negotiates purchases centrally, but we deliver directly to every
                point of
                sale, ordinarily at least once every 48 hours. We believe that we
                lead the
                market in frequency of deliveries to
                supermarkets.




·
            ***Chicken
                Parts***-
                We sell chicken parts principally to supermarkets, using the same
                marketing strategy that we use for supermarket broiler chicken. We
                are
                also an important supplier of chicken parts to the growing franchise
                fast-food and institutional food-service industries. We continue
                to
                develop custom-cutting processes to help meet demand from fast-food
                and
                institutional customers for a wider variety of chicken
                parts.




·
            ***Value-Added
                Products***-Mexican consumers have a greater preference for fresh chicken than
                their
                U.S. counterparts. Frozen, heat and serve and other further processed
                poultry products make up only a small proportion of total Mexican
                poultry
                consumption today. Demand for these kinds of fresh products is growing
                rapidly. The potential for substantial growth in this market is large
                and
                we believe that our distribution network, our large market share
                for
                supermarket chicken sales, our brand name and our experience in a
                wide
                range of existing Mexican distribution channels will be important
                competitive strengths in this area.




Sales
      of
      our fresh value-added products increased approximately 12% over 2005 sales.
      We
      are moving to produce and introduce various value-added products in México,
      which we have developed in accordance with Mexican customer preferences. We
      will
      continue to do so, as this market grows.




18


**Table
      Eggs**




According
      with the UNA, México has the largest per capita consumption of table eggs in the
      world with 22.1 kilograms per capita a year. Mexican egg consumption per capita
      increased 8.3% from 2002 to 2006. This high level of consumption is due in
      part
      to the fact that eggs are among the cheapest sources of protein in
      México.




The
      Mexican table egg industry is more fragmented than the chicken industry but
      has
      experienced some degree of consolidation in recent years, including acquisitions
      made by us. According to UNA, the ten largest producers of table eggs in México
      now account for approximately 43.0% of the market .




Eggs
      in
      México have traditionally been distributed in large 360-egg cases through
      wholesalers to retailers. The retailers, which are typically small grocery
      shops, sell the eggs by weight to consumers. At present, approximately 21%
      of
      the eggs sold in México are sold in packaged form, 9% are sold in processed form
      and approximately 70% are sold in bulk to wholesalers. The sales
      trend **** in
      recent
      years has been moving towards packaged and processed egg sales. We expect that
      the convenience, the development of brand loyalty and the growth of supermarket
      chains will contribute to the continuance of this trend toward packaged eggs.




Bachoco
      is the second largest producer of table eggs in México with 8% of the market. We
      sell both brown and white eggs. We are the largest producer of brown eggs in
      México. Our marketing efforts for egg products focus on increasing our brand
      recognition.




The
      branded carton of brown eggs is a premium product in the Mexican market. We
      believe that brown eggs are less vulnerable to price fluctuations than white
      or
      unbranded eggs, because consumers perceive them to be of higher quality. Brown
      eggs command a small premium over white eggs.




In
      some
      regions, however, we have reallocated part of our production from brown eggs
      to
      white eggs due to local market preferences.  Our
      marketing strategy in the eggs business is to gradually move from bulk to
      packaged white eggs. Packaged eggs are less vulnerable to price fluctuation
      and
      create brand loyalty.




In
      2004,
      we started to build new farms to increase production capacity of table eggs
      in
      our Northwest Complex, at Mexicali, near the U.S. border. We completed this
      project in the second half of 2005.




We
      have
      designed our egg distribution system to transport eggs from our laying farms
      at
      Celaya, Los Mochis, Ciudad Obregón, Mexicali, Tecamachalco and La Laguna regions
      to customers in all sales regions. We sell packaged eggs directly to all of
      the
      principal supermarket chains in México, with daily deliveries directly to their
      outlets.




**Seasonality**




Our
      sales
      are moderately seasonal, with the highest levels of sales, in general, in the
      second and fourth quarter due to higher chicken consumption during the holiday
      season and lower sales levels earlier in the year during Lent (particularly
      in
      the week prior to Easter).




19




**Balanced
      Feed**




According
      to *Consejo
      Nacional de Fabricantes de Alimento Balanceado y de la Nutricion Animal,
      A.C* )
      (”CONAFAB”) , Mexican production of balanced feed increased from 21.2 million
      tonnes in 2000 to 24.6 million tonnes in 2005. In 2005, México was ranked the
      fourth largest producer of feed in the world and the second largest in Latin
      America.




Local
      production is composed of commercial and integrated manufacturers. Commercial
      manufacturers produce for the market, while integrated manufacturers mostly
      produce for themselves and occasionally for other producers.  Integrated
      producers account for approximately 64.4% of total production. Imports of feed
      come almost entirely from the United States and represent approximately 1.4%
      of
      the total consumption in México.




We
      entered the feed business as a result of our acquisition of Grupo Campi at
      the
      end of 1999. We sell to small livestock producers and through a network of
      small
      distributors located mainly in central and southern México. We have benefited
      from economies of scale and synergies derived from producing feed both for
      our
      own internal consumption and for sale to third parties. Currently, we have
      four
      feed plants dedicated to produce balanced feed to third parties. We estimate
      that our balanced feed business comprises approximately 5.4% of the market
      share
      of the commercial (non-integrated) balanced feed business in
      México.




**Swine**




We
      purchase breeder swine live from the United States and breed them at facilities
      in Navojoa. We then raise swine to maturity at our farms in Celaya and three
      other locations in México. Mature swine is sold on the hoof to Mexican swine
      meat packers for the production of pork products. In 2002, our swine prices
      decreased by 21.3% as a result of an oversupply in the swine market due
      primarily to increased imports from the United States. In 2003, swine prices
      began to recover, increasing by7.0%, due mostly to the fact that there was
      very
      modest growth in domestic production and imports. In 2004, our swine prices
      increased by more than 20.0% as a result of an increase in the cost of feed
      ingredients and a more normalized supply and imports, and, during 2005, our
      swine prices decreased 9.0% due to larger supplies in the Mexican market which
      continued in 2006 where prices went down about 11.9%. Traditionally, Mexicans
      consume less swine and swine products than chicken and eggs.




**Raw
      Materials**




We
      purchase our breeding stock for broilers and layers from high-quality suppliers.
      All of our breeder swine currently come from one supplier, but we have changed
      suppliers from time to time and have numerous alternative sources of
      supply.




The
      largest single component of our cost of sales is the cost of ingredients used
      in
      the preparation of feed including, principally, sorghum, soy meal, corn, fish
      meal, meat meal, and for certain chicken products, marigold extract. The price
      of these 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. To reduce
      the
      potential adverse effect of grain price fluctuations, we vary the composition
      of
      our feed to take advantage of current market prices for the various types of
      ingredients used.




Under
      NAFTA, the government eliminated the tariff on sorghum effective January 1,
      1994, and eliminated tariffs on all other grains that we use, except corn,
      on
      January 1, 2003. Corn tariffs will be eliminated by 2008. We expect these
      developments to lower our cost of production as the cost of our ingredients
      more
      closely tracks prices in the international commodity markets.




20




At
      present, we take advantage of lower-cost feed ingredients from Mexican sources,
      when available. In 2006, we obtained approximately 31.3% of our total grain
      needs from the domestic market. We believe that the quality of local feed
      ingredients, particularly sorghum, is superior to that of imported feed
      ingredients. In addition, the use of local feed ingredients allows us to save
      on
      transportation costs and import duties. However, in southern México where Grupo
      Campi’s complexes are located, domestic crops and feed ingredients are not
      available. As such, these complexes use mainly imported grain. We may, from
      time
      to time, engage in hedging of our feed costs in the future.




**Competition**




***Chicken***




According
      to the UNA, we are México’s largest chicken producer. We face significant
      competition from other producers in all of the markets in which we sell our
      products. When combined with our two largest vertically integrated competitors,
      we account for approximately 54.0% of total Mexican poultry production; the
      balance is distributed among approximately two hundred small- and medium-sized
      integrated and non-integrated producers. The major producers, including Bachoco,
      have substantial cost advantages over smaller, non-integrated producers arising
      from economies of scale and control of feed preparation. To varying degrees,
      each of these companies has substantial financial resources and strengths in
      particular product lines and regions. We believe, however, that we have
      substantial competitive strengths over our competitors, including a broader
      range of chicken products and broader geographic coverage.




Furthermore,
      there are considerable barriers to entry into large-scale chicken production
      and
      distribution in México, including, among others, the consumer preference for
      fresh chicken, the weaknesses of transportation infrastructure and varying
      regional consumer preferences among the various product categories. The channels
      for distribution of chicken products, in particular, are highly specialized
      and
      varied, and they call for in-depth experience in market practices.




Nonetheless,
      we expect that we 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 coverage.




Poultry
      producers in the United States have developed low-cost production techniques
      and
      have been successful in exporting primarily frozen and value-added poultry
      to
      other countries, especially in periods of overcapacity in the United States.
      As
      tariff barriers have declined under NAFTA, we have experienced increased
      competition from U.S. poultry producers. According to UNA, in 2006, imports
      of
      poultry products increased 17.6% in volume over imports in 2005. This increase
      was caused in part by a strong demand in México, and the elimination of
      temporary bans of imports by sanitary and health authorities. Mechanically
      de-boned poultry accounted for approximately 40.0% of the imports.




We
      expect
      that competition from U.S. exporters will continue to increase. However, Mexican
      consumer acceptance of frozen poultry products is still low, and we do not
      anticipate significant growth in the near future.




***Table
      Eggs***




We
      are
      one of the largest producers of table eggs in México, with approximately 6.2% of
      total Mexican egg production at the end of 2006.




21




***Balanced
      Feed***




Of
      the
      registered producers of feed in México, integrated firms produce approximately
      64.4% of total production for their internal use, and the remaining 35.6% is
      produced for sale to third parties. We estimate a market share of approximately
      5.4% in our feed product line.




***Swine***




The
      Mexican swine industry is highly fragmented, and no producer has more than
      15.0%
      of the market. On December 31, 2006, we had less than 1.0% of the Mexican market
      share in swine. U.S. producers already compete in this market in México because
      tariff barriers on swine are moderate.




**Mexican
      Regulation**




***Mexican
      Import Regulation and Price Controls***




As
      required by NAFTA, the Mexican government eliminated all permanent quotas and
      tariffs on poultry, table eggs and swine in January 2003. With certain specific
      exceptions described below, there are now no quotas or tariffs on imports of
      poultry, eggs and swine from the United States. We expect the elimination of
      these trade protections to stabilize the level of imports over time and to
      permit improved private control over imports, which may result in increased
      competition from importers.




*The
      pre-2003 scheme of quotas and tariffs, which has now been eliminated, was as
      follows:*




·
            The
                quota for chicken was 120.3 thousand tonnes, which represents 5.7%
                of
                national consumption. Above the quota, imports were taxed*ad
                valorem*at
                49.4%.




·
            Within
                the chicken quota, there were sub-quotas for whole chicken (16.6
                thousand
                tonnes), poultry parts (31.6 thousand tonnes), whole turkeys, turkey
                parts, and de-boned chicken. Imports above the quota were also taxed
                at
                49.4%. There was no quota amount for value-added chicken; all imports
                were
                taxed at 49.4%.




·
            The
                quota for eggs was 8.2 thousand tonnes, which is less than 1% of
                national
                consumption. Imports above the amount were taxed at 9.5%*ad
                valorem*.




·
            Imports
                of swine were subject to a quota of 80.3 thousand tonnes of fresh,
                frozen
                and chilled meat, but were also taxed 2% on amounts below the quota.
                Amounts above the quota were taxed at 10% in
                2002.




*Import
      limits and short-term tariffs that remain after January 2003 are as
      follows:*




The
      Mexican government has put in place a number of short-term tariffs and import
      limits on poultry, eggs and swine:




·
            In
                January 2003, the Mexican government announced a temporary safeguard
                to
                stabilize the flow of poultry imports,******which
                included an initial tariff of 98.8% on imports of chicken leg quarters.
                This safeguard will decrease annually until it reaches 0% in 2008.
                All
                other chicken products from the United States, including whole chicken,
                chicken parts other than leg quarters and eggs, remain
                tariff-free.




·
            According
                to the safeguard, for 2006 the tariff in effect was 39.5% for imports
                of
                chicken leg quarters above the quota of 103
                tonnes.




22




In
      addition to NAFTA, México has entered into free trade agreements with several
      other countries including Chile, Europe, Colombia and Venezuela. Although such
      agreements may result in lower tariffs on our own products, we believe that
      imports from such countries will not increase substantially in the future due
      to
      high transportation and distribution costs.




***Antitrust
      Regulations***




The *Ley
      Federal de Competencia Económica* (“Mexican Economic Competition Law”), which took effect on June 22, 1993,
      regulates monopolies and monopolistic practices. Under this law, all companies
      (including Bachoco) are required to notify the *Comisión
      Federal de Competencia* (“Federal Competition Commission”) of all proposed transactions exceeding
      specified threshold amounts as set forth in the Mexican Economic Competition
      Law. The Federal Competition Commission can impose conditions on, and prevent
      or
      unwind, any such transactions by Mexican companies. We have complied with all
      requirements under this law.




***Environmental
      and Sanitary Regulation***




Our
      operations are subject to Mexican federal and state laws and regulations
      relating to the protection of the environment. The principal laws are *Ley
      General de Equilibrio Ecológico y Protección Ambiental* (General
      Law of Ecological Balance and Environmental Protection—the “Environmental Law”)
      and *Ley
      de Aguas Nacionales* (“National
      Waters Law”). The *Secretaría
      del Medio Ambiente y Recursos Naturales* (Ministry of Environment and Natural Resources, or “Semarnat”) administers the
      Environmental Law, and *Comisión
      Nacional del Agua* (“National
      Water Commission”) administers the National Waters Law.




The
      Environmental Law regulates water pollution, air pollution, noise control and
      hazardous substances. Semarnat can bring administrative and criminal proceedings
      against companies that violate environmental laws, and after certain
      administrative procedures, it also has the power to close non-complying
      facilities. Every company in México is required to provide Semarnat with
      periodic reports regarding compliance with the Environmental Law and the
      regulations thereunder.




The
      level
      of environmental regulation in México has increased in recent years, and
      enforcement of the law is improving. We expect this trend to continue and to
      intensify with international agreements between México and the United
      States.




In
      particular, Mexican environmental laws set forth standards for water discharge
      that are applicable to poultry processing operations. Our processing plants
      have
      water treatment facilities that  comply
      with Mexican environmental standards. We are implementing other investment
      projects in anticipation of stricter environmental requirements in the future.
      We do not expect that compliance with those Mexican federal environmental laws
      or Mexican state environmental laws will have a material effect on our financial
      condition or performance.




The
      production, distribution and sale of chicken, eggs and swine are subject to
      Mexican federal and state sanitary regulations. The principal legislation is *Ley
      General de Salud* (“General Health Law”) and *Ley
      Federal de Sanidad Animal* (“Federal
      Animal Health Law”). The Federal Animal Health Law was enacted in 1993, and,
      since then, we have been working closely with Mexican authorities to develop
      regulatory standards and inspection methods for chicken processing. Currently,
      Mexican authorities do not monitor production or inspect products to the same
      degree as sanitary authorities in other countries, such as the USDA in the
      United States. However, we believe that we are in compliance with all applicable
      sanitary regulations.




23




**Organizational
      Structure**




We
      are a
      holding company with no operations other than holding the stock of our
      subsidiaries, all of which are incorporated in México, and engaging in
      transactions with our subsidiaries. Our principal operating subsidiary is BSACV,
      which owns our principal operating assets, and which accounted for 93.4% of
      consolidated total assets as of December 31, 2006, and 88.1% of our consolidated
      revenues for the year ended December 31, 2006. All of our subsidiaries are
      directly owned by us in the percentage listed below. None of these subsidiaries
      have any subsidiaries of their own.




The
      following table shows our main subsidiaries as of December 31, 2004, 2005 and
      2006:




**Percentage
                Equity Interest****2004**
            
            **2005**
            
            **2006**Acuícola
                Bachoco, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            100Aviser,
                S.A. de C.V.
            
            
            100
            
            
            100
            
            
            100Bachoco,
                S.A. de C.V. (“BSACV”)
            
            
            100
            
            
            100
            
            
            100Campi
                Alimentos, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            100Huevo
                y Derivados, S.A. de C.V.
            
            
            97
            
            
            97
            
            
            97Operadora
                de Servicios de Personal, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            100Pecuarius
                Laboratorios, S.A. de C.V.
            
            
            64
            
            
            64
            
            
            64Secba,
                S.A. de C.V.
            
            
            100
            
            
            100
            
            
            100Sepetec,
                S. A. de C.V.
            
            
            100
            
            
            100
            
            
            100Servicios
                de Personal Administrativo, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            100Induba
                Pavos, S.A. de C.V.
            
            
            -
            
            
            -
            
            
            100





In
      November 2004, the Company acquired all the Shares of Secba, S.A. de C.V. from
      a
      related party for Ps.15 million. As of the date of acquisition, the figures
      of
      Secba, S.A. de C.V. have been consolidated with the Company’s figures. The
      excess of the purchase price paid over the book value of this investment
      amounted to Ps.0.3 million, which was recorded in other income.





Induba
      Pavos, S.A. de C.V. was created in December 2006 and is a 100% owned subsidiary
      of Bachoco.




**Property,
      Plants and Equipment**




Our
      production and storage facilities are located throughout the regions we serve
      in
      order to ensure freshness and minimize transportation time and costs. The most
      extensive facilities are grouped in nine complexes that include farms and
      processing plants. The largest of our complexes is in Celaya, where we have
      broiler grow-out farms, a broiler processing plant and egg production farms.
      The
      complex at Culiacán includes broiler grow-out farms and a broiler processing
      plant, as do the complexes located in Puebla, Lagos de Moreno, Coatzacoalcos,
      Mérida, Hermosillo and Monterrey. There are smaller egg production farms at Los
      Mochis, Ciudad Obregón and Mexicali. In Gómez Palacio, Durango, we have a
      complex which consists of broiler grow-out farms, a broiler processing plant
      and
      egg production farms representing nearly half of our total egg production
      capacity.




24




The
      following table summarizes the types and number of each type of our production
      facilities as March 2007:




**Bachoco
      Production Facilities**




**Type**
            
            **Number**Chicken
                breeding farms
            
            
            159Broiler
                grow-out farms
            
            
            479Broiler
                processing plants
            
            
            9Egg
                incubation plants
            
            
            21Egg
                production farms
            
            
            100Swine
                breeding farms
            
            
            1Swine
                grow-out farms
            
            
            12Feed
                mills
            
            
            17Further
                process plants
            
            
            4





On
      September 22, 2002, Hurricane Isidore hit the Yucatán Peninsula and affected
      approximately 60% of our chicken growing farms in the region. The remainder
      of
      our facilities in the area, including a poultry processing plant, feed mills,
      breeder farms and incubator plants, suffered minor damages. The chicken growing
      farms in this region represented approximately 7% of our total capacity in
      our
      chicken business. We were able to divert products from our other facilities
      to
      maintain a consistent level of service to our customers in this
      region.




The
      Company repaired its Peninsula Complex on schedule and by the end of 2003 the
      complex had returned to the level of capacity maintained prior to sustaining
      the
      damage caused by Hurricane Isidore. In 2003, the Company implemented projects
      to
      expand the facilities at the Peninsula Complex as well as the Northwest Complex.
      Both complexes were expanded to increase capacity by approximately 50% by the
      third quarter of 2004. These projects were financed with internal resources
      generated by our own operations.




On
      September 16, 2006, Hurricane Lane, hit the southern part of the state of
      Sinaloa affecting some of our chicken growing farms in that region. We were
      able
      to keep a proper supply to our customers in that region from our other
      complexes.




We
      operate 17 feed mills for our own chickens, feed sales to third parties and
      egg
      and swine operations. The total production capacity of our feed plants is
      approximately 365,000 tonnes per month. We estimate that we are the largest
      producer of animal feed in México.




Our
      other
      facilities include two poultry manure-processing plants. Our headquarters are
      located in Celaya Guanajuato, México, and we have 60 sales centers throughout
      the regions we serve. While we own most of our facilities, we lease a limited
      number of farms and sales centers. We also employ a network of contract
      growers.




Our
      fleet
      of trucks carries feed from feed mills to farms, live chicken from farms to
      processing plants, day-old chickens from egg incubation plants to farms, eggs
      from farms to distribution centers and, ultimately, products from distribution
      centers to customers.




**ITEM
                5.**
            **Operating
                and Financial Review and
                Prospects**




The
      following discussion should be read in conjunction with our Consolidated
      Financial Statements. The Consolidated Financial Statements have been prepared
      in accordance with Mexican GAAP, which differs in certain respects from U.S.
      GAAP. Note 17 to the Consolidated Financial Statements provides a description
      of
      the principal differences between Mexican GAAP and U.S. GAAP, as they relate
      to
      us, and a reconciliation to U.S. GAAP of total stockholders’ equity, net income
      and operating income, a consolidated statement of changes in stockholders’
equity and a condensed statement of cash flows under U.S. GAAP as of December
      31, 2005 and 2006 and for the years ended December 31, 2004, 2005 and
      2006.




25




In
      accordance with Mexican GAAP rules on price-level restatement of financial
      statements, the financial statements included with this disclosure recognize
      certain effects of inflation. In addition, the financial statements and, unless
      otherwise specified, the other financial data included herein are restated
      in
      constant pesos as of December 31, 2006. The effects of price-level restatement
      in accordance with Mexican GAAP have not been reversed in the reconciliation
      to
      U.S. GAAP.




**General**




In
      the
      following discussion we describe various trends and how they affected our
      results of operations for the years ended December 31, 2004, 2005 and
      2006.




***Mexican
      Economic Conditions***




In
      2004,
      the Mexican economy showed signs of recovery; GDP growth was 4.4%, which was
      better than initial expectations. Interest rates on 28-day *Cetes* increased to an average of 6.8% for the year and an average of 8.5% in the
      last
      month of the year. Inflation increased to a rate of 5.2%, and the peso
      appreciated against the U.S. dollar by 0.8% at year-end.




In
      2005,
      the Mexican economy was stable and GDP increased by 3.0%; the inflation rate
      was
      3.3%, and rates on 28-day *Cetes* increased to an average of 9.2% for the year and an average of 8.2% during
      December 2005. The peso appreciated against the U.S. dollar by 4.9% at
      year-end.




In
      2006,
      the Mexican economy showed signs of volatility during the first part of the
      year, before the president election. After the election the economy showed
      stability with an annual inflation rate of 4.1% and a reasonably stable
      peso-dollar exchange rate with a final depreciation of the peso against the
      dollar of 1.6%, as compared to the end of 2005. Rates on 28-day *Cetes* decreased to an average of 7.2% for the year.




In
      addition to the effects that the Mexican economy has on our business and results
      of operations, Mexican political events may significantly affect our operations
      and the performance of Mexican securities generally. See Item 3, “Key
      Information—Risk Factors.” A downturn in México’s economic conditions, civil
      unrest or other adverse social, political or economic developments in or
      affecting México could adversely affect our business, results of operations,
      financial condition, ability to obtain financing and prospects for future
      business.




The
      Mexican economy and financial and securities markets are, to varying degrees,
      influenced by economic conditions in other countries. Economic or financial
      conditions in one country or region may undermine investors’ confidence in other
      countries, such as México, and decrease the attractiveness of securities
      investments in such countries. See Item 3, “Key Information — Risk
      Factors.”.




26


***Effects
      of Economic Conditions on the Company***




Mexican
      economic conditions have had an important impact on México’s chicken market.
      Feed costs constitute a substantial portion of the cost of goods sold and are
      priced with reference to U.S. dollars. We use financial instruments to mitigate
      the cost of goods sold in currencies other than Mexican pesos. See Note 2-q
      of
      the Consolidated Financial Statements. In 2003, average producer prices
      increased significantly by 10.6%, due primarily to an increase in raw materials
      prices during most of the year. In 2004, average producer prices increased
      by
      6.7%, due mainly to strong increases in the cost of feed ingredients, in
      particular soybean meal, and a moderate increase of supply in the Mexican
      market. In 2005, average producer prices decreased by approximately 1.7%, mainly
      as a result of a decrease in the cost of the main feed ingredients worldwide,
      and a strong oversupply during the last quarter of the year. In 2006 average
      producer prices decreased by approximately 3.0% mainly from oversupply
      conditions in the market during the first part of the year and as market
      conditions return to more normalized levels as compared with the first three
      quarters of 2005.




As
      of
      December 31, 2006, we have an outstanding total indebtedness of Ps.43.6 million
      all denominated in Mexican pesos. In 2006, we had foreign exchange gain of
      Ps.39.3 million due to fluctuations of the peso against the U.S. dollar, as
      compared to a foreign exchange loss of Ps.60.0 million in 2005 and a foreign
      exchange gain of Ps.48.4 million in 2004.




Any
      erosion of the purchasing power of Mexican consumers may adversely affect demand
      for our products and, as a result, our net revenues and profitability. Inflation
      and changing prices affect our ability to raise prices as well as consumer
      demand, supplier prices and other costs and expenses, consumer purchasing power
      and competitive factors, all of which in turn affect our net revenues and
      operating results. Peso devaluations and high inflation levels could further
      adversely affect our operations and financial position.




27


***Volume
      of Chicken Sold***




The
      volume of our chicken sold decreased by 1.5% in 2003, increased by 11.8% in
      2004, increased by 5.5% in 2005 and increased 0.1% in 2006.




The
      decrease in volume in 2003 was mainly due to the effects of Hurricane Isidore
      on
      our Peninsula Complex during most of the year.




The
      increase in 2004 was due mainly to the completion of growing projects in our
      Northwest and Peninsula complexes, and productivity improvements in the rest
      of
      our operations.




The
      increase in 2005 was due mainly to productivity improvements achieved by the
      Company and the Sanjor acquisition in the second quarter of the
      year.




The
      increase in 2006 was due mainly to productivity improvements, offset by the
      negative effects Hurricane Lane on our Northwest Complex during the second
      half
      of the year, and a reduction in yield as the Company moves to offering
      value-added products.




***Trends
      in Product Prices***




Our
      results of operations are significantly affected by the cyclical and volatile
      nature of Mexican prices for chicken, feed, eggs and swine.




In
      2003,
      the Company was affected by higher feed ingredient costs and oversupply
      conditions due to an increase in domestic production. The continued weakness
      of
      the Mexican economy affected the purchasing power of customers, and as a result
      the Company was unable to increase its prices. During 2003, our chicken prices
      decreased 2.7% primarily as a result of oversupply conditions in the domestic
      chicken market as well as a decrease in consumer purchasing power.




In
      2004,
      our chicken prices increased by 6.4%, mainly as a result of an increase in
      the
      cost of our main feed ingredients which pushed the prices up in the industry,
      a
      moderate supply of chicken in the Mexican market, mainly in the second part
      of
      the year, and our commercial and marketing strategies.




In
      2005,
      our chicken prices increased 1.6%, as a result of a strong demand in the first
      three quarters of the year, partially compensated by weak prices in the last
      quarter of the year.




In
      2006,
      our chicken prices decreased 3.7% due to oversupply in the market, in the first
      part of the year, and a lower more normalized historical demand compared to
      2005.




Prices
      for feed tend to follow trends in prices of feed ingredients, which we discuss
      below.




In
      2003,
      egg prices increased by 17.5% mainly due to a reduced supply of this product
      in
      the market.




In
      2004,
      our egg prices increased by 7.3% mainly due to an increase in the price of
      feed
      ingredients and a moderate supply during the first part of the year in the
      Mexican market.




In
      2005,
      our egg prices decreased by 15.7% as a result of continued oversupply conditions
      in the Mexican market due to domestic production.




In
      2006,
      our egg prices increased 3.9% compared to 2005, as a result of a more stable
      supply.




Bachoco
      continues to work to improve its sales mix by introducing a packaged product
      with brand identification with better profit margins.




28




In
      2003,
      swine prices began to recover, increasing by 7.0%, due mostly to very modest
      growth in domestic production and imports.




In
      2004,
      our swine price increased by 25.8% as there was only a moderate supply in the
      Mexican market.




In
      2005,
      our swine prices decreased by 9.0% as imports into México increased.




In
      2006,
      our swine prices declined 11.9% as a result of greater competition from imports
      and a more fragmented Mexican market.




We
      believe that, among other factors, industry price competition may continue
      to
      exert downward pressure on real chicken prices, and that prices for chicken,
      feed, eggs and swine are also likely to remain volatile and subject to cyclical
      variation. Due to the time needed to complete the chicken growth cycle, chicken
      producers generally cannot adjust production to respond immediately to cyclical
      variations, and, accordingly, in times of oversupply, prices may decline due
      to
      overproduction.




***Trends
      in Prices of Feed Ingredients***




The
      single largest component of our cost of sales is the cost of ingredients used
      to
      prepare feed, including sorghum, soybean meal, corn, fish meal, meat meal and,
      for certain chicken products, marigold extract. The prices of these feed
      ingredients are subject to significant volatility due to a number of variables,
      including, among other factors, weather, harvest size, transportation and
      storage costs, government agricultural policies and currency exchange rates.
      The
      price at which we may obtain feed ingredients from Mexican producers relative
      to
      U.S. producers is also subject to volatility depending on these
      variables.




At
      present, Mexican feed prices tend to parallel U.S. and international prices.
      In
      2002, the percentage of grain purchased from local markets fell to 30%, with
      the
      remaining imported primarily from the United States. In 2003, the percentage
      of
      grain purchased from domestic markets was 38%. In 2004, it was approximately
      35%, in 2005 it was 30% and in 2006 it was 31.3%.




Due
      to
      low inventories worldwide at the end of 2003 and during most of 2004, soybean
      meal reached historically high prices worldwide. Consequently, the price of
      other sources of protein, including grain, increased. As a result, the cost
      of
      our feed increased substantially. It was not possible for us to pass these
      increases to our customers, leading us to poor results during the first part
      of
      the year. In the second part of the year, mainly in the last quarter, prices
      resumed more normalized levels, allowing us to improve our results. In 2005,
      prices of our raw materials were on the average lower compared to 2004; during
      the year prices were rather constant with a slight trend to increase during
      the
      second part of the year.




During
      the second part of 2006, international corn prices increased significantly
      as a
      result of lower inventories and increases in alternative uses of corn, such
      as
      ethanol production.




In
      recent
      years, reductions in tariffs under NAFTA have generally resulted in reductions
      of our costs of importing feed ingredients.




29


***Acquisitions
      & Dispositions***




Our
      operations have been affected during the periods we discuss herein, by a series
      of acquisitions and production arrangements that we have made in recent
      years:




·
            During
                2002, our acquisitions contributed to the expansion and consolidation
                of
                our leadership position in the egg and chicken industries in México.
                Through these acquisitions, we expanded our distribution network
                throughout almost the entire country and increased our market presence
                in
                both La Laguna and the northeastern regions of México. We financed these
                acquisitions through our own working capital
                resources.




·
            During
                2003, we implemented two important projects to expand the facilities
                at
                our Northwest Complex and Peninsula Complex to increase production
                capacity in our chicken business. Both complexes were expanded to
                increase
                capacity by approximately 50% and were completed by the third quarter
                of
                2004.




·
            In
                July 2004, we reached an agreement for renting the facilities of
                UPAVAT
                and UPATEC, a small producer of table eggs in the state of Puebla,
                south
                of México City, with a annual capacity of about 0.7 million of lying
                hens.




·
            In
                November 2004, the Company acquired all the shares of Secba, S.A.
                de C.V.,
                from a related party for Ps.15.0 million. As of the date of the
                acquisition, the figures of Secba, S.A. de C.V. have been consolidated
                with the Company’s figures. The excess of the purchase price paid over the
                book value of this investment amounted to Ps. 0.3 million and was
                recognized in other income.




·
            In
                June 2005, the Company acquired certain assets of Sanjor, a private
                poultry company located in the Yucatán Peninsula, with production of
                approximately 300 thousand chickens per week and 100 thousand table
                egg
                laying hens, which allow us to reinforce our leadership in this region
                of
                the country.




·
            In
                December 2006, the company starting operations at a new complex in
                the
                state of Sonora by acquiring the farms from and leasing the processing
                plant and feed mill of “Del Mezquital Alimentos” in accordance with our
                strategic plans.




·
            In
                February 2007, the Company reached a business agreement with “Grupo Libra”
                a company located in northeast México. The agreement establishes a rent
                scheme of the facilities, which include breeders and chicken farms
                with a
                capacity of approximately 3.0 million chickens per cycle, along with
                a
                slaughter plant, and a processing center. In addition, Bachoco acquired
                all of Grupo Libra’s working capital and
                brands.




30




**Summary
      of Results of Operations**




The
      following table sets forth selected components of our results of operations
      as a
      percentage of net revenues for each of the periods indicated:




**Year
                Ended December 31,****2004**
            
            **2005**
            
            **2006****(percentage
                of net revenues)**Net
                revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            (81.1
            )
            
            (71.9
            )
            
            (77.5
            )Gross
                profit
            
            
            18.9
            
            
            28.1
            
            
            22.5Selling,
                general and administrative expenses
            
            
            (12.5
            )
            
            (12.8
            )
            
            (13.3
            )Operating
                income
            
            
            6.4
            
            
            15.2
            
            
            9.2Comprehensive
                financing (cost) income
            
            
            (0.5
            )
            
            (0.5
            )
            
            0.4Income
                tax, asset tax and employee profit sharing
            
            
            (0.8
            )
            
            (2.4
            )
            
            (3.9
            )Net
                income
            
            
            5.3
            
            
            12.2
            
            
            5.8





The
      following table sets forth, for each of the periods indicated, our net revenues
      of chicken, feed, eggs, swine and other products as a percentage of total net
      revenues in each period:




**Year
                Ended December 31,****2004**
            
            
            **2005**
            
            
            **2006****(percentage
                of net revenues)**Chicken
            
            
            78.5
            %
            
            80.1
            %
            
            77.6
            %Feed
            
            
            6.6
            %
            
            7.2
            %
            
            9.0
            %Eggs
            
            
            10.9
            %
            
            8.7
            %
            
            9.2
            %Swine
                and Others
            
            
            4.0
            %
            
            4.0
            %
            
            4.2
            %Total
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %





**Results
      of Operations for the Years Ended December 31, 2005 and
      2006**




***General***




In
      2006,
      the Mexican economy showed signs of stability: GDP grew by 4.8%, an annual
      inflation was 4.1% and the peso-dollar exchange rates was reasonably stable
      with
      a final depreciation of 1.6% of the peso against the dollar at the end of the
      year, as compared to 2005.




According
      to UNA, the production volume of the Mexican chicken industry grew approximately
      3.7% in 2006. Consumer preference for healthier products, income increases
      per
      capita, and chicken as a low-cost protein alternative to other meat sources,
      have all had a favorable effect on per capita poultry consumption in the
      country.




With
      respect to the egg industry, domestic production increased by almost 1.3%,
      which
      contributed to the excess supply in the market during the year.




We
      were
      able to increase our sales volume in all our main product lines. We sold our
      entire production and achieved an operating margin of 9.2%.




***Net
      revenues***




Consolidated
      net revenues during 2006 amounted to Ps.15.0 billion, compared to $15.1 billion
      reported in 2005 a 0.4% decrease. This was mostly due to decrease in the sales
      of chicken, our main product line.




31




Our
      chicken sales decrease by 3.5% due to an decrease in price of 3.6%, while volume
      increased smoothly by 0.1%, mainly as a result of conditions going back to
      normal, compared to the previous year.




Our
      revenues from egg sales increased by 5.9% in 2006, as a result of a 3.9% price
      increase, and 1.9 % increase in volume, due to more stable supply and prices
      in
      the year throughout the industry.




In
      2006,
      there was a significant growth in sales of 25.4% of balanced feed, while the
      volume achieved 24.3% compared to 2005. This was the result of focused
      strategies that Bachoco has implemented in this line of business.




We
      recognized Ps.10.5 million in our 2006 revenue as a result of fair valuing
      part
      of the Company’s inventories, see Note 2-i, and 4-b in our audited financial
      statements.




***Cost
      of sales***




The
      consolidated cost of sales in 2006 was Ps.11.6 billion, representing an increase
      over 2005 of Ps.0.79 billion, or 7.3%, as a result of higher costs in raw
      materials, particularly during the second half of the year .




***Gross
      profit***




Bachoco’s
      gross profit reached Ps.3.4 billion during 2006, a decrease of 20.2% compared
      with the previous year. Gross profit, as a percentage of net sales, was 22.5%,
      compared to 28.1% reached in 2005. The decline was mostly due to cost increase
      and a decrease in sales.




***Sales,
      general and administrative expenses***




Sales
      and
      administrative expenses in 2006 amounted to Ps.2.0 billion. This represents
      an
      increase of only 3.3% over 2005 and is mainly attributable to sales expenses
      due
      mainly to delivering product to more points of sales.




***Operating
      income***




Consolidated
      operating income in 2006 totaled Ps.1.4 billion, a decrease of 40% over the
      previous year’s results, largely due a lower gross profit and higher operating
      expenses. The operating margin for the year was 9.2% compared to 15.2% in
      2005.




***Comprehensive
      cost of financing***




Comprehensive
      financing income (cost) represents the net effect of interest expense, interest
      income, foreign exchange gain (loss) and gain (loss) on net monetary position,
      which arises from the effect of inflation on the average net balance of monetary
      assets and liabilities. Comprehensive financing cost had a positive impact
      (gain) of Ps.59.2 million in 2006 compared with a cost of Ps. 71.3 million
      in
      2005.




This
      change was due mainly to a net gain in foreign exchange of Ps. 39.1 million
      achieved through greater efficiency in buying US dollars needed for our normal
      operations and a larger net interest income due to higher level of cash,
      partially offset by a higher loss on net monetary positions since the inflation
      rate was higher in 2006.




32




***Other
      income, net***




Other
      income, net represented a net gain of Ps.22.0 million in 2006 as compared to
      a
      net expense of Ps.21.7 million in 2005. Other income, net in both 2006 and
      2005
      was attributable mainly to sales of used equipment, income from government
      supports and miscellaneous services. It represented a net gain of Ps.22.0
      million in 2006 as compared to a net expense of Ps.21.7 million in 2005. This
      variation was mainly due to better results of used equipment less amount of
      obsolete inventories and larger government supports.




***Income
      before provision for income tax, asset tax, employee profit sharing***




Income
      before provision for income tax, asset tax, employee profit sharing and
      cumulative effect of accounting change decreased in 2006, from Ps.2,199.0
      million to Ps.1,455.9 million, due primarily to a decrease in operating income.




***Net
      income***




Net
      income for 2006 decreased to Ps.874.3 million compared to Ps.1,841.1 million
      reached in 2005. This result includes a Ps.324.2 million decrease due to
      deferred taxes as a result of rate changes in the taxation of the Mexican
      agricultural and livestock sector, in place as of 2007. This change had no
      effect on the Company’s cash flow.




**Results
      of Operations for the Years Ended December 31, 2004 and
      2005**




***General***




In
      2005,
      the Mexican economy showed signs of stability: GDP grew by 3.0%, the annual
      inflation increased by 3.3%, and the Mexican peso appreciated against the U.S.
      dollar by 4.9% at year-end.




According
      to UNA **,** the
      production volume of the Mexican chicken industry grew approximately 4.5% in
      2005. This increase in supply in the chicken industry, combined with the
      stability of the Mexican economy, and a stable cost of main raw materials,
      resulted in an increase in our chicken prices, mostly during the first nine
      months of the year.




With
      respect to the egg industry, domestic production increased by almost 3.6%,
      which
      contributed to the excess supply in the market during the year.




In
      spite
      of a significant increase in the supply, we were able to increase our sales
      volume in all our main product lines; we sold our entire production and achieved
      an operating margin of 15.2%.




***Net
      revenues***




Consolidated
      net revenues during 2005 amounted to Ps.15.0 billion, an increase of
      Ps.0.8 billion (or 5.3%), from Ps.14.3 billion in 2004. This increase was
      mostly due to increases in the sales of all our main product lines, which
      resulted from increases in volume and prices of those lines.




Our
      chicken sales increased by 7.2% due to an increase in price of 1.6% and in
      volume of 5.5%. This increase was due mainly to productivity improvements
      achieved by the Company and the Sanjor acquisition in the second quarter of
      this
      past year.




Our
      revenues from egg sales decreased by 14.1% in 2005, as a result of a 15.7%
      price
      decrease, partially offset by an increase of 1.9% in sales volume. This
      reduction in price was mainly due to oversupply conditions in the Mexican market
      during most of the year.




33




There
      was
      a significant growth in sales of 14.0% of balanced feed, while the volume
      achieved 21.5% compared to 2004. This was the result of focused strategies
      that
      Bachoco has implemented in this line of business.




We
      recognized Ps.27.1 million in our 2005 revenue as a result of fair valuing
      part
      of the Company’s inventories, see


Note
      4-b.




***Cost
      of sales***




The
      consolidated cost of sales in 2005 was Ps.10.8 billion, representing a decrease
      over 2004 of Ps.08 billion, or 6.6%, as a result of lower costs of our main
      feed
      supplies compared to 2004, and also the Company’s ongoing efforts to improve
      efficiency in all its processes.




***Gross
      profit***




Bachoco’s
      gross profit reached Ps.4.2 billion during 2005, a significant improvement
      when
      compared with Ps.2.7 billion reached in 2004. Gross profit, as a percentage
      of
      net sales, was 28.1%, compared to 18.9% reached in 2004. The increase in our
      gross profit and profit margins resulted mainly from a decline in costs and
      an
      increase in volume sold.




***Sales,
      general and administrative expenses***




Sales
      and
      administrative expenses in 2005 amounted to Ps.1.9 billion. This represents
      an
      increase of only 8.3% over 2004. The increase was used to market and distribute
      the larger volume sold of our products. As a percentage of net revenues,
      selling, general and administrative expenses increased to 12.8% in 2005,
      compared to 12.5% in 2004.




***Operating
      income***




Consolidated
      operating income in 2005 totaled Ps.2.3 billion, an increase of 149.7% over
      the
      previous year, as a result of an increase in sales and a decrease in the cost
      of
      sales. The operating margin was 15.2% in 2005 compared to 6.4% in
      2004.




***Comprehensive
      cost of financing***




Comprehensive
      cost of financing had negative impact (loss) of Ps.71.3 million, as a result
      of
      a foreign exchange loss, loss in the monetary position and financial expenses
      that were partially offset by larger financial products.




***Other
      income, net***




Other
      income net represented a net expense of Ps.21.6 million in 2005 as compared
      to a
      net income of Ps.33.2 million in 2004. Other income net in both 2005 and 2004
      was attributable mainly to sales of used equipment, income from government
      supports and miscellaneous services.




***Income
      before provision for income tax, asset tax, employee profit***




Income
      before provision for income tax, asset tax, employee profit sharing and
      cumulative effect of accounting change increased more than double reached in
      2004, from Ps.874.2 million in 2004 to Ps.2,198.9 million in 2005, due primarily
      to an increase in operating income.




34




***Net
      income***




Net
      income for 2005 increased more than twice, to Ps.1,841.1 million compared to
      Ps.759.8 million in 2004. The increase was mainly due to better operating
      results. We increased our net income in 2005 by Ps.18.8 million derived from
      the
      elimination of goodwill amortization.




**Income
      Tax, Asset Tax and Employee Profit Sharing, Year 2006**




For
      a
      more detailed discussion on this topic, please see Note 14 of our Consolidated
      Financial Statements. We and each of our subsidiaries file individual tax
      returns and may be subject to different tax regimes.




In
      December 2004, a reduction in the 33% general income tax rate was approved,
      so
      that the rate was 30% in 2005, and 29% in 2006 and will be 28% in 2007 and
      succeeding years.




The
      Simplified Regime taxed corporate income at a rate of 35% for 2002, with a
      gradual yearly decrease of one percent, until the tax rate was reduced to 29%
      in
      2006; however, companies subject to the New Simplified Regime also received
      reductions on the above corporate rates, so that companies under this regime
      had
      an effective tax rate of 16% for 2004, 2005 and 2006.





As
      of
      January 1, 2006, the tax rate for taxpayers that pay income tax under the New
      Simplified Regime was determined by applying the reduction of 44.83% in 2006,
      to
      the regular income tax rates of 29%, resulting in the fixed rate of
      16%.





In
      2006
      changes were made to Mexican Law that will increase the tax rate from 16% to
      19%
      for 2007. This charge resulted in a charge of Ps.324.2 millions to income,
      reflected in deferred taxes.




In
      addition to income tax, we, along with our subsidiaries, are also subject to
      an
      alternative minimum tax known as “asset tax,” which is assessed on the average
      value of most assets, net of certain liabilities. The general asset tax rate
      is
      1.8%; BSACV is subject to a 0.9% rate pursuant to the New Simplified Regime
      (unchanged from the Simplified Regime). We benefit from special rules that
      exclude a number of assets from the asset tax and from tax incentives in
      connection with certain of our investments. We (together with our subsidiaries)
      are subject to asset tax if the amount of asset tax exceeds the computed income
      tax liability. Asset tax can be credited against income tax in subsequent years
      (up to ten years). The asset tax in 2004, 2005 and 2006 amounted to Ps.13.7
      millions, Ps.20.6 million and Ps.27.2 million, respectively. In each of the
      three years we credited against these amounts the income tax paid in such years
      of Ps.11.5 million, Ps.17.6 million and Ps.24.8 million, respectively.




As
      of
      December 31, 2006, we had Ps.13.4 million in asset tax credits.




In
      2006,
      we recognized a total income tax and asset tax charge of Ps.577.4 million,
      compared to a total income and asset tax charge of Ps.354.5 million in 2005
      and
      Ps.111.2 million in 2004, due to larger deferred tax due to the tax rate
      increase for 2007. (See Note 14 of the Financial Statements).




Neither
      Industrias Bachoco, S.A.B. de C.V. nor BSACV have employees, but each of our
      other subsidiaries is required under Mexican law to pay employees, in addition
      to their compensation and benefits, profit sharing in an aggregate amount equal
      to 10% of such subsidiary’s taxable income subject to certain adjustments. (See
      Note 14-e of the Financial Statements).




35


**Liquidity
      and Capital Resources**




Our
      working capital (current assets less current liabilities) increased
      year-over-year from Ps.4.9 billion on December 31, 2005 to Ps.5.5 billion on
      December 31, 2006. We believe that our working capital is sufficient for our
      present requirements. ****** The
      ratio
      of current assets to current liabilities on December 31, 2006 was 5.9.




Cash
      and
      cash equivalents were Ps.3.5 billion on December 31, 2006, representing an
      increase of Ps.157.9 million from the previous year primarily due to cash
      generated by operations.




Inventories
      were Ps.2.1 billion as of December 31, 2006, representing an increase of
      Ps.438.8 million from the previous year.




Total
      debt, including the current portion of long-term debt, equaled Ps.43.6 million
      as of December 31, 2006, a decrease of Ps.106.9 million from December 31, 2005.




Stockholders’
      equity increased to Ps.13.6 billion on December 31, 2006 from Ps.13.0 billion
      on
      December 31, 2005.




Long-term
      debt on December 31, 2006 represented 0.3% of our capitalization, as compared
      to
      0.4% on December 31, 2005.




In
      2006,
      capital investments amounted to Ps.863.2 million, all of which were financed
      from resources generated from our own operations. These capital investments
      were
      used mainly to finance productivity projects, production growing capabilities
      and infrastructure maintenance to keep facilities in good operating conditions.




We
      are a
      holding company with no significant operations of our own. We will have
      distributable profits and cash to pay dividends only to the extent that we
      receive dividends from our subsidiaries, principally BSACV. The amount of
      dividends payable by our subsidiaries and us is also subject to general
      limitations under Mexican corporate law.




We
      expect
      to finance our capital expenditures and debt service obligations from our
      current liquidity and capital resources, cash flows and from additional
      borrowings from our existing sources of debt financing, although we will also
      consider other sources of debt financing if they are available on advantageous
      terms. For a discussion of our use of hedging instruments, please see Item
      8
      below.




Our
      major
      categories of indebtedness included the following:




·
            As
                of December 31, 2006, we did not have notes payable to banks.




·
            Long-term
                debt to banks, as of December 31, 2006, was Ps.34.2 million outstanding
                (excluding current portion). The weighted average interest rate on
                long-term debt was 9.26%.




36


The
      following table summarizes certain contractual liabilities as of December 31,
      2006. The table does not include short-term debt, accounts payable or pension
      liabilities.




**Payments
                  Due by Period**
                **(millions
                  of constant pesos as of December 31, 2006)****Contractual
                  Obligations**
              
              **Total**
              
              **2008**
              
              **2009**
              
              **2010**
              
              **2011**
              
              **2012**Long-term
                  debt
              
              
              Ps.34.3
              
              
              Ps.
                  10.1
              
              
              Ps.
                  11.9
              
              
              Ps.
                  12.3
              
              
              Ps.0.0
              
              
              Ps.0.0Operating
                  leases
              
              
              63.8
              
              
              18.1
              
              
              14.6
              
              
              11.3
              
              
              10.3
              
              
              9.5Total
              
              
              Ps.98.1
              
              
              Ps.
                  28.2
              
              
              Ps.
                  26.5
              
              
              Ps.
                  23.6
              
              
              Ps.10.3
              
              
              Ps.9.5




**Off-Balance
      Sheet Arrangements**




We
      do not
      have any off-balance sheet arrangements of the type that we are required to
      disclose under Item 5.E of Form 20-F.




**Reconciliation
      to U.S. GAAP**




The
      principal differences between Mexican GAAP and U.S. GAAP, as they relate to
      us,
      concern (i) deferred income taxes, (ii) capitalization of financing costs,
      (iii)
      biological assets and agricultural products valuation at fair value, and (iv)
      the amortization of goodwill. Goodwill amortization is not required for fiscal
      years beginning January 2005, due to the new Statement B-7 issued by the Mexican
      Institute of Public Accountants (see Note 17 to the Consolidated Financial
      Statements for a detailed description). Each of these differences also affects
      our balance sheet.




Our
      consolidated net income under U.S. GAAP was Ps.796.0 million in 2004, Ps.1,824.8
      million in 2005 and Ps.863.1 **** million
      in 2006, compared to Ps.759.8 million, Ps.1,841.1 **** million
      and Ps.874.3 million, respectively, under Mexican GAAP. For further explanation,
      please see Note 17 to the Consolidated Financial Statements.




Bachoco
      has applied Statement of Financial Accounting Standards (SFAS) No.109, *Accounting
      For Income Taxes,* for
      all
      periods presented. In the Company’s case the application of the rule did not
      generated a reconciling difference in 2004, 2005 and 2006, therefore, there
      is
      no difference between Mexican and US GAAP in those years.




The
      Company also adopted the requirements of Statement 144 on January 1, 2002 and
      has not identified any impairment adjustments to the carrying value of its
      long
      lived assets. **




**Use
      of Estimates in Certain Accounting Policies**




In
      preparing our financial statements, we make estimates concerning a variety
      of
      matters. Some of these matters are highly uncertain, and the estimates involve
      judgments based on the information available to us. The discussion below
      identifies matters for which the financial presentation would be materially
      affected (a) if we relied on different estimates that we could reasonably use,
      or (b) if in the future we change our estimates in response to changes that
      are
      reasonably likely to occur.




The
      discussion below addresses only those estimates that we consider most important
      based on the degree of uncertainty and the likelihood of a material impact
      if we
      used a different estimate. There are many other areas in which we use estimates
      about uncertain matters, but the reasonably likely effect of changed or
      different estimates would not be material to our financial
      presentation.




37




***Estimated
      Useful Lives of Property, Plant and Equipment***




We
      estimate the useful lives of our property, plant and equipment in order to
      determine the amount of depreciation expense to be recorded in each period.
      The
      current estimates of useful lives are based on estimates made by an independent
      appraiser in 1996. Those estimates have been adjusted when applicable, based
      on
      historical experience with similar assets that we own. Accumulated depreciation
      expense for property, plant and equipment in 2006 amounted to Ps.6,037.2
      million. As applied to our 2006 financial results, the depreciation was Ps.517.9
      million, or 3.5% of our net revenues. For further explanation, see Notes 2
      and 5
      to the Consolidated Financial Statements.




***Allowance
      for Productivity Declines***




In
      estimating the inventory value of our breeder birds, swine and layers, we make
      allowances for productivity declines. We estimate such allowances based on
      expected future production and deduct them from inventories. The estimates
      of
      future production are based on standards for the breeder line and the
      performance of the most recent flocks. We refer to the standards provided by
      the
      company that sells us the breeder line in question. Each company that sells
      breeder lines publishes its own particular standards for its proprietary breeder
      line.




***Inventory
      Valuation***




Since
      January 1, 2003, for Mexican GAAP purposes, our inventories are valued using
      market prices. According to Bulletin E-1, biological assets and agricultural
      products (the latter at the time of their harvesting) are to be valued at their
      fair value, net of estimated costs at point of sale. Also, the Bulletin
      establishes that, whenever the fair value cannot be determined in a reliable,
      verifiable and objective manner, the assets are to be valued at their production
      cost, net of accumulated impairment.




Poultry
      being fattened (less than 6.5 weeks old), incubatable eggs, pigs and laying
      hens, are valued at production cost since it is not possible to determine their
      fair value in a reliable, verifiable and objective manner.




Poultry
      being fattened from age 6.5 weeks to the time birds are ready for sale is valued
      at fair value net of estimated costs at point of sale, considering the sales
      price per kilogram of processed chicken at the date of valuation.




Laying
      hens are depreciated based on eggs produced using an estimated factor for
      productive useful life.




Processed
      chicken and commercial eggs are valued at their fair value net of costs at
      point
      of sale, considering the sales price per kilogram of processed chicken and
      commercial eggs at the time such items are considered agricultural products;
      from this date, the valuation is considered to be cost up to the time of sale,
      not in excess of net realizable value.




For
      more
      details, see “Inventories and biological assets” in Note 4 of the Consolidated
      Financial Statements.




***Allowance
      for Doubtful Accounts***




We
      periodically and systematically review the aging and collection of our accounts
      receivable. As a result of this procedure, we set up an allowance for doubtful
      accounts of Ps.30.7 million in 2006 that represents 0.2% of our total annual
      sales. See Note 2-h of our Consolidated Financial Statements.




38




***Pension
      Plan***




Pension
      benefits are based on the salary of workers in their final three years of
      service, the number of years worked and their age at retirement. See note 2-o
      in
      our Consolidated Financial Statements.




**ITEM
                6.**
            **Directors,
                Senior Management and
                Employees**




**Directors**




The
      Board
      of Directors is responsible for the management of our business. The Board of
      Directors consists of an odd number of directors, never fewer than five, and
      corresponding alternate directors, each of whom is elected for a term of one
      year.




Before
      September 2006, holders of Series B Shares elected directors and alternate
      directors at a general ordinary stockholders’ meeting, while holders of Series L
      Shares had the right to appoint or elect two directors and two alternate
      directors to the Board of Directors.




Since
      September 2006, we have only Series B Shares with full voting
      rights.




Alternate
      directors are authorized to serve on the Board of Directors in place of
      directors who are unable to attend meetings or otherwise participate in the
      activities of the Board of Directors




The
      following table identifies our directors, alternate directors, Honorary Chairman
      of the board and Secretary of the board as of June 2006, their positions and
      their years of service:




**Name**
            
            **Position**
            
            **Years
                as a Member of the Board of****Director**Enrique
                Robinson Bours Almada
            
            Honorary
                Chairman of the board
            
            53Francisco
                Javier R. Bours Castelo
            
            Chairman
                of the board and Proprietary Shareholder Director
            
            25Cristóbal
                Mondragón Fragoso
            
            Secretary
                of the Board
            
            11Mario
                Javier Robinson Bours Almada
            
            Proprietary
                Shareholder Director
            
            53Juan
                Bautista Salvador Robinson Bours
            
            Proprietary
                Shareholder Director
            
            53Arturo
                Bours Griffith
            
            Proprietary
                Shareholder Director
            
            13Jesús
                Enrique Robinson Bours Muñoz
            
            Proprietary
                Shareholder Director
            
            13Ricardo
                Aguirre Borboa
            
            Proprietary
                Shareholder Director
            
            13Octavio
                Robinson Bours Griffith
            
            Proprietary
                Shareholder Director
            
            10Jesús
                Rodolfo Robinson Bours Muñoz
            
            Proprietary
                Shareholder Director
            
            5José
                Eduardo Robinson Bours Castelo
            
            Alternate
                Director
            
            13Juan
                Salvador Robinson Bours Martínez
            
            Alternate
                Director
            
            13José
                Francisco Robinson Bours Griffith
            
            Alternate
                Director
            
            13Guillermo
                Pineda Cruz
            
            Alternate
                Independent Director
            
            13Avelino
                Fernández Salido
            
            Independent
                Director
            
            4Humberto
                Schwarzbeck Noriega
            
            Independent
                Director
            
            4




39




Enrique
      Robinson Bours, Mario Javier Robinson Bours and Juan Bautista Salvador Robinson
      Bours are brothers. Francisco Javier R. Bours Castelo and José Eduardo Robinson
      Bours Castelo are sons of Mario Javier Robinson Bours. Arturo Bours Griffith,
      José Francisco Bours Griffith and Octavio Robinson Bours are nephews of Enrique
      Robinson Bours, Mario Javier Robinson Bours and Juan Bautista Salvador Robinson
      Bours. Jesús Enrique Robinson Bours Muñoz and Jesús Rodolfo Robinson Bours Muñoz
      are sons of Enrique Robinson Bours. Juan Salvador Robinson Bours Martínez is the
      son of Juan Bautista Salvador Robinson Bours. Guillermo Pineda Cruz is the
      son-in-law of Enrique Robinson Bours, and Ricardo Aguirre Borboa is the
      son-in-law of Juan Bautista Salvador Robinson Bours.




Our ** bylaws
      provide for the creation of an executive committee of the Board of Directors,
      which may exercise certain of the board’s powers in full, subject to certain
      limitations.




In
      April
      2002, we announced the retirement of Mr. Enrique Robinson Bours Almada, Chairman
      of the board and co-founder of the Company. Mr. Bours led the Company for 50
      years. The board named as his successor Mr. Javier Robinson Bours Castelo,
      Mr.
      Enrique Robinson Bours’s nephew. Mr. Bours Castelo has been at Bachoco for 25
      years as a member of the board and served as Vice-Chairman for nine years.
      Mr.
      Bours Castelo was named Chairman of the board in 2002.




In
      order
      to fully comply with current Mexican Corporate and Securities Market Laws as
      well as other recent regulatory amendments in the various markets in which
      Bachoco’s Shares are traded, we appointed a new Board of Directors at our
      ordinary stockholders’ meeting held on April 30, 2003. We ratified our Board of
      Directors at our stockholders’ meeting held on April 25, 2007.




Our
      board, as of June 2007, is composed of the following members:




Proprietary
      Shareholder Directors:


Francisco
      Javier R. Bours Castelo


Mario
      Javier Robinson Bours Almada


Juan
      Bautista S. Robinson Bours Almada


Jesús
      Enrique Robinson Bours Muñoz


Jesús
      Rodolfo Robinson Bours Muñoz


Arturo
      Bours Griffith


Octavio
      Robinson Bours Griffith


Ricardo
      Aguirre Borboa





Alternate
      Directors:


José
      Eduardo Robinson Bours Castelo


Juan
      Salvador Robinson Bours Martínez


José
      Francisco Robinson Bours Griffith


Guillermo
      Pineda Cruz





Independent
      Directors:


Avelino
      Fernández Salidos


Humberto
      Schwarzbeck Noriega





Life
      Honorary Chairman of the Board:


Enrique
      Robinson Bours Almada




40


*Francisco
      Javier R. Bours Castelo* , ** Chairman
      of the Board of Directors, has been a member of the board for 25 years, and
      has
      been Chairman since April 2002. Before that, he was Vice-Chairman for several
      years. Mr. Bours holds a degree in Civil Engineering from the *Instituto Tecnológico y de Estudios Superiores Monterrey* (ITESM).
      He currently serves as Chairman of the boards of directors of the following
      companies: Grupo Megacable, S.A. de C.V., Congeladora Horticola, S.A. de C.V.,
      Inmobiliaria of Trento S.A. de C.V., Acuicola Boca S.A. de C.V., Agriexport
      S.A.
      de C.V., Industrias Boca, S.A. de C.V., and Promotora Empresarial del Noroeste,
      S.A. de C.V.




*Mario
      Javier Robinson Bours Almada* ,
      Proprietary Shareholder Director, has been a member of the board for 53 years,
      and is a co-founder of Industrias Bachoco S.A.B. de C.V.




*Juan
      Bautista S. Robinson Bours Almada* ,
      Proprietary Shareholder Director, has been a member of the board for 53 years
      and is a co-founder of Industrias Bachoco S.A.B. de C.V.




*Jesús
      Enrique Robinson Bours Muñoz* ,
      Proprietary Shareholder Director, has been a member of the board for 13 years,
      having previously served as Production Director and Divisional Manager. Mr.
      Robinson Bours holds a degree in Engineering from the University of Arizona.
      He
      is also a member of the Board of Directors of San Luis Corporación S.A. de C.V.,
      and Megacable S.A. de C.V.




*Jesús
      Rodolfo Robinson Bours Muñoz* ,
      Proprietary Shareholder Director, has been a member of the board for 5 years.
      Mr. Robinson Bours previously served in the Company as Production Manager in
      the
      Northwest and Bajio divisions, Commercial Manager in Northwest Division and
      Purchasing Manager at the Bajio Division. Mr. Robinson Bours holds a degree
      in
      Agricultural Engineering from the University of Arizona. He has business
      experience in agriculture and raising livestock with Agrícola Monte Cristo S.A.
      de C.V., Agrícola Río Yaqui S.P.R. de R.L., Agrícola Nacapul S.P.R. de R.L. and
      Ganadera Cocoreña S.P.R. de R.L.




*Arturo
      Bours Griffith* ,
      Proprietary Shareholder Director, has been a member of the board for 13 years.
      Mr. Bours Griffith completed professional studies at the University of Arizona.
      He is also Chairman of the board of Qualyplast, S.A. de C.V., and a member
      of
      the board of Megacable, S.A. de C.V., Promotora Empresarial del Noroeste, S.A.
      de C.V., and Taxis Aereos del Noroeste, S.A. de C.V.




*Octavio
      Robinson Bours Griffith* ,
      Proprietary Shareholder Director, has been a member of the board for 10 years.
      Mr. Robinson Bours holds a degree in Agricultural Engineering from the *Instituto
      Tecnológico y de Estudios Superiores de Monterrey* (ITESM).
      He has experience in producing swine, and is also a member of the board of
      Choya, S.A. de C.V., and Granos Santa Fe, S.A. de C.V.




*Ricardo
      Aguirre Borboa* ,
      Proprietary Shareholder Director, was also an Independent Director until April
      2007. Mr. Aguirre has been a member of the board for 13 years. He is also a
      member of the Board of Directors of the newspaper *El
      Debate* and he
      holds a degree in Agricultural Engineering from the *Instituto Tecnológico y de Estudios Superiores de Monterrey* (ITESM).
      He has experience in agriculture and pork production. Mr. Aguirre Borboa is
      also
      member of the board of Gasolinera Servicios del Valle del Fuerte S.A. de C.V.,
      Periódico el Debate de los Mochis, and Tepeyac Produce, Inc.




*José
      Eduardo Robinson Bours Castelo* ,
      Alternate Director, has been a member of the board for 13 years. Mr. Robinson
      Bours holds a degree in Industrial Engineering from the *Instituto
      Tecnológico y de Estudios Superiores de Monterrey* (ITESM).
      He was previously Commercial Director of *Industrias
      Bachoco* ,
      a
      Senator of the Mexican Congress and is currently governor of the state of
      Sonora.




*Juan
      Salvador Robinson Bours Martínez* ,
      Alternate Director, has been a member of the board for 13 years, and has served
      Bachoco as Purchasing Manager. Mr. Robinson Bours holds a degree in Industrial
      Engineering from the *Instituto
      Tecnológico y de Estudios Superiores de Monterrey* (ITESM).
      His other appointments include Chairman of the board and CEO of Llantas y
      Accesorios, S.A. de C.V.




41




*José
      Francisco Robinson Bours Griffith* ,
      Alternate Director, has been a member of the board for 13 years. He holds a
      degree in Civil Engineering from the *Universidad Autónoma de Guadalajara.* Mr.
      Robinson Bours has worked at Bachoco as Engineering Manager, and is currently
      dedicated to agricultural operations.




*Guillermo
      Pineda Cruz* ,
      Alternate Director, has been a member of the board for 13 years. He is also
      a
      member of the Board of Directors of Banamex and was a regional member of the
      Board of Directors of Grupo Financiero Serfín, Inverlat and Inverméxico. Mr.
      Pineda holds a degree in Civil Engineering from the *Instituto
      Tecnológico y de Estudios Superiores de Monterrey* (ITESM)
      and a master’s degree in Business Administration from the *Instituto
      Tecnológico. y de Estudios Superiores de Sonora* (ITSON).
      He co-founded Edificadora Pi-Bo, S.A. de C.V. in 1983 and is its President
      and
      CEO.




*Avelino
      Fernández Salido* ,
      Independent Director, was named a member of the board on April 30, 2003. He
      is
      also a member of the board of Banco Nacional de México, BBVA Bancomer, and Banca
      Serfín. His business experience is in the marketing of grains.




*Humberto
      Schwarzbeck Noriega* ,
      Independent Director, was named a member of the board on April 30, 2003. He
      holds a degree in economics from the *Instituto
      Tecnológico y de Estudios Superiores de Monterrey* (ITESM).
      He is currently CEO of Yeso Industrial de Navojoa S.A. de C.V. and Chairman
      of
      the Board of Promotora de Manufacturas S.A. de C.V.




**Executive
      Officers**




Our
      executive officers as of December 31, 2006 are set forth in the table
      below:




**Name**
            
            **Position**
            
            **Age**Cristóbal
                Mondragón Fragoso
            
            Chief
                Executive Officer
            
            61Daniel
                Salazar Ferrer
            
            Chief
                Financial Officer
            
            42David
                Gastélum Cazares
            
            Director
                of Sales
            
            55José
                Luis López Lepe
            
            Director
                of Personnel
            
            59Rodolfo
                Ramos Arvizu
            
            Technical
                Director
            
            49Ernesto
                Salmón Castelo
            
            Director
                of Operations
            
            45Andres
                Morales Astiazaran
            
            Director
                of Marketing and Value-added Products
            
            38





*Cristóbal
      Mondragón Fragoso* ,
      Chief
      Executive Officer and Secretary of the Board of Directors, joined us in 1982
      and
      assumed his current position in 2001. Previously, Mr. Mondragón served as
      Administration Manager, as Manager of Corporate Finance and as Chief Financial
      Officer. Before joining us, Mr. Mondragón worked as an accountant for three
      years. Later he joined La Hacienda, S.A. de C.V., where he held the positions
      of
      Auditor, Accountant, Head of Processing Systems, Audit Manager, Administration
      Manager and Comptroller. Mr. Mondragón holds an Accounting degree from
      Universidad Nacional Autónoma de México (UNAM).




*Daniel
      Salazar Ferrer* ,
      Chief
      Financial Officer, ** joined
      us
      in 2000 and assumed his current position in January 2003. Previously, Mr.
      Salazar worked for four years as Chief Financial Officer at Grupo Covarrubias
      and as Comptroller at Negromex, a company of Grupo Desc. Mr. Salazar holds
      an
      Accounting degree from *Universidad
      Tecnológica de México* and
      a
      master’s degree in Business Administration from *Instituto Tecnológico de Estudios Superiores de Monterrey* (ITESM).




*David
      Gastélum Cazares* ,
      Director of Sales, joined us in 1979 and assumed his current position in 1992.
      Previously, Mr. Gastélum served as a pullet salesman in the states of Sonora and
      Sinaloa, National Sales Manager of Live Animals and Eggs, Manager of the
      Northwest Division, Manager of the México City Division and National Sales
      Manager. Before joining us, Mr. Gastelúm worked at La Hacienda, S.A. de C.V. as
      Technical Advisor and as Area Officer for the Southeast Division. Mr. Gastélum
      holds a degree in Veterinary Medicine from the school of Veterinary Medicine
      of *Universidad
      Nacional Autónoma de México* (UNAM).




42




*José
      Luis López Lepe* , ** Director
      of Personnel, joined us in 1993. Previously, Mr. López worked as a teacher in
      several institutions as well as with Grupo Condumex, where he was Director
      of
      Personnel. Mr. López holds a degree in Physics and Chemistry from the *Escuela
      Normal Superior* and a
      degree in Business Administration from *Instituto
      Tecnológico Autónomo de México.*




*Rodolfo
      Ramos Arvizu* , ** Technical
      Director, joined us in 1980. Previously, Mr. Ramos held positions in the Egg
      Quality Control Training Program and in Poultry Management as well as serving
      as
      Supervisor of the Commercial Egg Production Training Program, Manager of Raw
      Material Purchasing and as a Director of Production. Mr. Ramos holds a degree
      in
      Agricultural Engineering from *Instituto Tecnológico de Estudios Superiores de Monterrey* (ITESM).




*Ernesto
      Salmón Castelo* , ** Director
      of Operations, joined us in 1991 and assumed his current position in 2000.
      Previously, Mr. Salmón worked for Gamesa, S.A. de C.V. and for us as Sales
      Manager in Sonora, Northwestern Distribution Manager, Manager of the Processing
      Plant in Celaya, Southeastern Division Manager and Bajio Division Manager.
      Mr.
      Salmón holds a degree in Chemical Engineering from *Instituto*  *Tecnológico
      de Sonora* and a
      master’s degree in Business Administration ** from *Instituto Tecnológico de Estudios Superiores de Monterrey* (ITESM).




*Andrés
      Morales Astiazaran* , ** Director
      of Marketing and Value-added Products since July 2006. Before join us, Mr.
      Morales worked during 4 years as Sales and Marketing Vice President in
      Smithfield Foods a U.S. Company with offices in Sonora, Mexico. Previously
      Mr.
      Morales worked for Bachoco as Marketing Manager, Manager of the Northeast
      division and then as National Manager of Bachoco. Mr. Morales holds an
      accounting degree from *Instituto
      Tecnológico de Monterrey (ITESM)* and
      marketing courses by the universities of Northwestern University (Kellog),
      University of Chicago, ITESM and the IPADE (D1).




**Statutory
      Auditor**




According
      with the Mexican market security law, the Statutory Auditor is not required
      for
      public companies since June 2006. The activities of the Statutory Auditor will
      be performed by the Audit Committee.




**Audit
      Committee**




In
      January 2001, a Mexican Commission of Business Leaders ( *Consejo
      Coordinador Empresarial* ), ** with
      the
      support of the *Comisión
      Nacional Bancaria y de Valores* (Mexican
      Banking and Securities Commission, or “CNBV”), issued a *Código
      de Mejores Prácticas Corporativas* (“Code
      of Best Practices”) for publicly traded Mexican companies, recommending certain
      actions with respect to various areas of corporate governance. Subsequently,
      the
      Securities Market Law was amended, effective June 2006, to require that all
      publicly traded Mexican companies have an audit committee.




43


The
      mandate of the Audit Committee is to establish and monitor procedures and
      controls in order to ensure that the financial information we distribute is
      useful, appropriate and reliable and accurately reflects our financial position.
      In particular, pursuant to our bylaws and Mexican law, among others, the Audit
      Committee must do the following:




(a)
            Submit
                an annual report to the Board of
                Directors;




(b)
            Provide
                the Board of Directors with its opinion on the matters that pertain
                to the
                Auditing Committee, in accordance with the Securities Market
                Law;




(c)
            Inform
                the Board of Directors of the current condition of the internal controls
                and internal auditing system of the Company or of the entities it
                controls, including any irregularities
                detected;




(d)
            Require
                the relevant directors and other employees of the Company, or of
                the
                entities it controls, to provide reports relative to the preparation
                of
                the financial information or any other kind of reports or information
                it
                deems appropriate to perform its duties;




(e)
            Receive
                observations formulated by shareholders, Board members, relevant
                officers,
                employees and, in general, any third party with regard to the matters
                under his duties, as well as carry out the actions that, in its judgment,
                may be appropriate in connection with such observations;




(f)
            Inform
                the Board of Directors of any material irregularities detected as
                a result
                of the performance of its duties and, as applicable, inform the Board
                of
                Directors of the corrective actions taken, or otherwise propose the
                actions that should be taken;




(g)
            Call
                Shareholders Meetings and cause the items it deems pertinent to be
                inserted into the agendas of such Shareholders’Meetings,
                and




(h)
            Assist
                the Board of Directors in selecting candidates for audit and reviewing
                the
                scope and terms of the auditor’s engagement, as well as evaluate the
                performance of the entity that provides the external auditing services
                and
                analyze the report, opinions, statements and other information prepared
                and signed by the external auditor.




In
      order
      to fully comply with current Mexican Corporate and Securities Market Laws as
      well as other recent regulatory amendments in the various markets in which
      Bachoco’s Shares are traded, we named an audit committee during our annual
      ordinary stockholders’ meeting on April 30, 2003.




There
      were changes in the audit committee during the ordinary stockholder’s meeting
      held on April 25, 2007; Mr. Francisco Javier R. Bours Castelo is no longer
      member of the audit committee and the audit committee is now comprised for
      the
      following members:




Avelino
      Fernández Salido (President)


Humberto
      Schwarzbeck Noriega


Ricardo
      Aguirre Borboa




Mr.
      Ricardo Aguirre Borboa represents the controlling shareholders and has no voting
      rights in the audit committee.




44




**Compensation
      of Directors and Officers**




For
      the
      year ended December 31, 2006, we paid approximately Ps.30.3 million in aggregate
      compensation to our directors and executive officers, for services they rendered
      in their respective capacities.




**Board
      Practices**




In
      2001,
      we began to review our board practices to bring them into compliance with the
      recent requirements for companies listed on the Mexican Stock Exchange. As
      a
      result of this review, we have changed the composition of our board and
      appointed an audit committee. See “Directors” and “Audit Committee.”




**Employees**




As
      of
      December 31, 2004, 2005 and 2006, we had approximately 18,896, 20,432 and 21,035
      employees, respectively.




In
      2006,
      approximately 78% of our employees were members of labor unions. Labor relations
      with our employees are governed by 59 separate collective labor agreements,
      each
      relating to a different group of employees and negotiated on behalf of each
      such
      group by a different labor union. As is typical in México, wages are
      renegotiated every year while other terms and conditions of employment are
      renegotiated every two years. We seek to attract dependable and responsible
      employees to train at each of our plants and facilities. We offer our employees
      attractive salary and benefit packages, including a pension and savings
      plan.




We
      believe that we have good relations with our employees. We have not experienced
      significant work stoppages as a result of labor problems.




**Share
      Ownership**




To
      the
      best of our knowledge, no individual director or managers holds share ownership
      of more than one percent our Shares. At this time, we have not developed a
      share
      options plan for our employees.




45


**Comparison
      of our Corporate Governance Rules and the Rules of the NYSE Applicable to U.S.
      Companies**




On
      November 4, 2003, the SEC approved the final corporate governance rules of
      the
      NYSE. According to such rules, foreign private issuers are subject to a more
      limited set of requirements regarding corporate governance than those imposed
      on
      U.S. domestic issuers. As a foreign private issuer, we must comply with four
      rules imposed by the NYSE:




·
            prior
                to July 31, 2005, we must comply with the requirements set forth
                by the
                SEC concerning audit committees;




·
            we
                must submit an annual Written Affirmation to the NYSE and an Interrim
                Written Annual Affirmation each time a change occurs in the Board
                of
                Directors or the Audit Committee.




·
            our
                CEO must promptly notify the NYSE in writing after any executive
                officer
                becomes aware of any material non-compliance with any of the applicable
                NYSE corporate governance rules;
                and




·
            we
                must provide a brief description disclosing any significant ways
                in which
                our corporate governance practices differ from those followed by
                U.S.
                companies under NYSE listing
                standards.


A
        brief
        description disclosing the significant ways in which our corporate governance
        practices differ from those followed by U.S. companies under NYSE listing
        standards is available in our webpage www.bachoco.com.mx/english/inversionistas/corporate.asp .
  **ITEM
                  7.**
              **Major
                  Stockholders and Related Party
                  Transactions**
  Before
        September 2006, our Common Stock consisted of 450,000,000 Series B Shares
        and
        150,000,000 Series L Shares. Holders of Series B Shares were entitled to
        one
        vote at any general meeting of our stockholders for each Series B Share held.
        Holders of Series L Shares were entitled to one vote for each Series L Share
        held, but only with respect to certain matters. We had UBL units consisting
        of
        one Series B Share and one Series L Share and UBB units consisting of two
        Series
        B Shares.
  During
        the extraordinary meeting hold on April 26, 2006 Shareholders approved the
        Company’s a plan to convert the Series L Shares into Series B Shares, with full
        voting rights, as well as the dissolution of UBL and UBB units into their
        components Shares.
  This
        process was completed in September 2006, and included two steps: separating
        the
        UBL and UBB units trading on the Mexican Exchange into their component Shares
        and converting the Series L Shares into Series B Shares, thereby creating
        a
        single share class, the Series B Shares. These Shares are trading on the
        Mexican
        stock market. The ADS which trade on the NYSE still consist of twelve underlying
        Shares, but they are all Series B Shares, with full voting rights.
 
 In
        April
        1995, the Robinson Bours Stockholders created the Control Trust to hold certain
        Units owned by members of the Robinson Bours family. The Robinson Bours
        Stockholders, through the Control Trust and a separate trust established
        in
        connection with our 1997 initial public offering (the “Family
        Trust”).
  46
  Before
        September 2006, the Control Trust and the Family Trust was:
  **Title
                  of Class**
              
              **Identity
                  of Group**
              
              **Amount
                  Owned**
              
              **Percent
                  of Class**Series
                  B(1)
              
              
              Control
                  Trust and Family Trust
              
              
              398,250,000
              
              
              88.5
              %Series
                  L(2)
              
              
              Control
                  Trust and Family Trust
              
              
              98,250,000
              
              
              65.5
              %All
                  Classes(3)
              
              
              Control
                  Trust and Family Trust
              
              
              496,500,000
              
              
              82.8
              %
  (1)
              Percentage
                  is based on 450,000,000 Series B Shares, including 300,000,000
                  Shares not
                  registered under Section 12 of the Securities and Exchange Act
                  of
                  1934.
 (2)
              Percentage
                  is based on 150,000,000 Series L Shares.  (3)
              Percentage is based on 600,000,000
                Shares.
 
 As
        of
        December 31, 2006 the Control Trust and the Family Trust owned 496,500,000
        Shares outstanding, (82.75%), all Series B Shares.
  Apart
        from the ownership set forth above, at the end of March 2007, Fidelity Low
        Priced Stock Fund and Fidelity Management & Research Co. each own 5.0% of
        our Common Stock.
  In
        November 1998, in accordance with rules established by the CNBV, we established
        a reserve in the amount of Ps.180.0 million (Ps.292.9 million in constant
        pesos
        as of December 31, 2006 purchasing power) for the repurchase of Shares. At
        the end of 2006, the Company had repurchased zero Shares.
  During
        our stockholders’ meeting of April 25, 2007, we capped the share repurchase
        program for 2007 to a maximum amount of Ps.321.6 million. As of May 24, 2007,
        we
        had repurchased zero Shares.
  The
        following table sets the percentages of the Shares held in México and in all
        other countries as of December 31, 2006.
  **Year**
              
              **Amount
                  Owned**México
              
              
              85.2
              %Other
                  Countries
              
              
              14.8
              %
  From
        the
        100% of the total Shares of the Company we accounted for approximately 45
        shareholders in the NYSE and 81 in the BMV.
  **Interest
        of Management in Certain Transactions**
  It
        is our
        policy not to engage in any transaction with or for the benefit of any
        stockholder or member of the Board of Directors, or any entity controlled
        by
        such a person or in which such a person has a substantial economic interest,
        unless (i) the transaction is related to our business and (ii) the price
        and
        other terms are at least as favorable to us as those that could be obtained
        on
        an arm’s-length basis from a third party.
  We
        have
        engaged in a variety of transactions with entities owned by members of the
        Robinson Bours family, all of which we believe were consistent with this
        policy
        and not material to our business and results of operations. All of these
        transactions are described below. See Note 3 to the Consolidated Financial
        Statements. We expect to engage in similar transactions in the
        future.
  47
  We
        regularly purchase vehicles and related equipment from distributors owned
        by
        various members of the Robinson Bours family. The total amount spent on such
        purchases was Ps.40.6 million, Ps.56.4 million and Ps.61.1 million for the
        years
        ended December 31, 2004, 2005 and 2006, respectively. The distribution of
        vehicles and related equipment is a highly competitive aspect of business
        in the
        areas in which we operate. We are not dependent on affiliated distributors
        and
        are able to ensure that the pricing and service we obtain from affiliated
        distributors are competitive with those available from other
        suppliers.
  The
        Robinson Bours Stockholders own Taxis Aéreos del Noroeste, S.A. de C.V. (“TAN”),
        an air transport company that provides transportation for members of the
        Board
        of Directors to and from meetings at our headquarters in Celaya. We paid
        TAN
        Ps.2.9 million, Ps.4.5 million and Ps.4.0 million for the years ended December
        31, 2004, 2005 and 2006, respectively, for such transportation.
  We
        purchased feed and packaging materials from enterprises owned by the family
        of
        Enrique Robinson Bours and the family of Juan Bautista Robinson Bours. The
        cost
        of such purchases was Ps.210.7 million, Ps.187.0 million and Ps.242.8 million
        for the years ended December 31, 2004, 2005 and 2006, respectively.
  Our
        accounts payable to related parties totaled Ps.6.4 million and Ps.12.2 million
        as of ended December 31, 2005 and 2006, respectively. These transactions
        took
        place among companies owned by the same set of stockholders. See Note 3 to
        the
        Consolidated Financial Statements.
  Neither
        we nor our subsidiaries have loaned any money to any of our directors or
        officers, controlling shareholders or entities controlled by these
        parties.
  **ITEM
                  8.**
              **Financial
                  Information**
  Our
        Consolidated Financial Statements are included in Item 18. The financial
        statements were audited by an independent registered public accounting firm
        and
        are accompanied by an audit report.
  The
        financial statements include a consolidated balance sheet, consolidated
        statements of income, consolidated statements of changes in stockholders’
equity, and consolidated statements of changes in financial position and
        Notes
        relating to the Consolidated Financial Statements.
  The
        Consolidated Financial Statements have been prepared in accordance with Mexican
        GAAP, which differs in certain respects from U.S. GAAP. Note 17 to the
        Consolidated Financial Statements provides a description of the principal
        differences between Mexican GAAP and U.S. GAAP as they relate to us and a
        reconciliation to U.S. GAAP of total stockholders’ equity, operating income and
        net income, a consolidated statement of changes in stockholders’ equity and a
        condensed cash flow statement under U.S. GAAP as of December 31, 2005 and
        2006,
        and for the years ended December 31, 2004, 2005 and 2006.
  **Legal
        Proceedings**
  We
        are a
        party to certain legal proceedings in the ordinary course of our business.
        We
        believe that none of these proceedings, individually or in the aggregate,
        is
        likely to have a material adverse effect on us.
  48
  **Dividends
        Policy**
  Pursuant
        to Mexican law and our bylaws, the declaration, amount and payment of annual
        dividends are determined by a majority vote of the shareholders, generally
        but
        not necessarily on the recommendation of the Board of Directors.
  We
        declared and paid dividends in nominal pesos of Ps.238.9 million in 2004,
        Ps.239.1 million in 2005 and Ps.353.9 million in 2006.
  Although
        there can be no assurance as to the amount or timing of future dividends,
        we
        expect to pay an annual dividend pro rata to holders of outstanding Shares
        in an
        amount up to approximately 20% of the prior year’s net income. The declaration
        and payment of dividends will depend on our results of operations, financial
        condition, cash requirements, future prospects and other factors deemed relevant
        by the Board of Directors and the shareholders, including debt instruments
        which
        may limit our ability to pay dividends.
  Because
        we are a holding company with no significant operations of our own, we will
        have
        distributable profits and cash to pay dividends only to the extent that we
        receive dividends from our subsidiaries, principally BSACV. Accordingly,
        there
        can be no assurance that we will pay dividends or of the amount of any such
        dividends. BSACV, our principal operating subsidiary, could, in the future,
        enter into loan agreements containing covenants whose terms limit its ability
        to
        pay dividends under certain circumstances.
  Mexican
        law requires that 5% of our net income each year (after profit sharing and
        other
        deductions required by Mexican law) be allocated to a legal reserve fund
        until
        such fund reaches an amount equal to at least 20% of our capital stock. Mexican
        corporations may pay dividends only out of earnings (including retained earnings
        after all losses have been absorbed or paid up) and only after such allocation
        to the legal reserve fund. The level of earnings available for the payment
        of
        dividends is determined under Mexican GAAP.
  49
  **Significant
        Changes in Accounting Practices**
  *Treatment
        of biological assets*
  On
        January 1, 2003, the Company adopted the requirements of the new Bulletin
        E-1
        under Mexican GAAP. The Bulletin changes the way biological assets, including
        animals like chicken and swine, are treated under Mexican GAAP. Starting
        in
        January 2003, changes in the fair market value of these assets must be included
        as a potential profit in a company’s financial statements before they are
        harvested. We have to estimate the potential profit for these animals at
        a
        reasonable market price minus expected costs and operating expenses. That
        estimate may be higher or lower than the actual profits realized. The effect
        of
        Bulletin E-1 may be positive or negative for any particular period, depending
        on
        the price and inventories of animals in that period. For a more detailed
        description please see Note 2-i and Note 4 to our Consolidated Financial
        Statements.
  *Business
        acquisitions*
  Goodwill
        represents the difference between the purchase price and the fair value of
        the
        net assets acquired at the purchase date.
  On
        January 1, 2005, we adopted the requirements of Mexican accounting bulletin
        B-7,
        Business Acquisitions, issued by the Mexican Institute of Public Accountants.
        The Company has valued all of its business acquisitions using the purchase
        method and, since 2005, no longer amortizes its goodwill. Through December
        31,
        2004, goodwill was being amortized using the straight-line method over a
        twenty-year period. See Note 2-l to our Consolidated Financial
        Statements.
  *Financial
        instruments*
  In
        order
        to reduce our financial risks, we use derivative financial instruments as
        hedges
        against certain risks. As of January 1, 2005, due to the adoption of Mexican
        accounting bulletin C-10, “Accounting for Derivative Instruments and Hedging
        Activities”, issued by the IMCP in April 2004, we modified its accounting
        policies for valuing and recognizing these instruments.
  The
        derivatives are recognized in conformity with the regulations established
        in
        Mexican accounting bulletin C-10 (Mexican GAAP) and Statement of Financial
        Accounting Standard (SFAS) 133, “Accounting for Derivative Instruments and
        Hedging Activities”, and its related interpretations (US GAAP).
  We
        entered into the following agreements involving derivative financial
        instruments:
  a)
              Options,
                  that are derivatives that give the buyer the right, albeit not
                  the
                  obligation, to buy or sell an asset (in this case dollars) at an
                  established exercise price, known as the strike price, at a defined
                  date
                  in exchange for the payment of a
                  premium
  b)
              Futures,
                  that are contracts that obligate two entities to exchange an asset
                  or
                  value (in this case grain) at a future date for a pre-established
                  and
                  agreed quantity, quality and price.
  The
        effectiveness of our hedges is determined at the time the derivatives are
        designated as hedges and is assessed on a regular basis. An instrument is
        considered highly effective when the changes in the primary position cash
        flow
        are offset on a period-by-period or cumulative basis by a range of between
        80%
        and 125%.
  In
        conformity with bulletin C-10 and SFAS 133, paragraph 30, the effective portion
        of a loss or gain on a cash flow hedge is recorded in comprehensive income
        net
        of related income taxes (stockholders’ equity) while the ineffective portion is
        recorded in results of operations.
  Also,
        in
        conformity with SFAS 133, we followed G-20, as a supplement to FRS, in regards
        to the measurement of effectiveness, “Cash flow hedges: assessing and measuring
        the effectiveness of a purchased option used in a cash flow hedge”
  See
        Note
        2 q to our audited financial statements.
  50
  *Labor
        obligations*
  In
        January 2004, the Mexican Institute issued the revised accounting Bulletin
        D-3, *Labor
        Obligations* .
        The
        revised Bulletin establishes the overall rules for the valuation, presentation
        and disclosure of so-called “other post-retirement benefits and the reduction
        and early extinguishment of such benefits,” thus nullifying the provisions of
        Circular 50. Bulletin D-3 also provides rules applicable to employee termination
        pay. The observance of these new rules is mandatory for fiscal years beginning
        on or after January 1, 2005. See Note 2-o to our audited financial
        statements.
  *New
        Accounting pronouncements*
  On
        December 22, 2006, the issuing council of the Mexican Financial Reporting
        Standards Research and Development Board (Consejo Mexicano para la Investigación
        y Desarrollo de Normas de Información Financiera, A.C. or CINIF) issued
        Financial Reporting Standard (FRS) B-3, Statements of Operations; FRS B-13,
        Subsequent Events; FRS C-13, Related Parties, and FRS D-6, Capitalization
        of the
        Comprehensive Cost of Financing, each of which come into force in the year
        beginning on January 1, 2007. For a detailed discussion see note 16 in our
        audited financial statements.
  **ITEM
                  9.**
              **The
                  Offer and Listing**
  On
        September 19, 1997, Bachoco commenced trading on the Mexican Stock Exchange
        through Units (each comprised of one Series B Share and one Series L Share),and
        on the New York Stock Exchange thought American Depositary Shares (“ADSs,” each
        comprised of six Units). The ADSs are evidenced by American Depositary Receipts
        (“ADRs”) **** issued
        by
        The Bank of New York, as Depositary under a Deposit Agreement among the Company,
        the Depositary and the holders from time to time of ADRs.
  In
        September 2006, the Company separated the UBL and UBB units into their
        components, and converted their Series L Shares into Series B Shares, on
        a one
        to one basis. Consequently, now all our Common Stock Shares are Series B
        Shares
        with full voting rights. This change had not modified the face value of the
        Shares.
  On
        December 31, 2006, there were 7,413,497 ADSs outstanding, representing 14.8%
        of
        the total Shares outstanding, which were held by five holders (including
        the
        Depositary Trust Company) with registered addresses in the United
        States.
  The
        following tables set forth for each year from 2002 to 2006, for each quarter
        from 2005 and 2006 and for each complete month from December 2006 to May
        2007,
        the high, low and period and close prices of the Shares on the Mexican Stock
        as
        reported by the Mexican Stock Exchange and the high, low and close price
        of the
        ADSs on the NYSE as reported by the New York Stock Exchange.
  **Mexican
                  Stock Exchange**
                **(Nominal
                  pesos per Share)****Year**
              
              **High**
              
              **Low**
              
              **Close**2002
              
              
              8.00
              
              
              5.49
              
              
              7.252003
              
              
              9.65
              
              
              7.00
              
              
              9.452004
              
              
              13.35
              
              
              8.50
              
              
              13.102005
              
              
              20.70
              
              
              12.22
              
              
              17.252006
              
              
              23.70
              
              
              15.70
              
              
              23.66
  51
  **New
                  York Stock Exchange**
                **(U.S.$
                  per ADS)****Year**
              
              **High**
              
              **Low**
              
              **Close**2002
              
              
              10.00
              
              
              7.15
              
              
              8.522003
              
              
              10.78
              
              
              7.73
              
              
              10.452004
              
              
              14.19
              
              
              8.8
              
              
              14.192005
              
              
              23.02
              
              
              12.87
              
              
              19.502006
              
              
              29.00
              
              
              16.33
              
              
              29.00
 
 **Mexican
                  Stock Exchange**
                **(Nominal
                  pesos per Share)****Period**
              
              **High**
              
              **Low**
              
              **Close**First
                  Quarter 2005
              
              
              14.00
              
              
              12.22
              
              
              13.5Second
                  Quarter 2005
              
              
              14.80
              
              
              13.50
              
              
              14.76Third
                  Quarter 2005
              
              
              20.70
              
              
              14.75
              
              
              19.77Fourth
                  Quarter 2005
              
              
              19.74
              
              
              15.95
              
              
              17.25First
                  Quarter 2006
              
              
              17.25
              
              
              15.70
              
              
              15.95Second
                  Quarter 2006
              
              
              19.10
              
              
              15.85
              
              
              18.50Third
                  Quarter 2006
              
              
              20.00
              
              
              16.90
              
              
              20.00Fourth
                  Quarter 2006
              
              
              23.66
              
              
              18.70
              
              
              23.66
 
 **New
                  York Stock Exchange**
                **(U.S.$
                  per ADS)****Period**
              
              **High**
              
              **Low**
              
              **Close**First
                  Quarter 2005
              
              
              15.25
              
              
              12.87
              
              
              14.70Second
                  Quarter 2005
              
              
              16.53
              
              
              14.51
              
              
              16.50Third
                  Quarter 2005
              
              
              23.00
              
              
              16.57
              
              
              21.69Fourth
                  Quarter 2005
              
              
              21.85
              
              
              17.14
              
              
              19.50First
                  Quarter 2006
              
              
              19.58
              
              
              16.33
              
              
              17.43Second
                  Quarter 2006
              
              
              20.90
              
              
              17.30
              
              
              18.29Third
                  Quarter 2006
              
              
              22.45
              
              
              17.97
              
              
              22.25Fourth
                  Quarter 2006
              
              
              29.00
              
              
              20.65
              
              
              29.00
 
 **Mexican
                  Stock Exchange**
                **(Nominal
                  pesos per Share)****Month**
              
              **High**
              
              **Low**
              
              **Close**December
                  2006
              
              
              23.66
              
              
              20.00
              
              
              23.66January
                  2007
              
              
              24.16
              
              
              22.80
              
              
              24.16February
                  2007
              
              
              28.00
              
              
              23.97
              
              
              26.80March
                  2007
              
              
              27.24
              
              
              25.80
              
              
              26.80April
                  2007
              
              
              27.95
              
              
              26.50
              
              
              27.95May
                  2007
              
              
              28.76
              
              
              27.63
              
              
              28.49
 
 **New
                  York Stock Exchange**
                **(U.S.$
                  per ADS)****Period**
              
              **High**
              
              **Low**
              
              **Close**December
                  2006
              
              
              29.00
              
              
              21.82
              
              
              29.00January
                  2007
              
              
              27.05
              
              
              25.95
              
              
              26.33February
                  2007
              
              
              30.75
              
              
              26.55
              
              
              28.80March
                  2007
              
              
              29.64
              
              
              26.77
              
              
              28.99April
                  2007
              
              
              30.70
              
              
              28.51
              
              
              30.68May
                  2007
              
              
              32.24
              
              
              30.06
              
              
              32.24
 
 52
  **Trading
        on the Mexican Stock Exchange**
  The
        Mexican Stock Exchange, located in México City, is the only stock exchange in
        México. Founded in 1894, the Mexican Stock Exchange is organized as a
        corporation whose Shares are held by brokerage houses, which are currently
        the
        only entities allowed to own them. These brokerage houses are currently the
        only
        entities authorized to trade on the floor of the Mexican Stock Exchange.
        Trading
        on the Mexican Stock Exchange takes place principally through an automated
        inter-dealer quotation system known as SENTRA, which is open for trading
        between
        the hours of 8:30 a.m. and 3:00 p.m., México City time, each business day. Each
        trading day is divided into six trading sessions with ten-minute periods
        separating each session. Trades in securities listed on the Mexican Stock
        Exchange can, subject to certain requirements, also be realized off the
        Exchange. Due primarily to Mexican tax considerations, however, most
        transactions in listed securities are effected through the Exchange. The
        Mexican
        Stock Exchange operates a system of automatic suspension of trading in Shares
        of
        a particular issuer as a means of controlling excessive price volatility,
        but
        under current regulations this system does not apply to securities such as
        the
        Units that are directly or indirectly (for example, through ADSs) quoted
        on a
        stock exchange outside México.
  Settlement
        is effected two business days after a share transaction on the Mexican Stock
        Exchange. Deferred settlement, even by mutual agreement, is not permitted
        without the approval of the CNBV. Most securities traded on the Mexican Stock
        Exchange are on deposit with *S.D.
        Indeval Institución para el Depósito de Valores, S.A. de C.V.,* (Central
        Securities Depository for the Mexican Securities Market, or “Indeval”), a
        privately owned central securities depositary that acts as a clearing house,
        depositary, custodian and registrar for Mexican Stock Exchange transactions,
        eliminating the need for physical transfer of securities.
  The
        Mexican Stock Exchange is one of Latin America’s largest exchanges in terms of
        market capitalization, but it remains relatively small and illiquid compared
        to
        major world markets, and is therefore subject to greater volatility. There
        is no
        formal over-the-counter market for securities in México.
  The
        market value of securities of Mexican companies is, to varying degrees, affected
        by economic and market conditions in other emerging market
        countries.
  **Market
        Regulation**
  The
        predecessor of the CNBV was established in 1946 to regulate stock market
        activity. The *Ley
        del Mercado de Valores* (“Securities Market Law”) of 1975, as amended, regulates the securities markets
        and brokerage houses and sets standards for the registration of brokers in
        the
        Intermediaries Section of the *Registro
        Nacional de Valores e Intermediarios* (National Registry of Securities and Intermediaries, or “RNVI”), such
        registration being a prerequisite to becoming a member of the Mexican Stock
        Exchange.  Prior
        to
        registration in the RNVI, a brokerage house must be authorized by the Ministry
        of Finance upon the recommendation of the CNBV. Legislative provisions under
        NAFTA allow foreign securities firms in a NAFTA country to establish and
        control
        brokerage firms in México. There are several foreign brokerage houses authorized
        to operate in México. In addition, a number of other foreign brokerage firms
        have submitted preliminary applications to be authorized to operate on the
        Mexican Stock Exchange. The Securities Market Law also empowers the CNBV
        to
        regulate the public offering and trading of securities. The governing committee
        of the CNBV is composed of representatives of the Ministry of Finance, the
        Mexican Central Bank, the *Comisión Nacional de Seguros y Fianzas* (“National Insurance and Bonding Commission”), the *Comisión
        Nacional del Sistema de Ahorro para el Retiro* (“National Retirement Savings Fund Commission”) and the CNBV.
  53
  Under
        the
        Mexican Securities Market Law, the CNBV must be notified before stockholders
        of
        a company listed on the Mexican Stock Exchange effect one or more simultaneous
        or successive transactions resulting in the transfer of 10% or more of such
        company’s capital stock. The holders of the Shares being transferred in the
        transactions are also obligated to inform the CNBV of the results of the
        transactions within three days of completion of the last transaction, or
        that
        the transactions have not been completed. The CNBV will notify the Mexican
        Stock
        Exchange of such transactions, without specifying the names of the parties
        involved.
  The
        CNBV
        and the Mexican Stock Exchange must also be notified in the event of any
        of the
        following contingencies:
  ·
              on
                  the following day of operation if any stockholder of a company
                  listed on
                  the Mexican Stock Exchange effects one or more transactions resulting
                  in
                  the ownership of more than 10% and less of 30% of capital
                  stock;
  ·
              on
                  the following day of operation if any Related Person increases
                  his
                  ownership of the stock of a company;
                  and
  ·
              at
                  least 15 days before the operation becomes effective if any stockholder
                  of
                  a company listed on the Mexican Stock Exchange undertakes in a
                  Public
                  Offering one or more transactions resulting in the ownership of
                  more than
                  30% but less than 50% of capital
                  stock.
  In
        June
        2006, *the
        Ley del Mercado de Valores* (“Securities Market Law”) was updated. Our bylaws were also updated accordingly,
        which are available in an English version, in our web page.
  Some
        of
        the changes, among others are:
  a)  We
        had to
        change our name from “Industrias Bachoco S.A. de C.V.” to “Industrias Bachoco,
        S.A.B. de C.V.”
  b)  Defines
        more specifically the concept of “Control” or “Controlled”
  c)  Define
        and assigns specific duties to the General Director or CEO.
  d)  Define
        more precisely and wide the duties of the Board of Directors.
  e)  Assign
        more ample responsibilities to the audit committee.
  f)  The
        Statutory Auditor no longer exists for Public Companies, his duties were
        assumed
        by the Audit Committee.
  **ITEM
                  10.**
              **Additional
                  Information**
  **Memorandum
        and Articles of Association**
  Information
        regarding the memorandum and articles of association was included in the
        Initial
        Registration Form F-1, submitted in September 1997. In April 2002, we made
        changes to our bylaws, which were reported in our annual report for year
        2002.
        In December 2003 and January 2007 we made further changes, the most important
        are summarized below, (English version of our bylaws is also available on
        our
        web page *www.bachoco.com.mx* ).
        Aside
        from these changes, the information contained in the Initial Registration
        Form
        F-1 is applicable to this Annual Report.
  54
  The
        discussion set forth below contains information concerning our capital stock
        and
        a brief summary of the material provisions of the bylaws and applicable Mexican
        law. This summary does not purport to be complete and is qualified in its
        entirety by reference to the bylaws and the applicable provisions of Mexican
        law.
  **General**
  The
        Company was incorporated on April 17, 1980 as a variable capital corporation
        (sociedad anónima de capital variable) under the laws of México. To fully comply
        with Mexican laws, the Company modified its name to Industrias Bachoco, S.A.B.
        de C.V. (sociedad anónima bursatil de capital variable) in April,
        2007.
  In
        1995,
        our stockholders authorized the issuance of up to 15,525,000 additional Series
        B
        Shares and 15,525,000 additional Series L Shares, all constituting fixed
        capital, to be issued in connection with the global offering of Shares that
        took
        place on September 19, 1997 (the “Global Offering”).
  On
        April
        21, 1997 we restructured our capital by (i) declaring a four-to-one stock
        split
        of the 106,678,125 Series B Shares and 35,559,375 Series L Shares outstanding,
        (ii) converting 7,762,500 Series L Shares (on a post-split basis) into Series
        B
        Shares and (iii) combining all of the 434,475,000 Series B Shares and
        134,475,000 Series L Shares outstanding (in each case, on a post-split basis)
        into 134,475,000 Units and 150,000,000 B Units. Each Unit consisted of one
        Series B Share and one Series L Share. Holders of Units were entitled to
        exercise all the rights of holders of the Series B Shares and Series L Shares
        underlying their Units. Each B Unit consisted of two Series B Shares. B Units
        entitle the holders thereof to exercise all the rights of holders of the
        Series
        B Shares underlying such B Units. Immediately prior to the Global Offering,
        our
        outstanding capital stock consisted of 434,475,000 Series B Shares and
        134,475,000 Series L Shares, all of which were duly authorized, validly issued
        and are fully paid and non-assessable.
  Originally
        for a period of 10 years after the Global Offering, the Series B Shares will
        be
        issuable only in the form of Units and B Units, and the Series L Shares only
        in
        the form of Units. Commencing 10 years from the date of the Global Offering,
        Units will automatically separate into their component Series B Shares and
        Series L Shares, B Units will automatically separate into their component
        Series
        B Shares, and each Series L Share underlying the Units will automatically
        convert into one Series B Share.
  During
        the annual shareholders meeting held on April 26, 2006, shareholders approved
        to
        proceed with the anticipated conversion of the Series L Shares into Series
        B
        Shares, which have full voting rights.
  This
        conversion was effective in September 2006 and included two steps: separating
        the UBL and UBB units currently trading on the Mexican Stock Exchange into
        their
        component Shares. The Series L Shares were converted into Series B Shares
        (on a
        one-to-one basis), thereby created a single share class, the Series B Shares,
        which represents all of our Common Stock. These Shares are currently trading
        on
        the Mexican Stock Market. Each ADS still consist of 12 underlying Shares,
        but
        they are all be Series B Shares.
  The
        Series B Shares had full voting rights and the Series L Shares had limited
        voting rights. Nevertheless the Series B Shares and the Series L Shares had
        the
        same economic rights. Each Series B Share entitled the holder thereof to
        one
        vote at any general meeting of the stockholders. The Series L Shares were
        entitled to vote only with respect to certain limited matters as described
        under
“—Voting Rights and Stockholders’ Meetings.”
  55
  The
        Robinson Bours Stockholders have advised us that they intend to ensure that
        the
        Control Trust will hold at least 51% of the Series B Shares at any time
        outstanding. See “—Foreign Investment Legislation.”
  **Registration
        and Transfer**
  Shares
        B
        are evidenced by certificates in registered form, which may have dividend
        coupons attached. We maintain a registry and, in accordance with Mexican
        law, we
        recognize as stockholders only those holders listed in the stock registry.
        Stockholders may hold their Shares in the form of physical certificates (which,
        together with notations made in our stock registry, evidence ownership of
        the
        Shares) or through book entries with institutions that have accounts with
        Indeval.
  Indeval
        is the holder of record in respect of Shares held through it. Accounts may
        be
        maintained at Indeval by brokerage houses, banks and other entities approved
        by
        the CNBV. Ownership of Shares maintained at Indeval is evidenced through
        Indeval’s records and through lists kept by Indeval participants. See
“Description of American Depositary Receipts.”
  In
        accordance with Article 130 of the *Ley
        General de Sociedades Mercantiles* (“Mexican
        Companies Law”), the Board of Directors must authorize any transfer of stock, or
        any securities based on such stock, when the number of Shares sought to be
        transferred in one act or a succession of acts, without limit of time or
        from
        one group of interrelated stockholders or stockholders who act in concert,
        constitutes 10% or more of the voting stock issued by the Company. If the
        Board
        of Directors refuses to authorize such a transfer, the board must designate
        one
        or more purchasers of the stock, who must pay the interested party the
        prevailing price on the Mexican Stock Exchange. The Board must issue its
        resolution within three months of the date on which it receives the relevant
        request for authorization and in any case, must consider: (i) the criteria
        that
        are in the best interests of the Company, the Company’s operations and the
        long-term vision of the activities of the Company and its Subsidiaries; (ii)
        that no shareholder of the Company is excluded, other than the person that
        intends to acquire control of the financial benefits that may result from
        the
        application of the terms of this clause; (iii) that the taking of the Control
        of
        the Company is not restricted in an absolute manner; (iv) that the provisions
        of
        the Securities Market Law, with respect to acquisition public offerings,
        are not
        contravened; and (v) that the exercise of the patrimonial rights of the acquirer
        are not rendered without effect..
  If
        any
        person participates in a transaction that would have resulted in the acquisition
        of 10% or more voting stock of the Company without having obtained the board’s
        prior approval, they must pay the Company a fine equal to the market value
        of
        the Shares.
  Any
        person who participates in an act that violate the terms of Article 130
        discussed in the preceding paragraph will be obligated to pay the Company
        a fine
        in an amount equal to the value of the Shares owned directly or indirectly
        by
        the stockholder, or the value of the Shares involved in the prohibited
        transaction, if such person does not own Shares issued by the Company. In
        the
        case of a prohibited transaction that would have resulted in the acquisition
        of
        10% or more of the voting stock of the Company, the fine will be equal to
        the
        market value of those Shares, provided that board authorization was not obtained
        in advance.
  According
        to our bylaws, a majority of the members of the Board of Directors must
        authorize in writing, by a resolution made at a Board of Directors’ meeting, any
        change in the control of the Company. Our Board of Directors has the right
        to
        decide if a person or a group of persons is acting for the purpose of acquiring
        control of the Company.
  “Control”
        or “Controlled” means (i) to directly or indirectly impose decisions at the
        general meetings of shareholders, stockholders or equivalent bodies or to
        appoint or remove the majority of the directors, managers or equivalent
        officers; (ii) to hold title to the rights that directly or indirectly allow
        the
        exercise of votes with respect to more than fifty percent of the capital
        stock;
        or (iii) to directly or indirectly direct the management, the strategy or
        the
        principal policies of the Company, whether through the ownership of securities,
        by contract or otherwise.
  56
  **Voting
        Rights and Stockholders’ Meetings**
  Each
        Series B Share entitles the holder thereof to one vote at any general meeting
        of
        the stockholders. Holders are currently entitled to elect all members of
        the
        Board of Directors.
  Our
        bylaws provide that the Board of Directors shall consist of at least five
        members and no more than twenty one. Our board was reformed during our ordinary
        shareholders meeting held on April 25, 2007, and now consists of eight
        proprietary shareholder Directors and two independent Directors. The
        stockholders also appointed four alternate Shareholders Directors to the
        Board
        of Directors.
  General
        stockholders’ meetings may be ordinary or extraordinary meetings. Extraordinary
        general meetings are meetings called to consider the matters specified in
        Article 182 of the Mexican Companies Law and the bylaws, ** including
        changes in the fixed portion of the capital stock and other amendments to
        the
        bylaws, liquidation, merger, transformation from one type of corporate form
        to
        another, change in nationality and changes of corporate purposes.
  General
        meetings called to consider all other matters, including election of the
        directors, are ordinary meetings. An ordinary general meeting of the Company
        must be held at least annually during the four months following the end of
        the
        preceding fiscal year to consider certain matters specified in Article 181
        and
        182 of the Mexican Companies Law, including, principally, the election of
        directors, the approval of the report of the Board of Directors regarding
        their
        company’s performance, the company’s financial statements for the preceding
        fiscal year and the allocation of the profits and losses of the preceding
        year,
        and to approve the transactions that the Company or the entities that the
        Company controls intend to carry out, in terms of article 47 of the Securities
        Market Law, in one fiscal year, when such transactions represent 20% (twenty
        percent) or more of the consolidated assets of the Company, based on the
        figures
        corresponding to the closing of the immediately preceding quarter, independently
        of the manner in which such transactions are carried out, whether simultaneously
        or successively, but which due to their characteristics, may be considered
        as a
        single transaction. Holders of Shares, may vote at such Meetings.
  Before
        September 2006, any holder of Series L Shares representing 10% or more of
        the
        outstanding capital stock had the right to appoint one member and one alternate
        member of the Board of Directors during a Shareholders meeting.
  Under
        our
        bylaws, the quorum on first call for a general ordinary meeting is at least
        50%.
        If a quorum is not available on first call, a second meeting may be called
        at
        which action may be taken by a majority of those present, regardless of the
        number of Shares represented at the meeting. On a second call, Ordinary General
        Shareholders’ Meetings will be considered validly held regardless of the number
        of common or ordinary Shares represented therein and the resolutions of such
        Meetings will be valid when passed by majority vote of the Common Stock
        therein.
  The
        quorum on first call for a general extraordinary meeting or a special meeting
        is
        75% of the outstanding Shares with voting rights on the matters to be addressed
        in that meeting. If a quorum is not available on first call, a second meeting
        may be called, provided that at least 50% of the outstanding Shares with
        voting
        rights on the matters to be addressed in that meeting are
        represented.
  Our
        bylaws ** require
        the approval of holders of at least 95% of the outstanding Shares and the
        approval of the CNBV for the amendment of the controlling stockholders’
obligation under the bylaws ** to
        repurchase Shares and certain other provisions in the event of delisting.
        See
“—Other Provisions—Repurchase in the Event of Delisting.”
  57
  For
        more
        detail see our bylaws on our webpage at www.bachoco.com.mx
  Holders
        of ADRs are entitled to instruct the Depositary as to the exercise of the
        voting
        rights. See “Description of American Depositary Receipts—Voting of Deposited
        Securities.”
  According
        to our bylaws, stockholders with a right to vote may ask to postpone a vote
        on
        any matters on which they believe they do not have enough information as
        defined
        by Article 199 of the Mexican Companies Law. Stockholders with a right to
        vote,
        including a limited right to vote, and who hold at least 20% of the capital
        stock, may legally object to the decisions of a general
        stockholders’  meeting,
        with respect to matters in which they have rights, without
        the percentage established under article 201 of the General Law of Business
        Entities being applicable in such case.
  Moreover,
        holders of Shares having voting rights, including limited or restricted voting
        rights or holders of Shares without voting rights that jointly or individually
        represent 5% (five percent) or more of the capital stock, may directly exercise
        the action of liability against the members and secretary of the Board of
        Directors, as well as against the relevant directors or executive officers.
        The
        exercise of such action will not be subject to the compliance with the
        requirements set forth under articles 161 and 163 of the General Law of Business
        Entities.
  The
        Board
        of Directors, or its President or Secretary or the judicial authority, as
        applicable, must issue notices of calls of Shareholders’ Meetings. In addition,
        shareholders that jointly or separately represent at least 10% (ten percent)
        of
        the capital of the Company, may request the President of the Board of Directors
        or the President of the Audit Committee to call a General Shareholder’s Meeting,
        without the percentage indicated under article 184 of the General Law of
        Business Entities being applicable for such purpose. If the notice of meeting
        is
        not issued within fifteen days after the date of the corresponding request,
        a
        Civil or District Judge of the Company’s domicile will issue such notice at the
        request of the interested parties that represent the requesting 10% (ten
        percent) of the capital, who must present their stock certificates for such
        purpose.
  At
        least
        15 days prior to the meeting, notice of the meeting must be published in
        the
        Diario Oficial de la Federación (“Official Gazette”) or in a newspaper of
        general circulation in México City. Stockholders’ meetings may be held without
        such publication provided that 100.0% of the outstanding Shares with voting
        rights on the matters to be addressed by such meeting are
        represented.
  From
        the
        moment that a call for a stockholders’ meeting is made public, all the
        information related to the meeting must be available to the stockholders.
        In
        order to attend a stockholders’ meeting, a stockholder must request and obtain
        an admission card by furnishing, at least 24 hours before the time set for
        holding the stockholders’ meeting, appropriate evidence of ownership of Shares
        in us and depositing such Shares with our corporate secretary or with an
        institution authorized to accept such deposit. If so entitled to attend the
        meeting, a stockholder may be represented by proxy signed before two witnesses.
        Additionally, the stockholder may be represented at the stockholders’ meetings
        by a person named by proxy, on a printed form that we issue, which, under
        Mexican law, must identify our Company and indicate clearly the matters to
        be
        addressed in the meeting, with enough space for the instructions that the
        stockholder specifies. We are obliged to make information on the upcoming
        meeting available to the intermediaries in the stock market, for the time
        specified in Article 173 of the Mexican Law, in order to give the intermediaries
        time to send it to the stockholders they represent. The Secretary of the
        Board
        of Directors must verify that this requirement is met and report on this
        matter
        at the stockholders’ meeting. See “—Registration and Transfer.”
  58
  **Members
        of the Board**
  Under
        the
        Mexican Companies Law, a Board of Directors must conform to the following
        requirements:
  (i)
              The
                  Board of Directors will be integrated by a minimum of 5 (five)
                  and a
                  maximum of 21 (twenty-one) principal
                  members.
  (ii)
              At
                  least 25% (twenty-five percent) of the members of the Board of
                  Directors
                  must be independent, in accordance with the terms of article 24
                  of the
                  Securities Market Law.
  (iii)
              For
                  each principal member, a substitute will be appointed, in the
                  understanding that the substitutes of independent Board members
                  must also
                  be independent.
  Apart
        from satisfying all of the requirements mentioned above, failure to meet
        these
        standards for any reason will not constitute grounds for judicial action
        challenging any act, contract, or agreement undertaken by the board, an
        intermediate committee or other delegated authority. Furthermore, such standards
        will not be mandatory for the validity or existence of such acts.
  The
        Board
        of Directors must meet at least every three months at our address or any
        other
        place in México and on the dates that the board determines. Meetings previously
        scheduled in accordance with a schedule pre-approved by the board do not
        need to
        be called. Meetings must be called by at least 25% of the members of the
        Board
        of Directors, the Chairman of the Board of Directors, the Vice-Chairman of
        the
        Board of Directors, the Secretary the alternate Secretary of the board or
        the
        President of the Audit Committee. Members of the board must be notified via
        e-mail or in writing at least five calendar days in advance of a meeting.
        .
  **Statutory
        Auditor**
  According
        with the Mexican market law, the Statutory Auditor is not required for public
        companies since June 2006. The activities of the Statutory Auditor will be
        performed by the Audit Committee.
  **Dividend
        and Distributions**
  At
        the
        annual ordinary general stockholders’ meeting, the Board of Directors submits
        our financial statements for the previous fiscal year, together with a report
        thereon by the board, to the holders of Series B Shares for their consideration.
        The holders of Series B Shares, once they have approved the financial
        statements, determine the allocation of our net profits, if any, for the
        preceding year. They are required by law to allocate 5% of such net profits
        to a
        legal reserve, which is not thereafter available for distribution until the
        amount of the legal reserve equals 20% of our historical capital stock (before
        giving effect to the restatement thereof in constant pesos). As of December
        31,
        2006, our legal reserve fund was equal to at least 20% of our paid-in capital
        stock. Amounts in excess of those allocated to the legal reserve fund may
        be
        allocated to other reserve funds as the stockholders determine, including
        a
        reserve for the repurchase of our Shares. The remaining balance of net profits,
        if any, is available for distribution as dividends. No dividends may be paid,
        however, unless losses for prior fiscal years have been paid or
        absorbed.
  Holders
        of Series B Shares and, accordingly, holders of ADSs will have equal rights,
        on
        a per Share basis, to dividends and other distributions, including any
        distributions we make upon liquidation. Partially paid Units or Shares
        participate in any distribution to the extent that such Units or Shares have
        been paid at the time of the distribution or, if not paid, only with respect
        to
        the proportion paid.
  59
  **Changes
        in Capital Stock**
  An
        increase of capital stock may generally be affected through the issuance
        of new
        Units or Shares for payment in cash or in kind, by capitalization of
        indebtedness or by capitalization of certain items of stockholders’ equity. An
        increase of capital stock generally may not be realized until all previously
        issued and subscribed Units or Shares of capital stock have been fully paid.
        Generally, a reduction of capital stock may be effected to absorb losses,
        to
        redeem Units or Shares, or to release stockholders from payments not made.
        A
        reduction of capital stock to redeem Units or Shares is effected by reimbursing
        holders of Units or Shares pro rata or by lot. Stockholders may also approve
        the
        redemption of fully paid Units or Shares with retained earnings. Such redemption
        would be affected by a repurchase of Units or Shares on the Mexican Stock
        Exchange (in the case of Units or Shares listed thereon) and would be subject
        to
        the limitation that the Series L Shares may not at any time represent more
        than
        25% of our capital stock.
  Except
        under limited circumstances, the bylaws ** require
        that any capital increase affected pursuant to a capital contribution be
        represented by new Series B Shares.
  The
        fixed
        portion of our capital stock may only be increased or decreased by resolution
        of
        a general extraordinary meeting and an amendment to the bylaws, whereas the
        variable portion of our capital stock may be increased or decreased by
        resolution of a general ordinary meeting. See “Other Provisions—Fixed and
        Variable Capital.”
  No
        resolution by the stockholders is required for decreases in capital stock
        resulting from exercise of our right to withdraw variable Shares or from
        our
        repurchase of our own Shares or for increases in capital stock resulting
        from
        our sale of Shares we previously purchased. See “Other Provisions—Purchase by
        the Company of its Shares” and “Other Provisions—Appraisal Rights.”
  **Preemptive
        Rights**
  Except
        in
        certain limited circumstances, in the event of a capital increase through
        the
        issuance of new Shares for payment in cash or in kind, a holder of existing
        Shares of a given Series at the time of the capital increase has a preferential
        right to subscribe for a sufficient number of new Shares of the same Series
        to
        maintain the holder’s existing proportionate holdings of Shares of that Series
        or, in the event of a capital increase through the issuance of limited-voting
        or
        non-voting stock only, to subscribe for a sufficient number of the Shares
        to be
        issued to maintain the holder’s existing proportionate holdings of our capital
        stock. Preemptive rights must be exercised within 15 days following the
        publication of notice of the capital increase in the *Diario
        Oficial de la Federación* (Official
        Gazette) ** or
        following the date of the stockholders’ meeting at which the capital increase
        was approved if all stockholders were represented at such meeting; otherwise,
        such rights will lapse. Under Mexican law, preemptive rights cannot be waived
        in
        advance by a stockholder, except under limited circumstances, and cannot
        be
        represented by an instrument that is negotiable separately from the
        corresponding share. The Robinson Bours Stockholders, including the Selling
        Stockholders, have waived all preemptive rights with respect to the Series
        B
        Shares and Series L Shares comprised in the Units underlying the ADSs being
        offered in the Global Offering. Holders of ADRs that are U.S. citizens or
        are
        located in the United States may be restricted in their ability to participate
        in the exercise of preemptive rights. See “Description of American Depositary
        Receipts—Dividends, Other Distributions and Rights.”
  60
  **Foreign
        Investment Legislation**
  Ownership
        by foreigners of Shares of Mexican companies is regulated by the *Ley
        de Inversión Extranjera* (“Foreign Investment Law”) and by the *Reglamento
        de la Ley para Promover la Inversión Mexicana y Regular la Inversión Extranjera* (“Foreign
        Investment Regulations”). The Ministry of Commerce and Industrial Development
        and the Foreign Investment Commission are responsible for the administration
        of
        the Foreign Investment Law.
  The
        Foreign Investment Law reserves certain economic activities exclusively for
        the
        Mexican state and certain other activities exclusively for Mexican individuals
        or Mexican corporations, and limits the participation of foreign investors
        to
        certain percentages in regard to enterprises engaged in activities specified
        therein. Foreign investors may own up to 100% of the capital stock of Mexican
        companies or entities, except for companies (i) engaged in reserved activities
        as referred to above or (ii) with assets exceeding an amount to be established
        annually by the Foreign Investment Commission, in which case an approval
        from
        the Foreign Investment Commission will be necessary in order for foreign
        investment to exceed 49% of the capital stock. Mexican and non-Mexican nationals
        will be entitled to hold and to exercise the rights of a holder of the Units,
        the Series B Shares and the Series L Shares. The Robinson Bours Stockholders
        have advised us that they intend to maintain a control position directly
        in the
        form of B Units. Pursuant to our bylaws *,* foreigners may only own Series B Shares up to 49% of such series.
  **Other
        Provisions**
  *Fixed
        and Variable Capital.* As
        a *sociedad
        anónima de capital variable* ,
        we are
        permitted to issue Shares constituting fixed capital and Shares constituting
        variable capital. The issuance of variable capital Shares, unlike the issuance
        of fixed capital Shares, does not require an amendment of the bylaws, although
        it does require approval at a general ordinary stockholders’
meeting.
  In
        no
        case may the capital of the Company be decreased to less than the minimum
        required by law and any decrease in the capital must be registered in the
        Capital Variations Book that the Company will keep for such purpose.
  *Repurchase
        in the Event of Delisting* .
        In the
        event of cancellation of the registration of the Company’s Shares in such
        Registry, whether at the request of the Company or by a resolution of the
        National Securities and Banking Commission under applicable law, the Company
        agrees to make a public offering for the acquisition of the total number
        of the
        Shares registered prior to the cancellation. The Company must contribute
        to a
        trust for at least six months, the necessary resources to purchase at the
        same
        price of the public offering, the Shares of the investors that did not attend
        or
        did not accept such offer, in case that after the public offering for purchase
        has been made and prior to the cancellation of the registration of the Shares
        that represent the capital stock of the Company or of other securities issued
        based on such Shares in the National Securities Registry, the Company has
        been
        unable to acquire 100% (one hundred percent) of the paid in capital stock.
  *Forfeiture
        of Shares.* As
        required by Mexican law, our bylaws ** provide
        that our current and future foreign stockholders are formally bound to the
        Mexican *Secretaría
        de Relaciones Exteriores* (“Ministry
        of Foreign Relations”) to consider themselves as Mexican nationals with respect
        to our Shares that they may acquire or of which they may be owners, and with
        respect to the property, rights, concessions, participations or interests
        that
        we may own or rights and obligations that are based on contracts to which
        we are
        party with the Mexican authorities, and not to invoke the protection of their
        government under penalty, should they do so, of forfeiting to the Mexican
        State
        the corporate participation that they may have acquired. In the opinion of
        Galicia & Robles, S.C., our special Mexican counsel, under this provision a
        non-Mexican stockholder (including a non-Mexican holder of ADSs) is deemed
        to
        have agreed not to invoke the protection of his own government by requesting
        such government to interpose a diplomatic claim against the Mexican government
        with respect to the stockholder’s rights as a stockholder, but is not deemed to
        have waived any other rights it may have with respect to its investment in
        us,
        including any rights under U.S. securities laws. If the stockholder should
        invoke such governmental protection in violation of this agreement, its Shares
        could be forfeited to the Mexican State. Mexican law requires that such a
        provision be included in the bylaws ** of
        all
        Mexican corporations unless such bylaws ** prohibit
        ownership of capital stock by foreign investors.
  61
  *Exclusive
        Jurisdiction.* Our
        bylaws ** provide
        that legal actions relating to any conflict between our stockholders and
        us, or
        among the stockholders in connection with matters related to us, may be brought
        only in courts in México City. Therefore, our stockholders are restricted to the
        courts of México City.
  *Duration.* The
        duration of our existence under our bylaws is indefinite.
  *Repurchase
        of our own Shares.* We
        may
        repurchase our Shares on the Mexican Stock Exchange at any time at the then
        prevailing market price. Any repurchases will be charged to the Stockholders
        Equity as long as these Shares belong to the same Company or to the Capital
        Stock in the event that we convert these Shares to treasury stock, and in
        this
        last case no resolution of the stockholders’ meeting is required. At each annual
        ordinary Stockholder’s Meeting, the maximum amount of resources that may be used
        to repurchase Shares will be expressly defined. The Board of Directors will
        name
        the persons responsible for the operation of the repurchase process. The
        Shares
        that belong to the Treasury Stock or us can be resold among the public
        stockholders; in the latter case, no resolution of a stockholders meeting
        is
        necessary for an increase in capital. The economic and voting rights
        corresponding to such repurchased Shares may not be exercised during the
        period
        in which such Shares are owned by us, and such Shares are not deemed to be
        outstanding for purposes of calculating any quorum or vote at any stockholders’
meeting during such period.
  *Non-Subscribed
        Shares.* With
        prior authorization of the CNBV, we may issue non-subscribed Shares provided
        that such Shares will be held by a depositary institution and that there
        is
        compliance with the conditions of Article 53 of the *Ley
        del Mercado de Valores* (“Mexican
        Securities Law”). In any extraordinary stockholders’ meeting at which this
        issuance of non-subscribed Shares is approved, the preference rights established
        by Article 132 of the Mexican Companies Law must be respected. With a quorum
        at
        the meeting, the approval of the issuance will take effect, even with respect
        to
        stockholders that were not present at the meeting, such that we will be free
        to
        issue these Shares with no prior publication. When a minority of stockholders
        representing at least 25% of the voting capital stock, vote against the issuance
        of these Shares, such issuance can not be made. Any stockholder that votes
        against this issuance at the stockholders’ meeting will have the right to
        request that we sell its Shares before issuing the new non-subscribed Shares.
        In
        such event, we will have the obligation to sell first the Shares belonging
        to
        such stockholders, at the same price that the non-subscribed Shares are to
        be
        offered to the public.
  *Stockholder
        Conflicts of Interest.* Under
        Mexican law, any stockholder that has a conflict of interest with respect
        to any
        transaction must abstain from voting thereon at the relevant stockholders’
meeting. A stockholder that votes on a business transaction in which its
        interest conflicts with that of ours may be liable for damages if the
        transaction would not have been approved without such stockholder’s
        vote.
  *Board
        Member Conflicts of Interest.* Under
        Mexican law, any member of the Board of Directors who has a conflict of interest
        with us in any transaction must disclose such fact to the other members of
        the
        Board of Directors and abstain from voting. Any member of the Board of Directors
        who violates such provision may be liable for damages caused to us.
        Additionally, members of the Board of Directors and statutory auditors may
        not
        represent other stockholders at any stockholders’ meeting.
  *Appraisal
        Rights.* Whenever
        the stockholders approve a change of corporate purpose, a change in our
        nationality or transformation from one type of corporate form to another,
        any
        stockholder entitled to vote on such change or transformation who has voted
        against it has the right to withdraw from us and receive the amount calculated
        as specified under Mexican law attributable to its Shares, provided such
        stockholder exercises its right to withdraw within 15 days following the
        adjournment of the meeting at which the change or transformation was approved.
        Under Mexican law, the amount that a withdrawing stockholder is entitled
        to
        receive is equal to its proportionate interest in our capital stock according
        to
        the most recent balance sheet that has been approved by an ordinary general
        meeting of stockholders.
  62
  *Actions
        Against Directors.* Under
        Mexican law, holders
        of Shares having voting rights, including limited or restricted voting rights
        or
        holders of Shares without voting rights that jointly or individually represent
        5% (five percent) or more of the capital stock, may directly exercise the
        action
        of liability against the members and secretary of the Board of Directors,
        as
        well as against the relevant directors or executive officers. The exercise
        of
        such action, among others, will be subject to the compliance with the
        requirements set forth under the Mexican Law.
  **Audit
        Committee**
  Under
        our
        bylaws, the Board of Directors is required to create an Audit Committee under
        the terms and conditions outlined below:
  The
        Audit
        Committee will consist of members of the board. The President of the audit
        committee and a majority of the audit committee members must be independent,
        as
        independence is defined under the Mexican Securities Market Law.
  The
        mandate of the audit committee is to establish and monitor procedures and
        controls in order to ensure that the financial information we distribute
        is
        useful, appropriate and reliable and accurately reflects our financial position.
        In particular, pursuant to our bylaws and Mexican law, among others, the
        Audit
        Committee must do the following:
  ·
              Submit
                  an annual report to the Board of
                  Directors;
  ·
              Provide
                  the Board of Directors with its opinion on the matters that pertain
                  to the
                  Auditing Committee, in accordance with the Securities Market
                  Law;
  ·
              Inform
                  the Board of Directors of the current condition of the internal
                  controls
                  and internal auditing system of the Company, or of the entities
                  it
                  controls, including any irregularities
                  detected;
  ·
              Require
                  the relevant directors and other employees of the Company or of
                  the
                  entities it controls, to provide reports relative to the preparation
                  of
                  the financial information or any other kind of reports or information
                  it
                  deems appropriate to perform its duties;
  ·
              Receive
                  observations formulated by shareholders, Board members, relevant
                  officers,
                  employees and, in general, any third party with regard to the matters
                  under his duties, as well as carry out the actions that, in its
                  judgment,
                  may be appropriate in connection with such observations;
  ·
              Inform
                  the Board of Directors of any material irregularities detected
                  as a result
                  of the performance of its duties and, as applicable, inform the
                  Board of
                  Directors of the corrective actions taken or propose the actions
                  that
                  should be taken;
  ·
              Call
                  Shareholders Meetings and cause the items it deems pertinent to
                  be
                  inserted into the agendas of such Shareholder’s Meetings, and
  ·
              Assist
                  the Board of Directors in selecting candidates for audit and reviewing
                  the
                  scope and terms of the auditor’s engagement, as well as evaluate the
                  performance of the entity that provides the external auditing services
                  and
                  analyze the report, opinions, statements and other information
                  prepared
                  and signed by the external auditor.
  63
  See
        the
        Article 35 of the Mexican Security Market Law for more detail.
  Transactions
        that depart from the ordinary course of business, and which would be entered
        into by and between subsidiaries of the Company and its stockholders, with
        persons who form part of the management of the Company’s subsidiaries or with
        those with whom such persons maintain monetary ties or, if applicable, have
        a
        family relationship of consanguinity or affinity up to the second degree,
        a
        spouse or concubine; which represent the purchase or sale of 10% or more
        of
        assets; the granting of guaranties in an amount in excess of 30% of assets,
        as
        well as transactions other than the foregoing which represent more than 1%
        of
        the Company’s assets, shall be submitted for the opinion of the Company’s audit
        committee and for approval by the Company’s Board of Directors.
  **Material
        Contracts**
  Not
        applicable.
  **Exchange
        Controls**
  Ownership
        by foreigners of Mexican companies is regulated by the Foreign Investment
        Law
        and by the Foreign Investment Regulations. The Ministry of Commerce and
        Industrial Development and the Foreign Investment Commission are responsible
        for
        the administration of the Foreign Investment Law.
  The
        Foreign Investment Law reserves certain economic activities exclusively for
        the
        Mexican State and certain other activities exclusively for Mexican individuals
        or Mexican corporations and limits the participation of foreign investors
        to
        certain percentages in regard to enterprises engaged in activities specified
        therein. Foreign investors may own 100% of the capital stock of Mexican
        companies or entities, except for companies (i) engaged in reserved activities
        as referred to above or (ii) with assets exceeding an amount to be established
        annually by the Foreign Investment Commission in which case an approval from
        the
        Foreign Investment Commission shall be necessary in order for foreign investment
        to exceed 49% of the capital stock. Mexican and non-Mexican nationals will
        be
        entitled to hold and to exercise the rights of a holder of the Units, the
        Series
        B Shares and the Series L Shares. The Robinson Bours Stockholders have advised
        us that they intend to maintain a control position directly in the form of
        B
        Units. Pursuant to our bylaws, foreigners may only own Series B Shares up
        to 49%
        of such Series.
  **Taxation**
  The
        following is a general summary of the principal U.S. federal tax consequences
        and the principal Mexican federal tax consequences of the acquisition, ownership
        and disposition of Shares or ADSs. This summary does not purport to address
        all
        material tax consequences that may be relevant to holders of Shares or ADSs,
        and
        does not take into account the specific circumstances of any particular
        investors, some of which (such as tax-exempt entities, banks, insurance
        companies, broker-dealers, traders in securities that elect to use a
        mark-to-market method of accounting for their securities holdings, regulated
        investment companies, real estate investment trusts, partnerships and other
        pass-through entities, investors liable for the U.S. alternative minimum
        tax,
        investors that own or are treated as owning 10% or more of our voting stock,
        investors that hold Shares or ADSs as part of a straddle, hedge, conversion
        transaction or other integrated transaction and U.S. Holders (as defined
        below)
        whose functional currency is not the U.S. dollar) may be subject to special
        tax
        rules. In addition, this summary is based in part upon the representations
        of
        the Depositary and the assumption that each obligation in the deposit agreement,
        and in any related agreement, will be performed in accordance with its
        terms.
  64
  For
        purposes of this discussion, a “U.S. Holder” is any beneficial owner of Shares
        or ADSs that, for U.S. federal income tax purposes, is:
  1.
              an
                  individual who is a citizen or resident of the United
                  States;
  2.
              a
                  corporation (or other entity taxable as a corporation for U.S.
                  federal
                  income tax purposes) organized in or under the laws of the United
                  States,
                  any state thereof, or the District of
                  Columbia;
  3.
              an
                  estate the income of which is subject to U.S. federal income tax
                  without
                  regard to its source; or
  4.
              a
                  trust that is subject to the primary supervision of a U.S. court
                  and the
                  control of one or more U.S. persons, or that has a valid election
                  in
                  effect under applicable Treasury regulations to be treated as a
                  U.S.
                  person.
  This
        summary is based on the federal income tax laws and regulations of the United
        States and México, judicial decisions, published rulings and administrative
        pronouncements, all as in effect on the date hereof, and all of which are
        subject to change, (which changes may have retroactive effect) and different
        interpretations. Prospective purchasers of Shares or ADSs should consult
        their
        own tax advisors as to the U.S., Mexican or other tax consequences of the
        purchase, ownership and disposition of Shares or ADSs, including, in particular,
        the effect of any non-U.S., non-Mexican, state or local tax laws.
  A
        Convention for the Avoidance of Double Taxation and the Prevention of Fiscal
        Evasion with Respect to Taxes on Income, and a Protocol thereto, between
        the
        United States and México (the “Tax Treaty”) took effect on January 1, 1994. The
        Tax Treaty was amended by a second Protocol signed November 26, 2002, the
        provisions of which took effect in part on September 1, 2003, and in part
        on
        January 1, 2004. The United States and México have also entered into an
        agreement concerning the exchange of information with respect to tax
        matters.
  In
        general, for U.S. federal income tax purposes, holders of ADRs evidencing
        ADSs
        will be treated as the beneficial owners of the Shares represented by those
        ADSs.
  **U.S.
        Federal Income Taxation**
  **U.S.
        Holders**
  The
        following discussion is a summary of the principal U.S. federal income tax
        consequences to holders of our Shares and of ADSs that are U.S. Holders and
        that
        hold those Shares or ADSs as capital assets (generally, for investment
        purposes).
  **Taxation
        of Dividends**
  Cash
        dividends paid with respect to the Shares constituting the Shares or Shares
        represented by ADSs to the extent paid out of our earnings and profits (as
        determined under U.S. federal income tax principles) will be included in
        the
        gross income of a U.S. Holder as ordinary income on the day on which the
        dividends are received by the U.S. Holder, in the case of Shares, or the
        Depositary, in the case of Shares represented by ADSs, and will not be eligible
        for the dividends-received deduction allowed to corporations under the Internal
        Revenue Code of 1986, as amended (the “Code”). We do not currently maintain
        calculations of our earnings and profits under U.S. federal income tax
        principles. Because these calculations are not made, distributions should
        be
        presumed to be taxable dividends for U.S. federal income tax
        purposes.
  65
  Dividends
        paid in pesos will be included in the gross income of a U.S. Holder in a
        U.S.
        dollar amount calculated by reference to the exchange rate in effect on the
        day
        they are received by the U.S. Holder, in the case of Share, or the Depositary,
        in the case of Share represented by ADSs (regardless of whether such pesos
        are
        in fact converted into U.S. dollars on such date). If such dividends are
        converted into U.S. dollars on the date of receipt by the U.S. Holder or
        the
        Depositary, as the case may be, the U.S. Holder generally should not be required
        to recognize foreign currency gain or loss in respect of the dividends. U.S.
        Holders should consult their own tax advisors regarding the treatment of
        foreign
        currency gain or loss, if any, on any pesos received which are converted
        into
        U.S. dollars on a date subsequent to receipt.
  Subject
        to certain exceptions for short-term and hedged positions, and provided that
        we
        are not a passive foreign investment company (as discussed below), dividends
        received by certain U.S. Holders (including individuals) prior to January
        1,
        2011 with respect to the Shares or ADSs will be subject to U.S. federal income
        taxation at a maximum rate of 15%. However, the U.S. Treasury Department
        has
        announced its intention to promulgate rules pursuant to which shareholders
        (and
        intermediaries) will be permitted to rely on certifications from issuers
        to
        establish that dividends qualify for the reduced rate of U.S. federal income
        taxation. Because such procedures have not yet been issued, we are not certain
        that we will be able to comply with them. U.S. Holders of Shares or ADSs
        should
        consult their own tax advisors regarding the availability of the reduced
        rate in
        the light of their own particular circumstances.
  Distributions
        to U.S. Holders of additional Shares with respect to their Shares or ADSs
        that
        are made as part of a pro rata distribution to all of our stockholders generally
        will not be subject to U.S. federal income tax. If holders of the ADSs are
        restricted in their ability to participate in the exercise of preemptive
        rights,
        the preemptive rights may give rise to a deemed distribution to holders of
        the
        Shares under Section 305 of the Code. Any deemed distributions will be taxable
        as a dividend in accordance with the general rules of the income tax treatment
        of dividends discussed above.
  **Taxation
        of Capital Gains**
  Gain
        or
        loss recognized by a U.S. Holder on the sale or other taxable disposition
        of
        Shares or ADSs generally will be subject to U.S. federal income taxation
        as
        capital gain or loss in an amount equal to the difference between such U.S.
        Holder’s adjusted tax basis in the Shares or ADSs and the amount realized on the
        disposition. A U.S. Holder generally will have an adjusted tax basis in a
        Shares
        or an ADS equal to its U.S. dollar cost. Gain or loss recognized by a U.S.
        Holder on the sale or other disposition of Shares or ADSs will generally
        be
        long-term gain or loss if, at the time of disposition, the U.S. Holder has
        held
        the Shares or ADSs for more than one year.
  Certain
        U.S. Holders, including individuals, are eligible for preferential rates
        of U.S.
        federal income tax in respect of long-term capital gains. The deduction of
        a
        capital loss is subject to limitations under the Code.
  Gain
        realized by a U.S. Holder on a sale or other disposition of Shares or ADSs
        generally will be treated as U.S. source income for U.S. foreign tax credit
        purposes. Consequently, if any Mexican withholding tax is imposed on the
        sale or
        disposition of the Shares, a U.S. holder that does not receive significant
        foreign source income from other sources may not be able to derive effective
        U.S. foreign tax credit benefits in respect of these Mexican taxes. U.S.
        holders
        should consult their own tax advisors regarding the application of the foreign
        tax credit rules to their investment in, and disposition of, the Shares or
        ADSs.
  Deposits
        and withdrawals of Shares by U.S. Holders in exchange for ADSs will not result
        in the realization of gain or loss for U.S. federal income tax
        purposes.
  66
  **Passive
        Foreign Investment Company Rules**
  A
        non-U.S. corporation generally will be classified as a passive foreign
        investment company (a “PFIC”) for U.S. federal income tax purposes in any
        taxable year in which, after applying look-through rules, either (1) at least
        75% of its gross income is passive income, or (2) on average at least 50%
        of the
        gross value of its assets is attributable to assets that produce passive
        income
        or are held for the production of passive income. Passive income for this
        purpose generally includes dividends, interest, royalties, rents and gains
        from
        commodities and securities transactions. The PFIC determination is made annually
        and generally is based on the value of a non-U.S. corporation’s assets
        (including goodwill) and composition of its income. In determining whether
        we
        are a PFIC, a pro rata portion of the income and assets of each subsidiary
        in
        which we own, directly or indirectly, at least a 25% interest by value is
        taken
        into account.
  We
        do not
        believe that we are a PFIC for U.S. federal income tax purposes, and we intend
        to continue our operations in such a manner that we will not become a PFIC
        in
        the future, although no assurances can be made regarding determination of
        our
        PFIC status in the current or any future taxable year. If we are treated
        as a
        PFIC for any taxable year, a U.S. Holder would be subject to special rules
        (and
        may be subject to increased tax liability) with respect to (a) any gain realized
        on the sale or other disposition of Units or ADSs, and (b) any “excess
        distribution” made by us to the U.S. Holder (generally, any distribution during
        a taxable year in which distributions to the U.S. Holder on the Units or
        ADSs
        exceed 125% of the average annual distributions the U.S. Holder received
        on the
        Units or ADSs during the preceding three taxable years or, if shorter, the
        U.S.
        Holder’s holding period for the Units or ADSs). Under those rules, (a) the gain
        or excess distribution would be allocated ratably over the U.S. Holder’s holding
        period for the Units or ADSs, (b) the amount allocated to the taxable year
        in
        which the gain or excess distribution is realized and to taxable years before
        the first day on which we became a PFIC would be taxable as ordinary income,
        (c)
        the amount allocated to each prior year in which the Issuer was a PFIC would
        be
        subject to U.S. federal income tax at the highest tax rate in effect for
        that
        year and (d) the interest charge generally applicable to underpayments of
        U.S.
        federal income tax would be imposed in respect of the tax attributable to
        each
        prior year in which we were treated as a PFIC. In addition, a U.S. Holder
        generally would be required to annually file IRS Form 8621 to disclose ownership
        of an equity interest in a PFIC. Moreover, dividends that a U.S. Holder receives
        from us will not be eligible for the reduced U.S. federal income tax rates
        described above if we are a PFIC either in the taxable year of the distribution
        or the preceding taxable year (and instead will be taxable at rates applicable
        to ordinary income).
  Prospective
        investors should consult their own tax advisors regarding the potential
        application of the PFIC rules to Shares or ADSs.
  **Non-U.S.
        Holders**
  The
        following discussion is a summary of the principal U.S. federal income tax
        consequences to beneficial holders of Shares or ADSs that are neither U.S.
        Holders nor partnerships for U.S. federal income tax purposes (“Non-U.S.
        Holders”).
  Subject
        to the discussion below under “U.S. Backup Withholding,” a Non-U.S. Holder of
        Shares or ADSs will not be subject to U.S. federal income or withholding
        tax on
        gain realized on the sale of Shares or ADSs, unless (i) such gain is effectively
        connected with the conduct by such Non-U.S. Holder of a trade or business
        in the
        United States (and, if an applicable tax treaty requires, is attributable
        to a
        U.S. permanent establishment or fixed base of such Non-U.S. Holder) or (ii)
        in
        the case of gain realized by an individual Non-U.S. Holder, such holder is
        present in the United States for 183 days or more in the taxable year of
        the
        sale and certain other conditions are met.
  67
  **U.S.
        Backup Withholding**
  A
        U.S.
        Holder of Shares or ADSs may, under certain circumstances, be subject to
“backup
        withholding” with respect to certain payments to such U.S. Holder, such as
        dividends paid by us or the proceeds of a sale of Shares or ADSs, unless
        such
        U.S. Holder (i) is a corporation or comes within certain other exempt
        categories, and demonstrates this fact when so required or (ii) provides
        a
        correct taxpayer identification number, certifies that it is a U.S. person
        and
        that it is not subject to backup withholding and otherwise complies with
        applicable requirements of the backup withholding rules. Any amount withheld
        under these rules will be creditable against the U.S. Holder’s U.S. federal
        income tax liability provided that the U.S. Holder timely files the appropriate
        forms with the U.S. Internal Revenue Service. While Non-U.S. Holders generally
        are exempt from backup withholding, a Non-U.S. Holder may, in certain
        circumstances, be required to comply with certain information and identification
        procedures in order to prove this exemption.
  **Mexican
        Taxation**
  **Taxation
        of Dividends**
  Dividends,
        either in cash or in any other form, paid with respect to the Shares
        constituting the Shares or the ADSs will not be subject to Mexican withholding
        tax.
  **Taxation
        of Capital Gains**
  Gain
        on
        the sale or other disposition of ADSs by holders who are not Mexican Residents
        (as defined below) will not be subject to Mexican income tax. Deposits of
        Shares
        in exchange for ADSs and withdrawals of Shares in exchange for ADSs will
        not
        give rise to Mexican income tax.
  Gain
        on
        the sale of Shares by a holder who is not a Mexican Resident (as defined
        below)
        will not be subject to Mexican tax if the transaction is carried out through
        the
        Mexican Stock Exchange or other securities markets approved by the Mexican
        Ministry of Finance, and provided certain requirements set forth by the Mexican
        Income Tax Law are complied with. Sales or other dispositions of Shares made
        in
        other circumstances generally would be subject to Mexican tax, except to
        the
        extent that a holder is eligible for benefits under an income tax treaty
        to
        which México is a party. Under the Tax Treaty, gain on the sale or other
        disposition of Shares by a U.S. resident (if eligible for benefits under
        the Tax
        Treaty) who is a holder of less than 25% of our capital stock during the
        twelve-month period preceding such sale or disposition will not be subject
        to
        Mexican tax, unless (i) 50% or more of the fair market value of our assets
        consist of “immovable property” (as defined in the Tax Treaty) situated in
        México, or (ii) such gains are attributable to a permanent establishment or
        fixed base of such U.S. resident in México.
  For
        a
        holder that is not a Mexican Resident and that does not meet the requirements
        referred to above, gross income realized on the sale of Shares will be subject
        to a 5% Mexican withholding tax if the transaction is carried out through
        the
        Mexican Stock Exchange. Alternatively, a holder that is not a Mexican Resident
        can choose to be subject to a 20% withholding rate on the net gain obtained,
        as
        calculated pursuant to Mexican Income Tax Law provisions.
  The
        Mexican tax rules governing the taxation of gains of holders who are not
        Mexican
        Residents on dispositions of their Shares or ADSs were amended during 2002.
        Holders who are not Mexican Residents who disposed of their Shares or ADSs
        during 2003 should consult their own Mexican tax advisors on the Mexican
        tax
        treatment of such dispositions.
  For
        purposes of Mexican taxation ( *Ley
        del Impuesto sobre la renta* ),
        an
        individual is a resident of México (a “Mexican Resident”) if he or she has
        established his or her home in México, unless he or she has resided in another
        country for more than 183 days, whether consecutive or not, during a calendar
        year and can demonstrate that he or she has become a resident of that country
        for tax purposes. A legal entity is a Mexican Resident if it has been
        incorporated under Mexican law. A company is also considered to be a Mexican
        Resident if its headquarters are located in México. A Mexican citizen is
        presumed to be a resident of México for tax purposes unless such person can
        demonstrate otherwise. If a person is deemed to have a permanent establishment
        or fixed base in México for tax purposes, such permanent person shall be
        required to pay taxes in México on income attributable to such permanent
        establishment or fixed base, in accordance with applicable tax
        laws.
  68
  **Other
        Mexican Taxes**
  There
        are
        no Mexican inheritance, succession or similar taxes applicable to the ownership,
        transfer or disposition of ADSs or Shares by holders that are not Mexican
        Residents; provided, however, that gratuitous transfers of Shares may in
        certain
        circumstances cause a Mexican federal tax to be imposed on the recipient.
        There
        is no Mexican stamp, issue, registration or similar taxes or duties payable
        by
        holders of ADSs or Shares. Brokerage fees on securities transactions carried
        out
        through the Mexican Stock Exchange are subject to a 15% valued added
        tax.
  **Documents
        on Display**
  The
        documents concerning us which are referred to in this document are available
        at
        the our company headquarters, located at Ave. Tecnológico No.401, Cd.
        Industrial, Celaya, Guanajuato, 38010, México, for any inspection required. Part
        of this information is available on our web page, at *www.bachoco.com.mx* .
  **ITEM
                  11.**
              **Quantitative
                  and Qualitative Disclosures About Market
                  Risk**
  In
        the
        normal course of our business, we hold or issue various financial instruments
        that expose us to financial risks involving fluctuations in currency exchange
        rates and interest rates. Also, we are exposed to commodity price risk in
        connection with fluctuations in the prices for our feed ingredients
  **Currency
        Fluctuation**
  Our
        exposure to market risk associated with changes in foreign currency exchange
        rates relates primarily to expenses which are denominated in U.S. dollars.
        Since
        we have liabilities denominated in U.S. dollars, we are exposed to foreign
        exchange losses when the peso declines in value against the U.S. dollar.
        The
        peso has been subject to significant volatility in the past and may be subject
        to significant fluctuations in the future.
  All
        of  oursales
        are
        priced in Mexican pesos, and we have significant expenses in U.S. dollars.
        A
        significant portion of  ourfeed
        cost
        is priced in U.S. dollars, and other purchases may be influenced by U.S.
        dollar
        prices. A devaluation of the peso will accordingly affect our earnings. In
        addition, the Mexican peso exchange rate can directly and indirectly impact
        our
        results of operations and financialposition
        in several respects, including potential economic recession in México resulting
        from a devalued peso.
  We
        do not
        have debt denominated in U.S. dollars as of December 2006. We experienced
        foreign exchange gains of  Ps.48.4
        million in 200 4.
        We had
        a loss of Ps.60.0 million in 2005, due to the net position of our liabilities
        and assets, since we had more assets (cash and cash equivalents) than
        liabilities denominated in U.S. dollars, and in 2005 the Mexican peso
        appreciated during most of the year with respect to the U.S. dollar. In 2006,
        we
        experienced a foreign exchange gain of Ps.39.3 million.
  No
        assurance can be given as to the future valuation of the Mexican peso and
        how
        further movements in the peso could affect our future earnings.
  69
  We
        manage
        our exchange rate exposure primarily through management of our financial
        structure, specifically by maintaining most of our debt through long-term
        debt
        instruments. We engage in only limited hedging of our exposure to foreign
        exchange risk, since hedging instruments have historically not been economically
        feasible. We plan over a six-month period into the future and, depending
        on the
        expected uncertainty for that period, decide if it is economically advisable
        to
        purchase or sell any hedging instrument.
  During
        2005 and 2006, we have observed different strategies with respect to derivatives
        which involve call and put options in U.S. dollars.
  At
        December 31, 2006, we maintained positions in several financial instrument
        derivatives. For details, please see Note 8 to our Consolidated Financial
        Statements.
  Based
        on
        our position in December 2006 (please see Note 11 to our Consolidated Financial
        Statements), we estimate that a hypothetical 10% devaluation of the Mexican
        peso
        against the U.S. dollar would result in losses of  Ps.  17.3million
        and gains of  Ps.67.7
        million in our Foreign Exchange Results.
  **Interest
        Rates**
  Our
        earnings may also be affected by changes in interest rates due to the impact
        those  changeshave
        on
        our variable rate debt instruments. As of December 31, 2006, we had borrowings
        of approximately Ps.43.6 million pursuant to variable rate debt instruments,
        representing approximately 0.3% of our total assets.
  Based
        on
        our position on December 31, 2006, we estimate that a hypothetical interest
        rate
        variation of 0.5% on our Mexican peso denominated debt would result in increased
        interest expenses of approximately Ps.0.2 million per annum. Any such increase
        would likely be offset by an increase in interest income due to our significant
        cash and cash equivalent position.
  **Feed
        Ingredients**
  The
        largest single component of  ourcost
        of
        sales is the cost of ingredients used to prepare feed, including, principally,
        sorghum,  soy
        meal,corn,  fish
        meal,  meat
        mealand,
        for
        certain chicken products, marigold extract. The price of these ingredients
        is
        subject to significant volatility  resulting,among
        other factors, from weather, the size of harvests, transportation and storage
        costs, governmental agricultural policies and currency exchange rates. In
        order
        to reduce the potential adverse effect of grain price fluctuations,  wevary
        the
        composition of our feed to take advantage of current market prices for the
        various types of ingredients used.
  Previously,
        we took advantage of the lower cost of feed ingredients available from Mexican
        sources and
        increased the portion of our total needs that we source locally from
        approximately 40% in 1995 to approximately 60% in 1999. We believe that local
        feed, particularly sorghum, is of superior quality compared to imported feed
        ingredients. In addition, the use of local feed allows us to save on
        transportation costs and import duties. Ourfeed
        costs were favorably affected by changes in the Mexican government’s
        agricultural policy, beginning in 1991, that eliminated price supports for
        domestic farmers and reduced procedural restrictions on importing grains,
        and by
        the reduction in tariffs with the implementation of  NAFTAbeginning
        in 1994.
  However,
        this trend reversed in 2000, when only 45.0% of feed ingredients were purchased
        from local sources. The change occurred mainly because grain for the acquired
        Grupo Campi complexes is supplied from international markets due to a lack
        of
        domestic supply in southern México. In general, costs of domestic feed
        ingredients tend to follow the international markets, although cost adjustments
        do not occur simultaneously. In 2001, we purchased approximately 40.6% of
        grain
        from local sources, while in 2002 we purchased approximately 30.1% of grain
        from
        local sources. In 2003 the percentage of grain purchased from domestic markets
        was 38.3%, in 2004 it was 35.0%, in 2005 it was 30.1% and in 2006 it was
        approximately 31.3%.
  70
  Based
        on
        results for 2006, we estimate that a hypothetical variation of 10% in the
        cost
        of our feed ingredients would have an  impact
        of 5.7%
        on
        total cost of sales.
 
 **ITEM
                  12.**
              **Description
                  of Securities Other Than Equity
                  Securities**
  Not
        applicable.
  **PART
        II**
  **ITEM
                  13.**
              **Default,
                  Dividend Arrearages and
                  Delinquencies**
  None.
  **ITEM
                  14.**
              **Material
                  Modifications to the Rights of Security Holders and Use of
                  Proceeds**
  None.
  **ITEM
                  15.**
              **Controls
                  and Procedures**
  We
        carried out an evaluation under the supervision and with the participation
        of
        our management, including our Chief Executive Officer and Chief Financial
        Officer, of the effectiveness of the design and operation of our disclosure
        controls and procedures as of December 31, 2006. 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, our 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 we file and submit under the Securities
        Exchange Act is recorded, processed, summarized and reported as and when
        required.
  The
        Company’s management is responsible for establishing and maintaining effective
        internal control over financial reporting as defined in Rules 13a-15(f) under
        the Securities Exchange Act of 1934. The Company’s internal control over
        financial reporting is a process designed to provide reasonable assurance
        regarding the reliability of financial reporting and the preparation of
        financial statements for external purposes in accordance with generally accepted
        accounting principles.
  Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions, or that the degree of compliance
        with the policies or procedures may deteriorate.
  Management
        assessed the effectiveness of the Company’s internal control over financial
        reporting as of December 31, 2006. In making this assessment, management
        used
        the criteria set forth by the Committee of Sponsoring Organizations of the
        Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on
        this assessment, management concluded that, as of December 31, 2006, the
        Company’s internal control over financial reporting is effective based on those
        criteria.
  71
  There
        has
        been no change in our internal control over financial reporting in the period
        covered by this annual report that has materially affected, or is reasonably
        likely to materially affect, our internal control over financial
        reporting.
  **ITEM
                  16.**
              **[Reserved]**
  **ITEM
        16A.**  **Audit
        Committee Financial Expert**
  Currently,
        no member of our audit committee possesses all the characteristics included
        in
        the definition of an “audit committee financial expert” within the meaning of
        this Item 16A. We consider that the combined financial expertise of the members
        of our audit committee meet much of this requirement. Our audit committee
        has
        the authority and appropriate funding to obtain outside advice, as it deems
        necessary, to carry out his duties.
  **ITEM
        16B.**  **Code
        of Ethics**
  We
        have
        adopted a code of ethics, as defined in Item 16B of Form 20-F under the
        Securities Exchange Act of 1934, as amended. Our code of ethics applies to
        our
        Chief Executive Officer, Chief Financial Officer, controller ****** and
        persons performing similar functions, as well as to other officers and
        employees. Our code of ethics is available free of charge upon request through
        our website *www.bachoco.com.mx.* If we
        amend the provisions of our code of ethics that apply to our Chief Executive
        Officer, Chief Financial Officer, controller and persons performing similar
        functions, or if we grant any waiver of such provisions, we will disclose
        such
        amendment or waiver on our website at the same address.
  **ITEM
        16C.**  **Principal
        Accountant Fees and Services**
  **Audit
        and Non-Audit Fees**
  The
        following table sets forth the fees billed to us by our independent auditors,
        Ernst & Young Mexico, independent public accountants, during the fiscal
        years ended December 31, 2005 and 2006:
  **Year
                  ended December 31,****2005**
              
              **2006**Audit
                  fees
              
              Ps.
              2,429,000
              
              Ps.
              2,724,350Audit-related
                  fees
              
              
              —
              
              
              —Tax
                  fees
              
              
              433,999
              
              
              872,006All
                  other fees
              
              
              —
              
              
              —Total
                  fees
              
              Ps.
              2,862,999
              
              Ps.
              3,596,356
  Audit
        fees in the above table are the aggregate fees billed by Ernst & Young
        Mexico, in connection with the audit of our annual financial statements and
        statutory and regulatory audits.
  Tax
        fees
        in the above table are fees billed by Ernst & Young Mexico for services
        related to tax refund claims.
  72
  **Audit
        Committee Approval Policies and Procedures**
  Our
        audit
        committee has not established pre-approval policies and procedures for the
        engagement of our independent auditors for services. Our audit committee
        expressly approves on a case-by-case basis any engagement of our independent
        auditors for audit and non-audit services provided to our subsidiaries or
        to
        us.
  **ITEM
        16D.**  **Exemptions
        from the Listing Standards for Audit Committees**
  Not
        applicable.
 
 **ITEM
        16E.**  **Purchases
        of Equity Securities by the Issuer and Affiliated
        Purchasers**
  Not
        applicable.
  **PART
        III**
  **ITEM
                  17.**
              **Financial
                  Statements**
  Not
        applicable.
  **ITEM
                  18.**
              **Financial
                  Statements**
  See
        the
        Audited Financial Statements including notes, incorporated herein by
        reference.
  73
  **ITEM
                  19.**
              **Exhibits******
  Documents
        filed as exhibits to this Annual Report:
  **Exhibit
                  No.**
              
              **Description**1.1
              
              An
                  English translation of the Bylaws (*estatutos
                  sociales*)
                  of Industrias Bachoco, S.A.B. de C.V. dated December 6,
                  2006.2.1
              
              Form
                  of Amended and Restated Deposit Agreement, among Industrias Bachoco,
                  S.A.
                  de C.V., the Depositary and each Owner and Beneficial Owner from
                  time to
                  time of American Depositary Receipts issued thereunder, including
                  the form
                  of American Depositary Receipt (incorporated by reference to Exhibit
                  1.1
                  on Form F-6 filed with the U.S. Securities and Exchange Commission
                  on
                  August 18, 2006 (File No. 333-07480)).2.2
              
              Trust
                  Agreement, dated April 1, 1995, among Banco Internacional, S.A.,
                  Institución de Banca Múltiple, Grupo Financiero Prime Internacional, as
                  trustee, and the stockholders of the Company named therein, together
                  with
                  an English translation, (incorporated by reference on our registration
                  statement on Form F-1 filed with the U.S. Securities and Exchange
                  Commission on August 22, 1997 (File No. 333-7472)).2.3
              
              Trust
                  Agreement, dated August 20, 1997, among Banco Internacional, S.A.,
                  Institución de Banca Múltiple, Grupo Financiero Bital, as trustee, and the
                  stockholders of the Company named therein, together with an English
                  translation, (incorporated by reference on our registration statement
                  on
                  Form F-1 filed with the U.S. Securities and Exchange Commission
                  on August
                  22, 1997 (File No. 333-7472)).8.1
              
              Subsidiaries
                  of Industrias Bachoco S.A.B. de C.V.12.1
              
              Certification
                  of the Chief Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.12.2
              
              Certification
                  of the Chief Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.13.1
              
              Certification
                  pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
 
 74
  **SIGNATURE**
  The
        registrant 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.
 INDUSTRIAS
                  BACHOCO, S.A.B. de C.V.By:
              /s/
                DANIEL
                SALAZAR FERRERDaniel
                  Salazar Ferrer
                Chief
                  Financial OfficerDate:
                  June 29, 2007
  75




**INDUSTRIAS
                BACHOCO, S.A.B. DE C.V.****AND
                SUBSIDIARIES****Consolidated
                Financial Statements**As
                of
              December
                31, 2005 and 2006
              With
                Report of Independent Registered Public
              Accounting
                Firm











**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V.**


**AND
      SUBSIDIARIES**




**Consolidated
      Financial Statements**




As
      of December
      31, 2005 and 2006




**Content**





Report
                of Independent Registered Public Accounting Firm
            
            F-1Consolidated
                Financial Statements:Balance
                Sheets
            
            F-2Statements
                of Income
            
            F-3Statements
                of Changes in Stockholders’ Equity
            
            F-4Statements
                of Changes in Financial Position
            
            F-5Notes
                to the Financial Statements
            
            F-6









**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Stockholders of


Industrias
      Bachoco, S.A.B. de C.V.





We
      have
      audited the accompanying consolidated balance sheets of Industrias Bachoco,
      S.A.B. de C.V. and subsidiaries as of December 31, 2005 and 2006, and the
      related consolidated statements of income, stockholders’ equity and changes in
      financial position for each of the three years in the period ended December
      31,
      2006. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States of America). Those standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement. We were not engaged
      to perform an audit of the Company's internal control over financial reporting.
      Our audits included consideration of internal control over financial reporting
      as a basis for designing audit procedures that are appropriate in the
      circumstances, but not for the purpose of expressing an opinion on the
      effectiveness of the Company's internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, and evaluating the overall financial statement presentation.
      We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Industrias Bachoco,
      S.A.B. de C.V. and subsidiaries at December 31 2005 and 2006, and the
      consolidated results of their operations and their changes in financial position
      for each of the three years in the period ended December 31, 2006, in conformity
      with Mexican Financial Reporting Standards which differ in certain respects
      from
      U.S. generally accepted principles (see Note 17).




Mancera,
                S.C.
              A
                Member Practice of
              Ernst
                & Young Global
              
              Francisco
                José Sánchez González




Mexico
      City, Mexico


June
      26,
      2007




F-1


**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES**





**Consolidated
      balance sheets**





(Thousands
      of constant Mexican pesos as of December 31, 2006)





**December
                31,****(Thousands
                of U.S. dollars )****(Note
                2)****2005**
            
            **2006**
            
            **2006****ASSETS****Current
                assets**Cash
                and cash equivalents
            
            Ps
            3,296,142
            
            **Ps**
            **3,454,052**
            
            **$**
            **319,834**Accounts
                receivable:Trade,
                net
            
            
            493,488
            
            
            **520,315**
            
            
            **48,180**Value
                added and other recoverable taxes
            
            
            295,772
            
            
            **318,517**
            
            
            **29,494**Total
                accounts receivable
            
            
            789,260
            
            
            **838,832**
            
            
            **77,674**Inventories,
                net -Note 4
            
            
            1,704,692
            
            
            **2,143,519**
            
            
            **198,483**Biological
                current assets -Note 4
            
            
            72,622
            
            
            **88,575**
            
            
            **8,202**Prepaid
                expenses and other current assets
            
            
            83,885
            
            
            **56,609**
            
            
            **5,242****Total
                current assets**
            
            
            5,946,601
            
            
            **6,581,587**
            
            
            **609,435**Property,
                plant and equipment, net -Note 5
            
            
            9,172,262
            
            
            **9,517,510**
            
            
            **881,292**Biological
                non-current assets -Note 4
            
            
            469,001
            
            
            **496,456**
            
            
            **45,970**Intangible
                assets-Note 12
            
            
            40,023
            
            
            **21,427**
            
            
            **1,984**Goodwill,
                net -Note 6
            
            
            289,950
            
            
            **289,949**
            
            
            **26,848**Other
                assets
            
            
            14,179
            
            
            **16,164**
            
            
            **1,497****TOTAL
                ASSETS**
            
            Ps
            15,932,015
            
            **Ps**
            **16,923,093**
            
            **$**
            **1,567,026****LIABILITIES
                AND STOCKHOLDERS’ EQUITY****Current
                liabilities:**Notes
                payable to banks -Note 7
            
            Ps
            74,762
            
            **Ps**
            **-**
            
            **$**
            **-**Current
                portion of long-term debt -Note 7
            
            
            21,682
            
            
            **9,356**
            
            
            **866**Accounts
                payable
            
            
            455,509
            
            
            **807,105**
            
            
            **74,735**Related
                parties -Note 3
            
            
            6,407
            
            
            **12,192**
            
            
            **1,129**Income
                tax
            
            
            57,858
            
            
            **43,746**
            
            
            **4,051**Other
                taxes payable and other accruals -Note 10
            
            
            291,178
            
            
            **234,749**
            
            
            **21,737**Derivative
                financial instruments- Note 8
            
            
            105,985
            
            
            **10,426**
            
            
            **965****Total
                current liabilities**
            
            
            1,013,381
            
            
            **1,117,574**
            
            
            **103,483****Long-term
                liabilities:**Long-term
                debt -Note 7
            
            
            54,018
            
            
            **34,208**
            
            
            **3,168**Deferred
                income tax -Note 14
            
            
            1,763,051
            
            
            **2,102,982**
            
            
            **194,730**Labor
                obligations -Note 12
            
            
            87,703
            
            
            **76,305**
            
            
            **7,066****TOTAL
                LIABILITIES**
            
            
            2,918,153
            
            
            **3,331,069**
            
            
            **308,447****COMITMENTS
                AND CONTINGENCIES**-**Note
                9****STOCKHOLDERS’
                EQUITY -Note 13**Majority
                stockholders’ equity:Capital
                stock
            
            
            2,211,549
            
            
            **2,211,785**
            
            
            **204,804**Paid-in
                capital
            
            
            699,766
            
            
            **716,732**
            
            
            **66,367**Reserve
                for repurchase company stock
            
            
            153,678
            
            
            **153,678**
            
            
            **14,230**Retained
                earnings
            
            
            11,736,122
            
            
            **13,211,136**
            
            
            **1,223,310**Net
                majority income for the year
            
            
            1,839,392
            
            
            **873,356**
            
            
            **80,870**Minimum
                seniority premium liability adjustment -Note 12
            
            
            (3,215
            )
            
            **(883**
            **)**
            
            **(82**
            **)**Deficit
                from restatement of stockholders’ equity
            
            
            (3,579,088
            )
            
            **(3,617,916**
            **)**
            
            **(335,007**
            **)**Derivative
                financial instruments-Note 8
            
            
            (89,027
            )
            
            **357**
            
            
            **33**Total
                majority stockholders' equity
            
            
            12,969,177
            
            
            **13,548,245**
            
            
            **1,254,525**Minority
                interest
            
            
            44,685
            
            
            **43,779**
            
            
            **4,054****Total
                stockholders' equity**
            
            
            13,013,862
            
            
            **13,592,024**
            
            
            **1,258,579****TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY**
            
            Ps
            15,932,015
            
            **Ps**
            **16,923,093**
            
            **$**
            **1,567,026**





See
      accompanying notes.




F-2


**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES**





**Consolidated
      statements of income**





(Thousands
      of constant Mexican pesos, except per share amounts, as of


December
      31, 2006)





**Years
                ended December 31,****(Thousands
                of U.S. dollars)****(Note
                2)****2004**
            
            **2005**
            
            **2006**
            
            **2006**Net
                revenues
            
            Ps
            14,299,667
            
            Ps
            15,052,368
            
            **Ps**
            **14,987,576**
            
            **$**
            **1,387,802**Cost
                of sales
            
            
            (11,596,917
            )
            
            (10,827,550
            )
            
            **(****11,616,324**
            **)**
            
            **(****1,075,635**
            **)**Gross
                profit
            
            
            2,702,750
            
            
            4,224,818
            
            
            **3,371,252**
            
            
            **312,167**Selling,
                general and administrative expenses
            
            
            (1,784,854
            )
            
            (1,932,886
            )
            
            **(****1,996,504**
            **)**
            
            **(****184,870**
            **)**Operating
                income
            
            
            917,896
            
            
            2,291,932
            
            
            **1,374,748**
            
            
            **127,297**Comprehensive
                financing income (cost):Interest
                income
            
            
            109,502
            
            
            305,047
            
            
            **291,936**
            
            
            **27,032**Interest
                expense and other financing costs
            
            
            (130,646
            )
            
            (201,914
            )
            
            **(****127,075**
            **)**
            
            **(****11,767**
            **)**Net
                interest income (expense)
            
            
            (21,144
            )
            
            103,133
            
            
            **164,861**
            
            
            **15,265**Foreign
                exchange gain (loss), net
            
            
            48,440
            
            
            (60,003
            )
            
            **39,305**
            
            
            **3,639**Loss
                on net monetary position
            
            
            (104,164
            )
            
            (114,423
            )
            
            **(****144,988**
            **)**
            
            **(****13,425**
            **)**(76,868
            )
            
            (71,293
            )
            
            **59,178**
            
            
            **5,479**Other
                ordinary income (expense), net
            
            
            33,187
            
            
            (21,689
            )
            
            **21,963**
            
            
            **2,034**Income
                before income tax, asset tax, and employee profits sharing
            
            
            874,215
            
            
            2,198,950
            
            
            **1,455,889**
            
            
            **134,810**Income
                tax and asset tax -Note 14
            
            
            (111,237
            )
            
            (354,507
            )
            
            **(****577,421**
            **)**
            
            **(****53,467**
            **)**Employee
                profits sharing -Note 14
            
            
            (3,201
            )
            
            (3,332
            )
            
            **(****4,204**
            **)**
            
            **(****389**
            **)****NET
                INCOME**
            
            Ps
            759,777
            
            Ps
            1,841,111
            
            **Ps**
            **874,264**
            
            **$**
            **80,954**Majority
                net income
            
            
            755,681
            
            
            1,839,392
            
            
            **873,356**
            
            
            **80,870**Minority
                net income
            
            
            4,096
            
            
            1,719
            
            
            **908**
            
            
            **84****NET
                INCOME**
            
            Ps
            759,777
            
            Ps
            1,841,111
            
            **Ps**
            **874,264**
            
            **$**
            **80,954**Weighted
                average shares outstanding
              (in
                thousands)
            
            
            599,260
            
            
            599,694
            
            
            **599,571**
            
            
            **599,771****NET
                MAJORITY INCOME PER SHARE**
            
            Ps
            1.27
            
            Ps
            3.07
            
            **Ps**
            **1.46**
            
            **$**
            **0.13**




See
      accompanying notes.





F-3





**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES**





**Consolidated
      statements of changes in stockholders’ equity**





**Years
      ended December 31, 2004, 2005 and 2006**





(Thousands
      of constant Mexican pesos as of


December
      31, 2006)





**Number
                of shares of capital stock**
              **(thousands)**
            
            **Capital**
              **stock**
            
            **Paid-in
                capital**
            
            **Reserve
                for**
              **repurchase
                of Company stock**
            
            **Retained**
              **earnings**
            
            **Net**
              **income
                for the year**
            
            **Minimum**
              **labor
                obligations**
              **liability
                adjustment**
            
            **Deficit
                from restatement of**
              **stockholders’
                equity**
            
            **Derivative
                financial instru-ments**
            
            **Total
                majority stockholders’ equity**
            
            **Minority
                interest**
            
            **Total**
              **stockholders’
                equity**Balance
                at December 31, 2003
            
            
            600,000
            
            Ps
            2,211,798
            
            Ps
            683,455
            
            Ps
            190,049
            
            Ps
            10,894,939
            
            Ps
            605,322
            
            Ps
            (
                2,052
            )
            Ps
            (
                3,252,406
            )
            Ps
            -
            
            Ps
            11,331,105
            
            Ps
            46,778
            
            Ps
            11,377,883Transfer
                of prior year’s net income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            605,322
            
            
            (605,322
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Repurchase
                of stock
            
            
            (2,220
            )
            
            (616
            )
            
            -
            
            
            (25,324
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (25,940
            )
            
            -
            
            
            (25,940
            )Sales
                of repurchased stock
            
            
            1,420
            
            
            395
            
            
            13,464
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,859
            
            
            -
            
            
            13,859Cash
                dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (265,655
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (265,655
            )
            
            -
            
            
            (265,655
            )Comprehensive
                income, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            755,681
            
            
            (964
            )
            
            (160,764
            )
            
            -
            
            
            595,881
            
            
            (2,562
            )
            
            593,319Balance
                at December 31, 2004
            
            
            599,200
            
            
            2,211,577
            
            
            696,919
            
            
            164,725
            
            
            11,234,606
            
            
            755,681
            
            
            (1,088
            )
            
            (3,413,170
            )
            
            -
            
            
            11,649,250
            
            
            44,216
            
            
            11,693,466Transfer
                of prior year’s net income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            755,681
            
            
            (755,681
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Repurchase
                of stock
            
            
            (920
            )
            
            (242
            )
            
            -
            
            
            (11,047
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (11,289
            )
            
            -
            
            
            (11,289
            )Sales
                of repurchased stock
            
            
            800
            
            
            214
            
            
            2,847
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,061
            
            
            -
            
            
            3,061Cash
                dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (254,165
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (254,165
            )
            
            -
            
            
            (254,165
            )Comprehensive
                income, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,839,392
            
            
            (2,127
            )
            
            (165,918
            )
            
            (89,027
            )
            
            1,582,320
            
            
            469
            
            
            1,582,789Balance
                at December 31, 2005
            
            
            599,080
            
            
            2,211,549
            
            
            699,766
            
            
            153,678
            
            
            11,736,122
            
            
            1,839,392
            
            
            (3,215
            )
            
            (3,579,088
            )
            
            (89,027
            )
            
            12,969,177
            
            
            44,685
            
            
            13,013,862Transfer
                of prior year’s net income
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **1,839,392**
            
            
            **(****1,839,392**
            **)**
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Sales
                of repurchased stock
            
            
            **920**
            
            
            **236**
            
            
            **16,966**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **17,202**
            
            
            **-**
            
            
            **17,202**Cash
                dividends paid
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **(****364,378**
            **)**
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **(****364,378**
            **)**
            
            **-**
            
            
            **(****364,378**
            **)**Comprehensive
                income, net of tax
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **873,356**
            
            
            **2,332**
            
            
            **(38,828**
            **)**
            
            **89,384**
            
            
            **926,244**
            
            
            **(****906**
            **)**
            
            **925,338****Balance
                at December 31, 2006 (Note 13)**
            
            
            **600,000**
            
            **Ps**
            **2,211,785**
            
            **Ps**
            **716,732**
            
            **Ps**
            **153,678**
            
            **Ps**
            **13,211,136**
            
            **Ps**
            **873,356**
            
            **Ps**
            **(883**
            **)**
            **Ps**
            **(3,617,916**
            **)**
            **Ps**
            **357**
            
            **Ps**
            **13,548,245**
            
            **Ps**
            **43,779**
            
            **Ps**
            **13,592,024**




See
      accompanying notes.





F-4




**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES**





**Consolidated
      statements of changes in financial position**





(Thousands
      of constant Mexican pesos as of December 31, 2006)





**Years
                ended December 31,****(Thousands
                of U.S. dollars) (Note 2)****2004**
            
            **2005**
            
            **2006**
            
            **2006****Operating
                activities**Net
                income
            
            Ps
            759,777
            
            Ps
            1,841,111
            
            **Ps**
            **874,264**
            
            **$**
            **80,954**Adjustments
                to reconcile net income to resources provided by operating
                activities:Depreciation
            
            
            451,885
            
            
            479,784
            
            
            **517,914**
            
            
            **47,957**Deferred
                income tax
            
            
            87,021
            
            
            1,029
            
            
            **333,571**
            
            
            **30,888**Goodwill
                amortization
            
            
            18,840
            
            
            -
            
            
            **-**
            
            
            **-**Labor
                obligations, net period cost
            
            
            21,268
            
            
            39,038
            
            
            **36,107**
            
            
            **3,343**1,338,791
            
            
            2,360,962
            
            
            **1,761,856**
            
            
            **163,142**Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            118,724
            
            
            (183,564
            )
            
            **(****49,572**
            **)**
            
            **(****4,590**
            **)**Inventories
                and biological assets
            
            
            (45,887
            )
            
            (339,988
            )
            
            **(****516,517**
            **)**
            
            **(****47,828**
            **)**Prepaid
                expenses and other current assets
            
            
            30,641
            
            
            (33,272
            )
            
            **27,276**
            
            
            **2,526**Accounts
                payable
            
            
            17,814
            
            
            (24,602
            )
            
            **351,596**
            
            
            **32,557**Related
                parties
            
            
            3,746
            
            
            (162
            )
            
            **5,785**
            
            
            **536**Taxes
                payable and other accruals
            
            
            15,867
            
            
            132,955
            
            
            **(****70,541**
            **)**
            
            **(****6,532**
            **)**Labor
                obligations,plan
                contributions
            
            
            (9,193
            )
            
            (25,202
            )
            
            **(****26,577**
            **)**
            
            **(****2,461**
            **)**Derivative
                financial instruments
            
            
            -
            
            
            -
            
            
            **(****6,175**
            **)**
            
            **(****572**
            **)****Resources
                provided by operating activities**
            
            
            1,470,503
            
            
            1,887,127
            
            
            **1,477,131**
            
            
            **136,778****Financing
                activities**Proceeds
                from issuance of long-term debt
            
            
            4,381
            
            
            179
            
            
            **-**
            
            
            **-**Proceeds
                from issuance of notes payable to banks
            
            
            334,277
            
            
            170,014
            
            
            **-**
            
            
            **-**Repayment
                of long-term debt and notes payable
            
            
            (315,790
            )
            
            (198,898
            )
            
            **(****101,037**
            **)**
            
            **(****9,356**
            **)**Constant
                pesos effect on notes payable to banks andlong
                term-debt
            
            
            (8,423
            )
            
            (5,971
            )
            
            **(****5,861**
            **)**
            
            **(****543**
            **)**Cash
                dividends paid
            
            
            (265,655
            )
            
            (254,165
            )
            
            **(****364,378**
            **)**
            
            **(****33,740**
            **)**Sales
                (repurchases) of Company’s own stock, net
            
            
            (12,081
            )
            
            (8,227
            )
            
            **17,202**
            
            
            **1,593****Resources
                used in financing activities**
            
            
            (263,291
            )
            
            (297,068
            )
            
            **(****454,074**
            **)**
            
            **(****42,046**
            **)****Investing
                activities**Acquisition
                of property, plant and equipment, net
            
            
            (471,194
            )
            
            (805,259
            )
            
            **(****863,162**
            **)**
            
            **(****79,926**
            **)**Other
                assets
            
            
            3,128
            
            
            (2,611
            )
            
            **(****1,985**
            **)**
            
            **(****184**
            **)****Resources
                used in investing activities**
            
            
            (468,066
            )
            
            (807,870
            )
            
            **(****865,147**
            **)**
            
            **(****80,110**
            **)**Net
                increase in cash and cash equivalents
            
            
            739,146
            
            
            782,189
            
            
            **157,910**
            
            
            **14,622**Cash
                and cash equivalents at beginning of year
            
            
            1,774,807
            
            
            2,513,953
            
            
            **3,296,142**
            
            
            **305,212**Cash
                and cash equivalents at end of year
            
            Ps
            2,513,953
            
            Ps
            3,296,142
            
            **Ps**
            **3,454,052**
            
            **$**
            **319,834**




See
      accompanying notes.





F-5


**INDUSTRIAS
      BACHOCO, S.A.B. DE C.V.**


**AND
      SUBSIDIARIES**





**Notes
      to the consolidated financial statements**





**Years
      ended December 31, 2004, 2005 and 2006**





(Thousands
      of constant Mexican pesos as of


December
      31, 2006, except per share amounts)




**1** **.** **Organization
      and Business Activity**





Industrias
      Bachoco, S.A.B. de C.V. and subsidiaries (collectively “Bachoco” or the
“Company”) was incorporated on February 8, 1980 and it is engaged in breeding,
      processing and marketing of poultry (chicken and eggs), swine and other products
      (principally balanced animal feed). Industrias Bachoco, S.A.B. de C.V. is the
      controlling company of a group of subsidiaries.





In
      June
      2006, the new Securities Trading Act came into effect, which, among other
      provisions, established that corporations listed on the Mexican stock exchange
      must change their entity names from variable capital stock corporation (S.A.
      de
      C.V.) to variable capital stock market corporation(S. A. B. de
      C.V.).





As
      of
      February 1, 2007, the Company’s name is Industrias Bachoco, S.A.B. de C.V., in
      compliance with the aforementioned law.





On
      March
      22, 2007, the accompanying financial statements and these notes were authorized
      by the Company’s Finance Director, for their issuance.





**2.
      Accounting Policies and Practices**





The
      Company’s consolidated financial statements are prepared in accordance with
      Mexican Financial Reporting Standards. The significant accounting policies
      and
      practices observed by the Company in the preparation of the financial statements
      are described below:





**a)
      Adoption of Mexican Financial Reporting Standards (FRS)**





On
      June
      1, 2004, the Mexican Institute of Public Accountants (IMCP) formally handed
      over
      the responsibility for accounting standardization in Mexico to the Mexican
      Council for Financial Reporting Research and Development ( *Consejo
      Mexicano para la Investigación y Desarrollo de Normas de Información Financiera,
      A.C.* or
      CINIF).





The
      generally accepted accounting principles (GAAP) and bulletins previously issued
      by the Mexican Institute of Public Accountants were adopted by the CINIF and
      incorporated into the Financial Reporting Standards (FRS), or as applicable,
      Interpretations to Financial Reporting Standards. The FRS are understood to
      encompass the new standards and interpretations issued by the CINIF plus the
      bulletins previously issued by the IMCP and adopted by the CINIF. As such,
      any
      of the documents comprising the FRS will hereinafter be referred to by their
      original name or rather, either as “FRS” or as “Mexican accounting bulletin”, as
      the case may be.





The
      new
      Mexican Financial Reporting Standards include the following:





a)
      The
      new FRS and their interpretations issued by the CINIF.




F-6


b)
      Those
      bulletins previously issued by the Accounting Principles Board of the Mexican
      Institute of Public Accountants that have not been modified, replaced or
      abolished by the new FRS.





Changes
      in FRS are effective in 2006, and the primary changes established by them are
      as
      follows:





**FRS
      A-3 User Needs and the Objective of Financial Statements**





FRS
      A-3
      establishes that the statement of changes in financial position will be
      substituted by a statement of cash flows whenever so required by the specific
      standards.





**FRS
      A-5 Basic Elements of Financial Statements**





FRS
      A-5
      includes a new classification of revenues and expenses as either ordinary or
      non-ordinary. Ordinary revenues and expenses derive from common transactions
      or
      events carried out for the entity’s own business purposes, regardless of its
      frequency. Non-ordinary revenues and expenses derive from unusual transactions
      or events, both frequent and infrequent.





**FRS
      A-7 Preparation and Disclosure**





The
      financial statements must disclose the date authorized for the issuance of
      the
      financial statements and the names of the Company officers or governing bodies
      that authorize their issuance.





**FRS
      B-1 Accounting Changes and Corrections of Errors**





FRS
      B-1
      establishes that changes in internal accounting policies and reclassifications
      and corrections of errors must be recognized retrospectively, so that both
      the
      basic financial statements for the most recent period presented and those
      presented for comparison purposes are adjusted as if the new policy,
      classification or corrections had always been applied.





**b)
      Consolidation**





The
      consolidated financial statements include the accounts of the Company and all
      of
      its majority-owned subsidiaries. The Company has no investments in
      variable-interest entities. The ownership interests of other stockholders in
      such subsidiaries are shown as minority interest. Intercompany balances,
      investments and transactions have been eliminated in consolidation.





The
      accompanying consolidated financial statements include the following
      consolidated subsidiaries as of December 31, 2004, 2005 and 2006:




**Percentage
                equity interest**2004
            
            2005
            
            **2006**%
            
            %
            
            %Acuícola
                Bachoco, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Aviser,
                S.A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Bachoco,
                S.A. de C.V. (“BSACV”)
            
            
            100
            
            
            100
            
            
            **100**Campi
                Alimentos, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Huevo
                y Derivados, S.A. de C.V.
            
            
            97
            
            
            97
            
            
            **97**Operadora
                de Servicios de Personal, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Pecuarius
                Laboratorios, S.A. de C.V.
            
            
            64
            
            
            64
            
            
            **64**Secba,
                S.A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Sepetec,
                S. A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Servicios
                de Personal Administrativo, S.A. de C.V.
            
            
            100
            
            
            100
            
            
            **100**Induba
                Pavos, S.A. de C.V.
            
            
            -
            
            
            -
            
            
            **100**




F-7





Induba
      Pavos, S.A. de C.V. was created in December 2006 and is a 100% owned subsidiary
      of Bachoco.





**c)
      Revenue recognition**





Revenues
      are recognized at the time ownership of the products sold is transferred to
      the
      customer, which occurs when shipped merchandise is received and accepted by
      the
      customer.





Revenues
      are recognized when each of the following criteria is met:


· There is
        evidence of an arrangement.
 
 · Delivery
        has occurred.
  · The
        seller fixes or determines the prices with the buyer.
 
 · Collectability
        is reasonably certain.


The
      Company recognizes revenues upon delivery of the product.





**d)
      Recognition of the effects of inflation on financial
      information**





The
      financial information recognizes the effects of inflation and therefore the
      amounts shown in the accompanying financial statements and in these notes are
      expressed in thousands of Mexican pesos with purchasing power at December 31,
      2006. The restatement factor applied to the financial statements for the years
      ended December 31, 2004 and 2005 was 1.0752 and 1.0405, respectively, which
      corresponds to the annual rate of inflation from December 31, 2004 and December
      31, 2005, respectively, through December 31, 2006, based on the Mexican National
      Consumer Price Index (NCPI) published by Banco de Mexico.





A
      summary
      of the key inflation accounting concepts and procedures is as
      follows:


· Property,
          plant and equipment


Property,
      plant and equipment were carried at replacement cost, determined annually by
      an
      independent appraiser, through 1996. The fifth amendment to bulletin B-10 (as
      modified), which is applicable to financial statements for periods beginning
      on
      or after January 1, 1997, disallows the use of appraisals. Based on such
      amendment, the Company restated the appraised value at December 31, 1996 and
      property, plant and equipment purchases since January 1, 1997 are carried at
      cost adjusted by the NCPI.


· Stockholders’
          equity


Capital
      stock, paid-in capital, reserve for stock repurchase of Company’s own shares and
      retained earnings were restated using adjustment factors obtained from the
      NCPI.


· Net
          monetary gain (loss)


The
      net
      monetary gain (loss) represents the impact of inflation on monetary assets
      and
      liabilities. The net monetary gain (loss) of each year is included in the
      statements of income as a part of the comprehensive financing income (cost).


· Deficit
          from restatement of stockholders’ equity


The
      deficit from restatement of stockholders’ equity comprises the accumulated
      monetary position loss at the time the provisions of bulletin B-10 were first
      applied and the subsequent gain or loss from holding nonmonetary assets,
      principally inventories. Deficit from restatement of stockholders’ equity is
      originated when the replacement cost of these assets is lower than the cost
      of
      these assets restated by the NCPI.




F-8


**e)
      Statement of Changes in Financial Position**





Mexican
      accounting bulletin B-12, *Statement
      of Changes in Financial Position* ,
      specifies the appropriate presentation of the statement of changes in financial
      position based on financial statements restated in constant Mexican pesos in
      accordance with bulletin B-10. bulletin B-12 identifies the sources and
      applications representing differences between beginning and ending financial
      statement balances in constant Mexican pesos. The bulletin also requires that
      monetary and foreign exchange gains and losses not be treated as non-cash items
      in the determination of resources provided by operating activities.





**f)
      Estimates in financial statements**





The
      preparation of financial statements in conformity with FRS requires the use
      of
      estimates and assumptions that affect the amounts reported in the financial
      statements and accompanying notes. Actual results could differ from those
      estimates.





**g)
      Cash and cash equivalents**





Cash
      and
      cash equivalents consist primarily of bank deposits and highly liquid
      investments with original maturities of less than 90 days. Such investments
      are
      stated at acquisition cost plus accrued interest, similar to market
      value.





**h)
      Allowance for doubtful accounts**





The
      Company policy is to record an allowance for doubtful accounts for balances
      which are not likely to be recovered. Management considers that such accounts
      are those which are more than 60 days overdue or in litigation.





As
      a
      result of this procedure, accounts receivable at December 31, 2005 and 2006
      are
      presented net of the allowance for doubtful accounts of Ps. 36,329 and Ps.
      30,698, respectively.





**i)
      Inventories and biological assets**





Inventories
      are recognized at historical acquisition cost and are valued using the
      average-cost method.





Inventories
      are restated using the specific-cost method. The stated value of inventories
      is
      not in excess of net realizable value. Cost of sales is restated to Mexican
      pesos with purchasing power at year-end by applying the same method as for
      inventories. The deficit from restatement of stockholders’ equity is comprised
      of the difference between the increase in the specific value of inventories
      and
      cost of sales, and the increase as measured based solely on the
      NCPI.





The
      allowance for decline in the productivity of breeder chickens and pigs is
      estimated based on expected future production.


· Agriculture


The
      financial statements recognize the requirements of Mexican accounting bulletin E-1, *Agriculture* ,
      which
      establishes the rules for recognizing, valuing, presenting and disclosing
      biological assets and agricultural products, as well as the tax treatment to
      be
      applied to government subsidies related to a biological asset.





Bulletin
      E-1 requires biological assets and agricultural products (the latter at the
      time
      of harvesting) to be valued at their fair value, net of the estimated costs
      at
      the point of sale. bulletin E-1 also establishes that whenever the fair value
      cannot be determined in a reliable, verifiable and objective manner, the assets
      are to be valued at their production cost, net of accrued impairment
      loss.




F-9





The
      Company’s biological assets consist of poultry in different stages, incubatable
      eggs and breeder pigs. Agricultural products are processed chicken, commercial
      eggs and commercial pigs.





Broiler
      chicks less than six weeks old, incubatable eggs, breeder pigs and laying hens
      are valued at production cost since it is not possible to determine their fair
      value in a reliable, verifiable and objective manner.





Broilers
      more than six week old through their date of sale are valued at fair value
      net
      of estimated point-of-sale costs, considering the price per kilogram of
      processed chicken at the valuation date.





Processed
      chicken and commercial eggs are valued at fair value net of estimated
      point-of-sale costs, considering the price per kilogram of processed chicken
      and
      commercial eggs at the time such items are considered as agricultural products.
      From such date through the date of sale, the fair value is considered to be
      the
      cost of processed chicken or commercial eggs, not in excess of net realizable
      value.





The
      Company is exposed to financial risks due to changes in the price of chicken.
      The Company estimates that the price of chicken will not fall significantly
      in
      the future; consequently, the Company has not entered into any derivative
      agreement or any other type of agreement to offset the risk of a drop in the
      price of chicken.





The
      Company reviews periodically the price of chicken so as to evaluate the need
      for
      a financial instrument to offset such risk.





In
      conformity with bulletin E-1, biological assets and agricultural products were
      classified as either current or non-current assets depending on their
      availability and the business cycle.





**j)
      Property, plant and equipment**





Property,
      plant and equipment are carried at cost and then restated based on adjustment
      factors derived from the NCPI.





Depreciation
      of property, plant and equipment is computed on restated values using the
      straight-line method, based on the estimated useful lives of the related assets
      (see Note
      5).





The
      value
      of property, plant and equipment is reviewed whenever there are indications
      of
      impairment in their value. The related loss is determined based on the recovery
      amount of the related asset, which is defined as the higher of the asset’s net
      selling price and its value in use. An impairment loss is recognized if the
      net
      carrying amount of the asset exceeds the recovery value.





The
      Company’s policy is to not capitalize its comprehensive financing cost for
      constructions in process.





**k)
      Intangible assets**





The
      Company capitalizes software development for internal use when the product
      under
      development has reached technological feasibility. Software development costs
      incurred before the technology is deemed viable are charged to development
      expenses.





Internal
      and external costs incurred during the development phase are
      capitalized.




F-10





Costs
      incurred during the preliminary phase and post-implementation and operational
      stages are expensed as incurred.





Intangible
      assets are amortized on restated values using the straight-line method based
      on
      the estimated useful lives of the related assets. Intangible assets with
      indefinite useful lives are not amortized.





The
      value
      of intangible assets with definite useful lives is reviewed whenever there
      are
      indications of impairment. The related loss is determined based on the recovery
      value of the related asset, which is defined as the difference between the
      asset’s net selling price and its value in use. An impairment loss is recognized
      if the net carrying amount of the asset exceeds its recovery value.





Intangibles
      with indefinite useful lives that are not yet available for use and intangibles
      that are in use but whose amortization period exceeds 20 years from the date
      they were available for use are tested for impairment at the end of each
      year.





**l)
      Goodwill**





Goodwill
      represents the difference between the purchase price and the fair value of
      the
      net assets acquired at the purchase date.





On
      January 1, 2005, the Company adopted the requirements of Mexican accounting
      bulletin B-7, *Business
      Acquisitions,* issued
      by the Mexican Institute of Public Accountants. The Company has valued all
      of
      its business acquisitions using the purchase method and, since 2005, no longer
      amortizes its goodwill. Through December 31, 2004, goodwill was being amortized
      using the straight-line method over a twenty-year period.





Goodwill
      is recorded initially at acquisition cost and then restated using adjustment
      factors derived from the NCPI. Goodwill is considered an intangible asset with
      an indefinite useful life and is therefore subject to annual impairment testing
      in conformity with Mexican accounting bulletin C-15.





**m)
      Foreign exchange differences**





Transactions
      denominated in foreign currency are recorded at the prevailing exchange rate
      on
      the day of the related transactions. Foreign currency denominated monetary
      assets and liabilities are translated at the prevailing exchange rate at the
      balance sheet date. Such exchange differences are charged or credited to
      operations.





See
      Note
      11 for the Company’s foreign currency position at the end of each year and the
      exchange rates used to translate balances denominated in foreign currency.





**n)
      Liabilities, provisions, contingent liabilities and
      commitments**





Liability
      provisions are recognized whenever: (i) the Company has current obligations
      (legal or assumed) derived from past events, (ii) the liability will most likely
      give rise to a future cash disbursement for its settlement and (iii) the
      liability can be reasonably estimated.





If
      the
      effect of the time value of money is material, provision amounts are determined
      as the present value of the expected disbursements to settle the obligation.
      The
      discount rate is determined on a pre-tax basis and reflects current market
      conditions at the balance sheet date and, where appropriate, the risks specific
      to the liability. Where discounting is used, the increase in the provision
      due
      to the passage of time is recognized as an interest expense.




F-11





Contingent
      liabilities are recognized only when it is probable they will give rise to
      a
      future cash disbursement for their settlement. Also, commitments are only
      recognized when it is probable they will generate a loss.





**o)
      Pension plan, seniority premiums and severance benefits**





The
      IMCP
      issued the revised Mexican accounting bulletin D-3, Labor Obligations, which
      came into force on January 1, 2005. The revised bulletin establishes the overall
      rules for the valuation, presentation and disclosure of “other post-retirement
      benefits” and the reduction and early extinguishment of such benefits. Bulletin
      D-3 also modifies the rules applicable to employee severance
      benefits.





Bachoco
      has a retirement plan in which all non-union workers participate. Pension
      benefits are determined based on the salary of workers in their final three
      years of service, the number of years worked and their age at retirement; this
      plan includes:


· Defined
          contribution plan: This fund consists of employee and Company contributions.
          The
          employee contribution percentage ranges from 1% to 5%. The Company contribution
          ranges from 1% to 2% in the case of employees with less than 10 years’
seniority, and the same contribution percentage as the employee (5%) when
          the
          employee has more than 10 years’ seniority.


· Defined
          benefit plan: This fund consists solely of Company contributions and covers
          the
          Company's labor obligations with each employee.


Seniority
      premiums and severance payments are paid to workers as required by Mexican
      labor
      law.





The
      Company recognizes the liability for pension benefits, seniority premiums and
      termination benefits (severance payments), based on independent actuarial
      computations using the projected unit-credit method and financial hypotheses
      net
      of inflation.





**p)
      Comprehensive income**





Comprehensive
      income consists of the net income or loss for the year, plus the result from
      holding non-monetary assets, the effect of deferred taxes applied directly
      to
      stockholders’ equity, the effective portion of the unrealized gain or loss on
      cash flow hedges and the minimum liability adjustment for labor obligations
      as
      required by Mexican accounting bulletin B-4, Comprehensive Income.





**q)
      Derivative financial instruments acquired for hedging
      purposes**





In
      order
      to reduce its financial risks, the Company uses derivative financial instruments
      as hedges against certain risks. As of January 1, 2005, due to the adoption
      of
      Mexican accounting bulletin C-10, “Accounting for Derivative Instruments and
      Hedging Activities”, issued by the IMCP in April 2004, the Company modified its
      accounting policies for valuing and recognizing these instruments.





In
      the
      normal course of business, the Company is exposed to foreign currency exchange
      risks. The Company mitigates these risks through a program that includes the
      use
      of derivative financial instruments.




F-12





The
      Company’s policy establishes a range of hedging from 25% to 30% of its total
      U.S. dollar denominated transactions. The Company uses options and futures
      contracts to mitigate its exposure to exchange rate fluctuations on its
      short-term cash flows denominated in U.S. dollars (forecasted transaction).
      These instruments are not used for speculative purposes and the counterparties
      with which they are contracted are major financial institutions.





The
      derivatives are recognized in conformity with the regulations established in
      Mexican accounting bulletin C-10 (Mexican GAAP) and Statement of Financial
      Accounting Standard (SFAS) 133, “Accounting for Derivative Instruments and
      Hedging Activities”, and its related interpretations (US GAAP). The Company use
      derivatives as hedge accounting for forecasted transaction.





The
      Company has entered into the following agreements involving derivative financial
      instruments:





Options





Options
      are derivatives that give the buyer the right, albeit not the obligation, to
      buy
      or sell an asset (in this case dollars) at an established exercise price, known
      as the *strike
      price* ,
      at a
      defined date in exchange for the payment of a premium. The issuer of the option
      is obligated to buy or sell when the option is exercised by the buyer. When
      the
      right that is acquired is the right to sell, the option is known as a put,
      when
      it is to buy, it is known as a call. In Bachoco’s case, the options entered into
      are of the European type; that is, they can only be exercised at the maturity
      date. The options entered into by Bachoco do not involve the payment of a
      premium, as the instruments consist of both call and put options and the
      combination of the premiums payable and receivable is equal to zero. Under
      this
      plan, Bachoco acts as both the buyer and the seller and assumes rights (when
      it
      purchases) and obligations (when it sells) from these contracts.





Futures




Futures
      are contracts that obligate two entities to exchange an asset or value (in
      this
      case grain) at a future date for a pre-established and agreed quantity, quality
      and price. In this type of contract, there is no premium payment, as there
      is
      only a gain or a loss for the Company when the market price of the grain exceeds
      the strike price (gain) or the market price falls below the price agreed to
      in
      the contract (loss). The Company engaged in futures contracts during 2005 and
      2006. The Company holds deposits with some of its counterparties to guarantee
      the execution of its futures contracts. Such deposits bear market interest
      at
      market rates.





Assessment
      of effectiveness




The
      effectiveness of the Company’s hedges is determined at the time the derivatives
      are designated as hedges and is assessed on a regular basis. The effectiveness
      of the Company’s hedges is determined at the time the financial derivatives are
      designated as hedges and is assessed on a periodic basis. Hedges considered
      as
      highly effective are those in which the fair value or cash flows of the hedged
      item are offset on a period-by-period or cumulative basis by changes in the
      fair
      value or cash flows of the financial derivative itself within a range of 80%
      and
      125%.





In
      conformity with bulletin C-10 and SFAS 133, paragraph 30, the effective portion
      of a loss or gain on a cash flow hedge is recorded in comprehensive income
      net
      of related income taxes (stockholders’ equity) while the ineffective portion is
      recorded in results of operations.




F-13


Also,
      in
      conformity with SFAS 133, Implementation Issue No. G20, “Cash flow hedges:
      assessing and measuring the effectiveness of a purchased option used in a cash
      flow hedge”, when designating a purchased option (including a combination of
      options that comprise either a net purchased option or a zero cost collar)
      as
      hedging the exposure to variability in expected future cash flows attributable
      to a particular rate or price (in this case exchange rate) beyond a specified
      level, an entity documents that the assessment of effectiveness will be based
      on
      total changes in the option's cash flows (that is, the assessment will include
      the hedging instrument's entire change in fair value—its entire gain or loss),
      rather than documenting that the assessment of effectiveness will be based
      on
      only the changes in the hedging instrument's intrinsic value as permitted by
      paragraph 63(a). For this type of instrument, the hedging ratio may to be
      considered perfectly effective and, consequently, there will be no recognition
      of ineffectiveness in income, provided the following criteria are
      met:





1.
      The
      critical terms of the hedging instrument (such as notional amount, underlying
      and maturity date, etc.) completely match the related terms of the hedged
      forecasted transaction.




2.
      The
      strike price (or prices) of the hedging option (or combination of options)
      matches the specified level (or levels) beyond (or within) which the Company’s
      exposure is being hedged.




3.
      The
      hedging instrument’s inflows (outflows) at its maturity date completely offset
      the change in the hedged transaction’s cash flows for the risk being hedged.




4.
      The
      hedging instrument can only be exercised on a single date (its maturity
      date).





The
      Company followed G-20, as a supplement to FRS, in regards to the measurement
      of
      effectiveness.





The
      Company meets with these criteria for zero cost collar derivative financial
      instruments and therefore, the Company’s contracts of this type of instrument
      are valued at their fair value at the beginning and later on a monthly basis,
      until their maturity. These instruments are recorded in other comprehensive
      income at their fair value as of December 31, 2006, and rather than being
      reclassified to results of operations they are cancelled upon their maturity,
      as
      they are considered perfectly effective in accordance with G20.





For
      derivatives other than zero cost collar or those that are combination of call
      option, the Company determines the effective portion for such derivatives and
      records it in other comprehensive income, while the ineffective portion is
      recorded in income, as is established in bulletin C-10 and SFAS
      133.





**r)
      Deferred taxes**





The
      Company determines deferred taxes temporary differences in balance sheet
      accounts for financial and tax reporting purposes, using the enacted income
      tax
      rate at the time the financial statements are issued, or the enacted rate that
      will be in effect at the time the temporary differences giving rise to deferred
      tax assets and liabilities are expected to be recovered or settled.





The
      possibility of recovering deferred tax assets is evaluated periodically and,
      if
      necessary, a valuation allowance is created for those assets that are unlikely
      to be recovered.





Deferred
      employee profit sharing is determined only on temporary differences in the
      reconciliation of current year net income to taxable income for employee profit
      sharing purposes, provided there is no indication that the related liability
      or
      asset will not be realized in the future.




F-14





Asset
      tax
      is a minimum income tax and any amount paid is recognized as a deferred income
      tax asset since it can be credited against future tax obligation for a period
      up
      to 10 years.





**s)
      Concentration of risk**





The
      Company invests a portion of its surplus cash in cash deposits in financial
      institutions with credit ratings and has established guidelines related to
      diversification and maturities that the Company believes maintains safety and
      liquidity. The Company has not experienced any losses on its cash equivalents.
      The Company does not believe it has significant concentrations of credit risks
      in its accounts receivable, because the Company’s customer base is
      geographically diverse, thus spreading the credit risk.





**t)
      Net income per share**





Net
      majority income per share has been computed based on majority net income and
      on
      the weighted average number of shares outstanding, as established in Mexican
      accounting bulletin B-14.





**u)
      Financial information by segments**





Requirements
      of bulletin B-5, *Financial
      Information by Segments,* issued
      by the IMCP, went into effect in April 2003. This bulletin establishes the
      rules
      for disclosing financial information by segment.





Financial
      information by segment is prepared based on a management’s approach, in
      conformity with bulletin B-5, considering a segment to be an operating component
      that is subject to risks and benefits that are different from other business
      segments.





The
      financial information by activity is disclosed in Note 15.





**v)
      Convenience translation**





United
      States dollar amounts as of December 31, 2006, shown in the accompanying
      consolidated financial statements, have been included solely for the convenience
      of the reader and are translated from Mexican pesos to US dollars as a matter
      of
      arithmetic computation only, at an exchange rate of Ps 10.7995 to one U.S.
      dollar, which was the exchange rate at December 31, 2006. Such translation
      should not be construed as a representation that the Mexican peso amounts could
      have been or could be converted into U.S. dollars at this or any other rate.
      Figures shown in US Dollars do not represent the translation of the financial
      statements in accordance with US GAAP (SFAS 52).





**3.
      Related Parties**





a)
      A
      summary of related party accounts payable as of December 31, is as
      follows:





**Relation**
            
            2005
            
            **2006**Llantas
                y Accesorios, S.A. de C.V.
            
            
            Affiliate
            
            Ps
            56
            
            **Ps**
            **54**Maquinaria
                Agrícola, S.A. de C.V.
            
            
            Affiliate
            
            
            123
            
            
            **2,932**Vilifies,
                S.A. de C.V.
            
            
            Affiliate
            
            
            6,177
            
            
            **8,900**Autos
                y Accesorios, S.A. de C.V.
            
            
            Affiliate
            
            
            51
            
            
            **306**Ps
            6,407
            
            **Ps**
            **12,192**




All
      of
      these companies are considered as related parties, as the Company’s main
      shareholders are also directly or indirectly, shareholders of these companies.




F-15





b)
      For
      the years ended December 31, 2004, 2005 and 2006, the Company had the following
      transactions with related parties:




2004
            
            2005
            
            **2006**Airplane
                leasing expenses
            
            Ps
            2,936
            
            Ps
            4,517
            
            **Ps**
            **4,044**Purchases
                of vehicles, tires and spare parts
            
            
            40,629
            
            
            56,443
            
            
            **61,160**Purchases
                of feed, raw materials and
              Packing
                supplies
            
            
            210,733
            
            
            187,023
            
            
            **242,804**




**4.
      Inventories and biological assets**





a)
      Inventories consist of the following:





2005
            
            **2006**Raw
                materials and byproducts
            
            Ps
            674,911
            
            **Ps**
            **1,047,763**Medicine,
                materials and spare parts
            
            
            299,880
            
            
            **343,485**Finished
                feed
            
            
            34,370
            
            
            **41,147**1,009,161
            
            
            **1,432,395**Agricultural
                products:Live
                chicken
            
            
            495,640
            
            
            **545,378**Processed
                chicken
            
            
            180,755
            
            
            **142,022**Commercial
                egg
            
            
            19,136
            
            
            **23,724**695,531
            
            
            **711,124**Total
            
            Ps
            1,704,692
            
            **Ps**
            **2,143,519**





b)
      Biological assets at December 31, 2005 and 2006 consist of the
      following:





2005
            
            **2006**Current
                biological assets:Breeder
                pigs
            
            Ps
            18,031
            
            **Ps**
            **23,877**Incubatable
                eggs for fattening
            
            
            54,591
            
            
            **64,698**Total
                current biological assets
            
            
            72,622
            
            
            **88,575**Non-current
                biological assets:Laying
                and breeder hens
            
            
            150,833
            
            
            **167,626**Incubatable
                eggs for laying hens
            
            
            7,205
            
            
            **7,435**Pigs
            
            
            31,047
            
            
            **24,317**Laying
                hens
            
            
            493,925
            
            
            **502,167**Allowance
                for productivity declines
            
            
            (214,009
            )
            
            **(205,089**
            **)**Total
                non-current biological assets
            
            
            469,001
            
            
            **496,456**Total
                inventories and biological assets
            
            Ps
            2,246,315
            
            **Ps**
            **2,728,550**





The
      change in the historical value of biological assets and agricultural products
      to
      be presented at their fair value was Ps. 22,745 in 2004 (decrease), Ps. 27,055
      in 2005 (increase) and Ps. 10,485 in 2006 (increase). In 2004, 2005 and 2006,
      the effects were included as part of the caption Net revenue.




F-16





**5.
      Property, Plant and Equipment**





a)
      Property, plant and equipment consists of the following as of December
      31:





**Useful
                lives**
              **(years)**
            
            2005
            
            **2006**Land
            
            
            -
            
            Ps
            772,752
            
            **Ps**
            **782,181**Buildings,
                farm structures andequipment
            
            
            7-27
            
            
            12,405,970
            
            
            **12,789,890**Office,
                furniture and equipment
            
            
            3
            
            
            244,576
            
            
            **248,537**Transportation
                equipment
            
            
            6
            
            
            1,183,938
            
            
            **1,117,900**14,607,236
            
            
            **14,938,508**Accumulated
                depreciation
            
            
            
            
            
            (5,678,268
            )
            
            **(****6,037,179**
            **)**Net
            
            
            
            
            
            8,928,968
            
            
            **8,901,329**Construction
                in progress
            
            
            
            
            
            243,294
            
            
            **616,181**Total
            
            
            
            
            Ps
            9,172,262
            
            **Ps**
            **9,517,510**





b)
      Depreciation expense for the years ended December 31, 2004, 2005 and 2006,
      was Ps
      451,885, Ps 479,784 and Ps 517,914, respectively.





**6.
      Goodwill**





In
      1999,
      goodwill was derived from the purchase of the shares of Grupo Campi, S.A. de
      C.V. in the amount of Ps. 353,836. At December 31, 2005 and 2006, accumulated
      amortization aggregates Ps. 63,886. As mentioned in Note 2 l), in 2005 and
      2006,
      goodwill was not amortized derived from the adoption of bulletin B-7, *Business
      Acquisitions.*





Amortization
      expense charged to results of operations for the year ended December 31, 2004
      was Ps. 18,840.





**7.
      Notes Payable to Banks and Long-term Debt**





a)
      Notes
      payable to banks and long-term debt, as of December 31, consists of the
      following:





2005
            
            **2006**Unsecured
                notes payable to banks:Denominated
                in Mexican pesos, interest
              rate
                2005 and 2006: TIIE FIRA rate
              less
                2.9 points.
            
            Ps
            38,344
            
            **Ps**
            **-**Denominated
                in Mexican pesos, interest
              rate:
                TIIE FIRA rate less 1.05 points
            
            
            36,418
            
            
            **-**Total
                notes payable to bank
            
            Ps
            74,762
            
            **Ps**
            **-**





F-17





The
      weighted average interest rate on short-term notes payable at December 31,
      2004,
      2005 and 2006 was 7.1%, 6.87% and 5.32%, respectively. Average interest rates
      on
      short-term debt for the years ended December 31, 2004, 2005 and 2006 were 4.93%,
      7.74% and 5.25%, respectively.





2005
            
            **2006**Long-term
                debt to banks:Secured
                by equipment:
              Denominated
                in Mexican pesos,
              repayable
                in monthly installments:
              Through
                2010, at CETES rate plus 2 points
            
            Ps
            49,738
            
            **Ps**
            **39,600**Maturing
                in 2006, fix rate of 10.45%
            
            
            21,682
            
            
            **-**Unsecured:Denominated
                in Mexican pesos, at TIIE FIRA
              rate
                less 3.30 points, with minimum rate of 2.90%,
              through
                2010
            
            
            4,280
            
            
            **3,964**Total
            
            
            75,700
            
            
            **43,565**Less
                current portion
            
            
            (21,682
            )
            
            **(****9,356**
            **)**Total
                long-term debt
            
            Ps
            54,018
            
            **Ps**
            **34,208**





Weighted
      average interest rates on long-term debt at December 31, 2004, 2005 and 2006
      were 10.31%, 9.89% and 8.58%, respectively. The weighted average interest rate
      on the Company’s total long term debt for the years ended as of December 31,
      2004, 2005 and 2006 was 9.35%, 11.35% and 9.26%, respectively.





The
      weighted average interest rate of the Company’s total debt at December 31, 2004,
      2005 and 2006 was 8.90%, 8.38% y 6.67%, respectively.





b)
      At
      December 31, 2005 and 2006, unused lines of credit totaled Ps 1,012,804 and Ps
      805,634, respectively. In 2004, 2005 and 2006, the Company did not pay any
      fee
      for unused lines of credit.





c)
      The
      book value of assets collateralizing long-term debt was Ps 244,765 at December
      31, 2005 and Ps 140,169 at December 31, 2006.





d)
      Maturities of long-term debt as of December 31, 2006 are as
      follows:





**Year**
            
            **Amount**2008
            
            
            10,0652009
            
            
            11,8552010
            
            
            12,288Ps
            34,208




F-18





**8.
      Financial Instruments Acquired for Hedging Purposes**





The
      Company has entered into contracts with Banamex Citigroup, Merrill Lynch, JP
      Morgan and Fimat, to hedge U.S. dollar exchange rates for the Company’s
      projected cash expenditures for the period from January through December 2007.
      Such contracts represent a long position of USD 214 million (equal to 33% of
      Bachoco’s estimated purchases for the year) at an average exchange rate of $
      11.00 pesos per dollar. The contracts establish that Bachoco shall not have
      to
      pay the counterparties a premium for the acquisition of these options since
      the
      transactions were carried out under zero-cost options, whereby Bachoco buys
      and
      sells options and premiums payable and receivable, respectively, are the
      same.





A
      summary
      of instruments that qualify as cash flow hedges as of December 31, 2005 and
      2006
      is as follows:


2005
              
              
              
              Position
              
              Notional
                  Amount
              
              Fair
                  value
              
              Other
                  comprehensive
                Income
              
              Ineffective
                  portion (income)Derivatives
                  financial Instruments
              
              TypeExchange
                  rate options
              
              
              Call
              
              
              Short
              
              Ps
              220,500
              
              Ps
              30,596
              
              Ps
              30,596
              
              
              -Exchange
                  rate options
              
              
              Call
              
              
              Long
              
              
              311,781
              
              
              (49,601
              )
              
              (49,601
              )
              
              -Exchange
                  rate options
              
              
              Put
              
              
              Short
              
              
              408,925
              
              
              (102,603
              )
              
              (102,603
              )
              
              -Exchange
                  rate options
              
              
              Put
              
              
              Long
              
              
              302,716
              
              
              19,902
              
              
              19,902
              
              
              -Bean
                  and soy futures
              
              
              
              
              
              Short
              
              
              3,315
              
              
              (1,957
              )
              
              (1,957
              )
              
              -Bean
                  and soy futures
              
              
              
              
              
              Long
              
              
              3,133
              
              
              274
              
              
              274
              
              
              -Corn
                  futures
              
              
              
              
              
              Short
              
              
              717
              
              
              38
              
              
              38
              
              
              -Corn
                  futures
              
              
              
              
              
              Long
              
              
              633
              
              
              (311
              )
              
              (311
              )
              
              -Bean
                  and soy options
              
              
              Call
              
              
              Short
              
              
              1,100
              
              
              344
              
              
              344
              
              
              -Bean
                  and soy options
              
              
              Call
              
              
              Long
              
              
              1,035
              
              
              42
              
              
              42
              
              
              -Bean
                  and soy options
              
              
              Put
              
              
              Short
              
              
              1,678
              
              
              (41
              )
              
              (41
              )
              
              -Bean
                  and soy options
              
              
              Put
              
              
              Long
              
              
              
              
              
              (200
              )
              
              (200
              )
              
              -Corn
                  options
              
              
              Call
              
              
              Short
              
              
              770
              
              
              (67
              )
              
              (67
              )
              
              -Corn
                  options
              
              
              Call
              
              
              Long
              
              
              735
              
              
              247
              
              
              247
              
              
              -Corn
                  options
              
              
              Put
              
              
              Short
              
              
              2,077
              
              
              (376
              )
              
              (376
              )
              
              -Corn
                  options
              
              
              Put
              
              
              Long
              
              
              
              
              
              (3
              )
              
              (3
              )
              
              -Peso
                  future
              
              
              
              
              
              Short
              
              
              
              
              
              (131
              )
              
              (131
              )
              
              -Peso
                  options
              
              
              Call
              
              
              Short
              
              
              
              
              
              (2,138
              )
              
              (2,138
              )
              
              -Peso
                  options
              
              
              Put
              
              
              Short
              
              
              
              
              
              (2
              )
              
              (2
              )
              
              -Peso
                  options
              
              
              Put
              
              
              Long
              
              
              
              
              
              2
              
              
              2
              
              
              -Ps
              (105,985
              )
              Ps
              (105,985
              )
              
              -Deferred
                  tax effect
              
              
              
              
              
              
              
              
              
              
              
              16,958
              
              
              16,958
              
              
              -Total
                  net of taxes
              
              
              
              
              
              
              
              
              
              
              Ps
              (89,027
              )
              Ps
              (89,027
              )
              
              -




**2006**
              
              
              
              Position
              
              Notional
                  Amount
              
              Fair
                  value
              
              Other
                  comprehensive income
              
              Ineffective
                  portion
                (income)Derivatives
                  financial Instruments
              
              TypeExchange
                  rate options
              
              
              Call
              
              
              Short
              
              Ps
              155,860
              
              Ps
              (23,469
              )
              Ps
              (3,972
              )
              $
              (19,497
              )Exchange
                  rate options
              
              
              Call
              
              
              Long
              
              
              212,193
              
              
              20,591
              
              
              4,528
              
              
              16,063Exchange
                  rate options
              
              
              Put
              
              
              Short
              
              
              77,400
              
              
              (45,677
              )
              
              (115
              )
              
              (45,562
              )Exchange
                  rate options
              
              
              Put
              
              
              Long
              
              
              154,960
              
              
              29,445
              
              
              -
              
              
              29,445Bean
                  and soy future
              
              
              
              
              
              Long
              
              
              3,066
              
              
              2,065
              
              
              -
              
              
              2,065Corn
                  future
              
              
              
              
              
              Long
              
              
              9,489
              
              
              3,671
              
              
              -
              
              
              3,671Bean
                  and soy future
              
              
              Call
              
              
              Long
              
              
              600
              
              
              227
              
              
              -
              
              
              227Bean
                  and soy future
              
              
              Put
              
              
              Short
              
              
              1,125
              
              
              (208
              )
              
              -
              
              
              (208
              )Corn
                  future
              
              
              Call
              
              
              Long
              
              
              2,860
              
              
              3,185
              
              
              -
              
              
              3,185Corn
                  future
              
              
              Put
              
              
              Short
              
              
              7,990
              
              
              (256
              )
              
              -
              
              
              (256
              )(10,426
              )
              
              441
              
              
              (10,867
              )Deferred
                  tax effect
              
              
              
              
              
              
              
              
              
              
              
              1,981
              
              
              (84
              )Total
                  net of taxes
              
              
              
              
              
              
              
              
              
              
              Ps
              (8,445
              )
              Ps
              357
              
              $
              (10,867
              )




F-19




The
      Company has entered into short-term hedges through “put” and “call” options to
      cover its assets in the amount of $ 532,281 thousand in 2005 and $ 367 thousand
      in 2006, and its liabilities in the amount of $ 708,733 thousand and $ 233
      thousand in 2005 and 2006, respectively. These contracts represented a net
      (credit) debit of Ps.114,986,


Ps.
      149,738 and Ps. 67,941 to results of operations of 2004, 2005 and 2006,
      respectively, under the caption Comprehensive cost of financing.





**9.
      Commitments and contingencies**





a)
      The
      Company has entered into operating leases for certain offices, production sites,
      automotive and computer equipment. Most leases contain renewal options. Rental
      expense was as follows:





**Year
                ended December 31,**
            
            **Amount**2004
            
            Ps
            30,7122005
            
            
            31,9592006
            
            
            29,411





b)
      Future
      minimum annual rental payments under existing operating leases with initial
      terms in excess of one year as of December 31, 2006, are as follow:





**Year
                ended December 31,**
            
            **Amount**2007
            
            Ps
            24,0532008
            
            
            18,1042009
            
            
            14,6172010
            
            
            11,3492011
            
            
            10,2882012
                and thereafter
            
            
            9,502Total
            
            Ps
            87,913





**10.
      Other taxes payable and other accruals**





An
      analysis of other taxes payable and other accruals presented in the financial
      statements is as follows:





2005
            
            **2006**Expenses
                payable
            
            Ps
            135,518
            
            **Ps**
            **130,853**Interest
                payable
            
            
            1,404
            
            
            **937**Tax
                payable
            
            
            3,930
            
            
            **3,118**Salaries
                payable
            
            
            3,114
            
            
            **2,588**Withholding
                taxes
            
            
            18,401
            
            
            **14,198**Social
                security fees
            
            
            28,965
            
            
            **25,157**Employee
                profit sharing
            
            
            3,926
            
            
            **5,063**Trade
                advances
            
            
            62,666
            
            
            **31,722**Other
                accounts payable
            
            
            33,254
            
            
            **21,113**Total
            
            Ps
            291,178
            
            **Ps**
            **234,749**




F-20







**11.
      Foreign Currency Position**





a)
      A
      summary of the Company’s assets and liabilities denominated in U.S. dollars (the
      only foreign currency) as of December 31:





**(Thousands
                U.S. dollars)**2005
            
            **2006****Assets:**Cash
                and cash equivalents
            
            $
            26,251
            
            **$**
            **23,775**Advances
                to suppliers (included in inventories andproperty,
                plant and equipment)
            
            
            21,424
            
            
            **38,939**47,675
            
            
            **62,714****Liabilities:**Accounts
                payable
            
            
            (6,415
            )
            
            **(****15,976**
            **)****Net
                long position**
            
            $
            41,260
            
            **$**
            **46,738**





b)
      As of
      December 31, 2005 and 2006, the exchange rate was Ps 10.71 and Ps 10.82 per
      dollar, respectively.





c)
      Assets
      from foreign origin included in the consolidated balance sheets as of December
      31, 2005 and 2006, were:





**(Thousands
                of U.S. dollars)**2005
            
            **2006**Inventories
            
            $
            16,969
            
            **$**
            **20,654**Property,
                plant and equipment
            
            
            140,109
            
            
            **140,093**





d)
      Imported raw materials, in thousands of U.S. dollars, were $ 443,473 in 2004, $
      416,974
      in 2005 and $ 483,278 in 2006. Interest expense, in thousands of U.S. dollars
      from debt denominated in U.S. dollars was $ 235 in 2004 and $ 5 in 2005. During
      2006, the Company had no interest expense, as the debt in foreign currency
      had
      been settled.





**12.
      Labor Obligations**





An
      analysis of the net period cost, reserve amounts and the assumptions considered
      in the pension plan, the seniority premium and severance obligation at December
      31 is as follows:





**Pension
                plan**
            
            **Seniority
                Premium**
            
            **Severance**2004
            
            2005
            
            **2006**
            
            2004
            
            2005
            
            **2006**
            
            2005
            
            **2006**Net
                period cost:Labor
                cost
            
            Ps
            9,465
            
            Ps
            10,407
            
            **Ps**
            **11,364**
            
            Ps
            3,153
            
            Ps
            3,177
            
            **Ps**
            **3,644**
            
            Ps
            8,812
            
            **Ps**
            **9,132**Return
                on plan assets
            
            
            (5,555
            )
            
            (7,102
            )
            
            **(****8,091**
            **)**
            
            -
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**Amortization
                of unrecognized prior past service costs
            
            
            2,483
            
            
            2,600
            
            
            **2,341**
            
            
            2,975
            
            
            3,314
            
            
            **3,621**
            
            
            4,417
            
            
            **1,475**Interest
                cost
            
            
            6,877
            
            
            7,620
            
            
            **7,579**
            
            
            1,870
            
            
            2,014
            
            
            **2,215**
            
            
            1,809
            
            
            **1,920**Net
                period cost
            
            Ps
            13,270
            
            Ps
            13,525
            
            **Ps**
            **13,193**
            
            Ps
            7,998
            
            Ps
            8,505
            
            **Ps**
            **9,480**
            
            Ps
            15,038
            
            **Ps**
            **12,527**Loss
                from earlyextinguishment
                of obligations
            
            Ps
            -
            
            Ps
            -
            
            **Ps**
            **-**
            
            Ps
            -
            
            Ps
            -
            
            **Ps**
            **-**
            
            Ps
            1,970
            
            **Ps**
            **907**




F-21




**Pension
                plan**
            
            **Seniority
                Premium**
            
            **Severance**2005
            
            **2006**
            
            2005
            
            **2006**
            
            2005
            
            **2006****Labor
                Obligations:**Accumulated
                benefit obligation
            
            Ps
            136,829
            
            **Ps**
            **154,473**
            
            Ps
            33,309
            
            **Ps**
            **31,865**
            
            Ps
            37,474
            
            **Ps**
            **30,779**Current
                benefit obligation
            
            
            84,865
            
            
            **95,625**
            
            
            28,428
            
            
            **27,180**
            
            
            35,800
            
            
            **30,779**Projected
                benefit obligation
            
            
            146,840
            
            
            **182,495**
            
            
            44,860
            
            
            **47,319**
            
            
            41,125
            
            
            **34,747**Plan
                assets
            
            
            (126,005
            )
            
            **(****154,609**
            **)**
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**Unrecognized
                prior service cost
            
            
            (24,079
            )
            
            **(****22,139**
            **)**
            
            (7,302
            )
            
            **(****6,679**
            **)**
            
            (31,320
            )
            
            **(****26,902**
            **)**Unrecognized
                net gains
            
            
            35,470
            
            
            **35,426**
            
            
            (13,999
            )
            
            **(****15,213**
            **)**
            
            52
            
            
            **6,961**Unrecognized
                changes or improvements
            
            
            (18,752
            )
            
            **(****27,511**
            **)**
            
            (2,425
            )
            
            **100**
            
            
            -
            
            
            **-**Net
                projected benefit obligation
            
            
            13,474
            
            
            **13,662**
            
            
            21,134
            
            
            **25,527**
            
            
            9,857
            
            
            **14,806**Unfunded
                accumulated benefit obligation
            
            Ps
            13,016
            
            **Ps**
            **4,456**
            
            Ps
            33,309
            
            **Ps**
            **31,865**
            
            Ps
            37,474
            
            **Ps**
            **30,779**Current
                net liability over net projectedliability
                in some subsidiaries
            
            
            3,448
            
            
            **-**
            
            
            12,173
            
            
            **6,337**
            
            
            27,617
            
            
            **15,973**Additional
                liability
            
            
            (3,448
            )
            
            **-**
            
            
            (12,173
            )
            
            **(****6,337**
            **)**
            
            (27,617
            )
            
            **(****15,973**
            **)**Intangible
                assets
            
            
            3,448
            
            
            **-**
            
            
            9,493
            
            
            **5,454**
            
            
            27,082
            
            
            **15,973**Minimum
                labor obligation liabilityadjustment
            
            Ps
            -
            
            **Ps**
            **-**
            
            Ps
            2,680
            
            **Ps**
            **883**
            
            Ps
            535
            
            **Ps**
            **-****Change
                in benefit obligation:**Benefit
                obligation at beginning of year
            
            Ps
            140,703
            
            **Ps**
            **146,840**
            
            Ps
            38,963
            
            **Ps**
            **44,860**
            
            Ps
            37,601
            
            **Ps**
            **41,125**Service
                cost
            
            
            10,407
            
            
            **11,364**
            
            
            3,177
            
            
            **3,644**
            
            
            8,812
            
            
            **9,132**Interest
                cost
            
            
            7,620
            
            
            **7,579**
            
            
            2,014
            
            
            **2,215**
            
            
            1,809
            
            
            **1,920**Actuarial
                differences
            
            
            (10,360
            )
            
            **8,210**
            
            
            5,363
            
            
            **2,254**
            
            
            52
            
            
            **(****5,857**
            **)**Benefits
                paid
            
            
            (1,530
            )
            
            **(****1,498**
            **)**
            
            (4,657
            )
            
            **(****5,654**
            **)**
            
            (7,149
            )
            
            **(****8,484**
            **)**Changes
                to plan not applied
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **(****3,089**
            **)**Increase
                for plan improvement
            
            
            -
            
            
            **10,000**
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**Projected
                benefit obligation at end ofyear
            
            Ps
            146,840
            
            **Ps**
            **182,495**
            
            Ps
            44,860
            
            **Ps**
            **47,319**
            
            Ps
            41,125
            
            **Ps**
            **34,747**





**Pension
                plan**2005
            
            **2006****Changes
                in plan assets:**Plan
                assets at beginning of the year
            
            Ps
            103,311
            
            **Ps**
            **126,005**Actual
                return on plan assets
            
            
            7,102
            
            
            **8,091**Employer
                contribution
            
            
            13,395
            
            
            **13,530**Actuarial
                differences
            
            
            3,727
            
            
            **8,481**Benefit
                paid
            
            
            (1,530
            )
            
            **(1,498**
            **)**Fair
                value of plan assets at end of year
            
            Ps
            126,005
            
            **Ps**
            **154,609**Funded
                status
            
            Ps
            (20,835
            )
            **Ps**
            **(****27,886**
            **)**Unrecognized
                net actuarial loss (gain)
            
            
            (35,470
            )
            
            **(****35,426**
            **)**Unrecognized
                prior service cost (benefit)
            
            
            24,079
            
            
            **22,139**Net
                amount recognized
            
            Ps
            (32,226
            )
            **Ps**
            **(****41,173**
            **)**




F-22




The
      Company used December 31, 2004, 2005 and 2006 measurement date for pension
      plan,
      seniority premium, and December 31, 2005 and 2006 for the severance
      plan.





The
      transition liability, the prior service cost and plan changes, and actuarial
      differences assumptions will be amortized over a period ranging from 21 to
      25
      years (the average remaining working life of employees).





The
      asset
      allocation for the Company’s pension plan at the end of 2004, 2005 and 2006 and
      the target allocation for 2007 by asset category are as follows:




**Percentage
                of plan at year end**
            
            **Target
                allocation**2004
            
            2005
            
            **2006**
            
            **2007**Fixed-income
                securities
            
            
            79
            %
            
            75
            %
            
            74
            %
            
            75
            %Fixed-variable
                income securities
            
            
            21
            %
            
            25
            %
            
            26
            %
            
            25
            %





Target
      asset allocations reflect its investment strategy of maximizing the rate of
      return on plan assets and the resulting funded status, within an appropriate
      level of risk.





The
      rates
      considered in the actuarial study were in 2003, 2004 and 2005 are as
      follows:




2004
            
            2005
            
            **2006**Labor
                obligations discount
            
            
            5.50
            %
            
            5.25
            %
            
            **5.00**
            **%**Future
                salary increases
            
            
            1.50
            %
            
            1.00
            %
            
            **1.00**
            **%**Return
                on assets
            
            
            6.50
            %
            
            6.25
            %
            
            **6.25**
            **%**





The
      information about the expected cash flow for the pension benefit plant and
      seniority premium is as follows:


**Pension
                plan**
            
            **Seniority
                premium**Expected
                benefit payment:2007
            
            **Ps**
            **5,885**
            
            **Ps**
            **5,668**2008
            
            
            **6,612**
            
            
            **5,821**2009
            
            
            **7,558**
            
            
            **5,877**2010
            
            
            **8,478**
            
            
            **5,913**2011
            
            
            **9,526**
            
            
            **5,918**2012-2015
            
            
            **47,560**
            
            
            **23,983**Total
            
            **Ps**
            **85,619**
            
            **Ps**
            **53,180**





The
      above
      table reflects the total benefits expected to be paid from the
      plan.





**13.
      Stockholders’ Equity**




a)
      In
      April 1997, Bachoco had a stock split and created so-called “BL” units, which
      consist of one series “B” share and one series “L” share, and so-called “BB”
units, which consist of two series “B” shares. Series “L” shares have limited
      voting rights. This change did not modify the face
      value of the shares.





Until
      December 31, 2005, our financial statements disclosed net income per unit,
      based
      on the weighted average of units outstanding (299,630 units in 2004 and 299,847
      units in 2005). Starting in 2006, our disclosure has been changed to net income
      per share, based on the weighted average of shares outstanding. All per share
      information has been retroactively adjusted for comparison
      purposes.




F-23




In
      September 2006, the Company separated the BL units into B and L shares and
      converted the series L shares into series B shares; consequently only one series
      remains (series B). All shares ussued and outstanding shares have voting
      rights.





b)
      In
      2004, 2005 and 2006, the Company declared and paid cash dividends at nominal
      values of Ps 238,935, Ps 239,098 and Ps 353,880, respectively (Ps 265,655,
      Ps
      254,165 and Ps 364,525, in constant Mexican pesos) or Ps 0.40, Ps 0.40 and
      Ps
      0.59, respectively, per share in nominal pesos.





c)
      The
      Mexican Corporation Act requires that at least 5% of each year’s net income be
      appropriated to increase the legal reserve until such reserve is equal to 20%
      of
      capital stock issued and outstanding. The balance of the legal reserve at
      December 31, 2005 and 2006, included in retained earnings, was Ps
      198,282.





d)
      The
      Company approved a stock repurchase plan in 1998, in conformity with the Mexican
      Securities Trading Act, providing a stock repurchase reserve for that purpose
      of
      Ps 180,000 (Ps 292,853 expressed in constant Mexican pesos) through the
      appropriation of retained earnings in 1998. During 2004 and 2005, the Company
      repurchased 2,220 thousand, 920 thousand shares for Ps 25,324, and Ps 11,047
      respectively. During 2006, no shares were repurchased. In 2004, 2005 and 2006,
      the Company sold 1,420 thousand, 800 thousand and 920 thousand of shares,
      respectively, previously repurchased; the sales value of latter was for Ps
      13,464, Ps 2,847 and Ps
      16,966, respectively.





e)
      The
      Company is required to pay taxes on dividends distributed to stockholders only
      to the extent the payment made exceeds the balance of the net tax profit account
      (CUFIN), which is used to control earnings on which income tax has already
      been
      paid.





Income
      tax paid on dividends refers to a tax payable by corporate entities and not
      by
      individuals.





The
      Company obtains the majority of its revenues and net profit from Bachoco, S.A.
      de C.V. (BSACV). For the years 2004 through 2006, pretax income of BSACV,
      represented between 90% and 92% of Bachoco’s consolidated pretax income.





Dividends
      on which BSACV has paid income tax will be credited to the Company’s “CUFIN”
account and, accordingly, no further income tax will be paid when such amounts
      are distributed as dividends to the Company’s stockholders.





f)
      From
      1999 through December 31, 2001, under Mexican income tax law, corporate
      taxpayers were extended the option of deferring payment of a portion of their
      annual corporate income tax, so that the tax payable will represent 30% of
      taxable income. The earnings on which taxpayers opted to defer payment of a
      portion of corporate income tax had to be controlled in the so-called “net
      reinvested tax profit account” (CUFINRE).





Since
      the
      Company opted for this tax deferral, earnings will be considered to be
      distributed first from the CUFINRE and any excess will be paid from the “net tax
      profit account” balance (“CUFIN”) so as to pay the 5% deferred tax.  The
      option to defer a portion of the annual corporate income tax was eliminated
      effective January 1, 2002.




F-24




**14.
      Income Tax, Asset Tax and Employee Profit Sharing**





a)
      The
      Company and each of its subsidiaries file separate income tax returns. BSACV,
      the Company’s principal operating subsidiary, is subject to payment of corporate
      income tax under the provisions of the simplified regime, which is applicable
      to
      companies engaged exclusively in agriculture, cattle-raising, fishing, forestry
      and certain other activities the
      income tax law establishes that are exclusive when the companies obtain no
      more
      than 10% of their revenues from the production of processed products, with
      which rule BSACV has complied.





The
      simplified regime establishes that the taxable base for income tax is determined
      on revenues collected net of deductions paid. The tax rate for this regime
      was
      16% in 2004, 2005 and 2006.





The
      income tax reforms passed in December 2004 include the elimination, as from
      beginning in the 2005 fiscal year, of the taxable deduction of purchases so
      as
      to permit only the deduction of cost of sales. This reform is only applicable
      to
      the subsidiary Campi Alimentos S.A. de C.V. as it pays taxes under the general
      regime, while for BSACV it is not applicable, due to the fact that it pays
      taxes
      under the simplified regime.





In
      2006
      changes were made to Mexican tax law that as of 2007, will increase the tax
      rate
      from 16% to 19%. This change resulted in a charge of Ps. 324,190 to income,
      reflected in deferred taxes under “change in rates”.





b)
      In
      addition to income tax, the Company and its subsidiaries are also subject to
      an
      alternative minimum tax known as the asset tax, which is assessed on the average
      value of most assets, net of certain liabilities. The general asset tax rate
      is
      1.8%. Asset Tax Law permits companies that have the right to reduce their income
      tax to reduce the asset tax in the same proportion; therefore, BSACV is subject
      to a 0.9% rate and to special rules excluding many assets from the determination
      of asset tax and a tax incentive derived from the investment in assets. The
      asset tax in 2004, 2005 and 2006 amounted to Ps 13,706, Ps 20,642 and Ps 27,243,
      respectively. In each of the three years the Company credited against these
      amounts the income tax paid in such years of Ps
      11,493, Ps 17,579 and Ps 24,836, respectively.





The
      Company and its subsidiaries are required to pay asset tax if the amount of
      asset tax exceeds the computed income tax liability. Asset tax paid can be
      credited against income tax in subsequent years (up to ten years). At December
      31, 2006, the Company had Ps 13,449 in asset tax credits.





c)
      For
      the years ended December 31, 2004, 2005 and 2006, income tax charged (credited)
      to results of operations was as follows:





2004
            
            2005
            
            **2006**Current
                year income tax
            
            Ps
            22,003
            
            Ps
            350,415
            
            **Ps**
            **241,443**Current
                year asset tax
            
            
            2,213
            
            
            3,063
            
            
            **2,407**Deferred
                income tax
            
            
            87,021
            
            
            1,029
            
            
            **333,571**Total
                income tax
            
            Ps
            111,237
            
            Ps
            354,507
            
            **Ps**
            **577,421**




F-25




The
      component of the Company’s deferred income tax (assets) and liabilities are as
      follows:





2005
            
            **2006**Assets:Accounts
                payable
            
            Ps
            1,082
            
            **Ps**
            **2,922**Tax
                loss carry forward for simplified regime in force through December
                31,
                2001
            
            
            8,809
            
            
            **5,896**9,891
            
            
            **8,818**Liabilities:Inventories
            
            
            252,310
            
            
            **364,215**Accounts
                receivable
            
            
            4,891
            
            
            **(46,601**
            **)**Fixed
                assets
            
            
            1,191,268
            
            
            **1,190,296**Effect
                due to change in tax rate
            
            
            -
            
            
            **324,190**Additional
                liability from stockholders’ equity
            
            
            324,473
            
            
            **279,700**1,772,942
            
            
            **2,111,800**Total
                deferred income tax liability, net
            
            Ps
            1,763,051
            
            **Ps**
            **2,102,982**





At
      December 31, 2005 and 2006, the deferred income tax liability determined by
      considering earned capital as a temporary difference results in an additional
      liability of Ps. 324,473 in 2005 and Ps. 279,700.





The
      most
      significant items that gave rise to a difference between the total amount of
      current year income tax and the current year deferred tax determined at the
      statutory rate are as follows:





2004
            
            2005
            
            **2006**%
            
            %
            
            %Statutory
                income tax rate
            
            
            16.50
            
            
            16.00
            
            
            **16.00**Effect
                of companies outside simplified regime
            
            
            3.0
            
            
            2.3
            
            
            **4.42**Effect
                of non-taxable items
            
            
            (
                5.6
            )
            
            (
                2.2
            )
            
            **(
                3.04**
            **)**Benefit
                derived from change in law effectivein
                2002 and changes in tax rate
            
            
            (
                1.2
            )
            
            -
            
            
            **-**Effect
                due to change in tax rate from 16% to19%
                in 2007
            
            
            
            
            
            
            
            
            **22.27**Effective
                income tax rate
            
            
            12.7
            
            
            16.1
            
            
            **39.65**





The effect
      of
      non-taxable book items is comprised basically of the effects of inflation
      recognized in the financial statements and non-deductible expenses considered
      to
      be permanent items.





d)
      At
      December 31, 2005 and 2006, the tax value of the Company’s equity, which will
      not be subject to taxation, is comprised of the following:





2005
            
            **2006**Restated
                contributed capital (CUCA)
            
            Ps
            1,809,437
            
            **Ps**
            **1,809,331**Net
                tax profit (CUFIN) and net reinvestedtax
                profit (CUFINRE)
            
            
            1,568,368
            
            
            **2,312,668**Total
            
            Ps
            3,377,805
            
            **Ps**
            **4,121,999**




F-26




e)
      The
      Company and BSACV have no employees, but each of the subsidiaries of the Company
      that has employees is required under Mexican law to pay employees, in addition
      to their compensation and benefits, profit sharing in an aggregate amount equal
      to 10% of such subsidiary’s taxable income subject to certain
      adjustments.





**15.
      Financial information by segments**





The
      segments to be reported are focused by product line. Inter-segment transactions
      have been eliminated. Our Poultry segment is comprised of our chicken and egg
      products. The information included under “Others” corresponds to pigs, balanced
      animal feed and other sundry sub-products. The required disclosures are shown
      below:





As
                of and for the year ended December 31, 2004**Poultry**
            
            **Others**
            
            **Total**Net
                revenues
            
            Ps
            12,786,184
            
            Ps
            1,513,483
            
            Ps
            14,299,667Cost
                of sales
            
            
            (10,196,871
            )
            
            (1,400,046
            )
            
            (11,596,917
            )Gross
                profit
            
            
            2,589,313
            
            
            113,437
            
            
            2,702,750Interest
                income
            
            
            129,314
            
            
            (19,812
            )
            
            109,502Interest
                expense and other financingcosts
            
            
            (126,680
            )
            
            (3,966
            )
            
            (130,646
            )Loss
                on net monetary position
            
            
            (104,164
            )
            
            -
            
            
            (104,164
            )Income
                tax and asset tax
            
            
            (80,984
            )
            
            (30,253
            )
            
            (111,237
            )Majority
                net income
            
            
            711,016
            
            
            44,665
            
            
            755,681Property,
                plant and equipment, net
            
            
            8,633,030
            
            
            213,757
            
            
            8,846,787Total
                assets
            
            
            13,930,758
            
            
            534,533
            
            
            14,465,291Total
                liabilities
            
            
            (2,629,970
            )
            
            (141,855
            )
            
            (2,771,825
            )Capital
                expenditures
            
            
            471,194
            
            
            -
            
            
            471,194Expenses
                not requiring cashdisbursement:Depreciation
            
            
            441,529
            
            
            10,356
            
            
            451,885Amortization
                of goodwill
            
            
            13,328
            
            
            5,512
            
            
            18,840





As
                of and for the year ended December 31, 2005**Poultry**
            
            **Others**
            
            **Total**Net
                revenues
            
            Ps
            13,368,616
            
            Ps
            1,683,752
            
            Ps
            15,052,368Cost
                of sales
            
            
            (9,388,090
            )
            
            (1,439,460
            )
            
            (10,827,550
            )Gross
                profit
            
            
            3,980,526
            
            
            244,292
            
            
            4,224,818Interest
                income
            
            
            293,030
            
            
            12,017
            
            
            305,047Interest
                expense and other financingcosts
            
            
            (201,553
            )
            
            (361
            )
            
            (201,914
            )Loss
                on net monetary position
            
            
            (114,423
            )
            
            -
            
            
            (114,423
            )Income
                tax and asset tax
            
            
            (323,397
            )
            
            (31,110
            )
            
            (354,507
            )Majority
                net income
            
            
            1,763,825
            
            
            75,567
            
            
            1,839,392Property,
                plant and equipment, net
            
            
            8,963,728
            
            
            208,534
            
            
            9,172,262Total
                assets
            
            
            15,262,534
            
            
            669,481
            
            
            15,932,015Total
                liabilities
            
            
            (2,735,610
            )
            
            (182,543
            )
            
            (2,918,153
            )Capital
                expenditures
            
            
            805,259
            
            
            -
            
            
            805,259Expenses
                not requiring cashdisbursement:Depreciation
            
            
            471,666
            
            
            8,118
            
            
            479,784




F-27





**As
                of and for the year ended December 31, 2006****Poultry**
            
            **Others**
            
            **Total**Net
                revenues
            
            **Ps**
            **12,997,441**
            
            **Ps**
            **1,990,135**
            
            **Ps**
            **14,987,576**Cost
                of sales
            
            
            **(****9,850,583**
            **)**
            
            **(****1,765,741**
            **)**
            
            **(
                11,616,324**
            **)**Gross
                profit
            
            
            **3,146,858**
            
            
            **224,394**
            
            
            **3,371,252**Interest
                income
            
            
            **278,464**
            
            
            **13,472**
            
            
            **291,936**Interest
                expense and other financingcosts
            
            
            **(****124,814**
            **)**
            
            **(2,261**
            **)**
            
            **(****127,075**
            **)**Loss
                on net monetary position
            
            
            **(****144,988**
            **)**
            
            **-**
            
            
            **(****144,988**
            **)**Income
                tax and asset tax
            
            
            **(****547,358**
            **)**
            
            **(30,063**
            **)**
            
            **(577,421**
            **)**Majority
                net income
            
            
            **796,694**
            
            
            **76,662**
            
            
            **873,356**Property,
                plant and equipment, net
            
            
            **9,267,287**
            
            
            **250,223**
            
            
            **9,517,510**Total
                assets
            
            
            **16,224,005**
            
            
            **699,088**
            
            
            **16,923,093**Total
                liabilities
            
            
            **(****3,201,298**
            **)**
            
            **(****129,771**
            **)**
            
            **(
                3,331,069**
            **)**Capital
                expenditures
            
            
            **863,162**
            
            
            
            
            
            **863,162**Expenses
                not requiring cashdisbursement:Depreciation
            
            
            **504,746**
            
            
            **13,168**
            
            
            **517,914**





Revenues
      from our poultry segment are analized as follows:





As
                of and for the year ended December 31, 2004Chicken
            
            Egg
            
            TotalNet
                revenues
            
            Ps
            11,231,040
            
            Ps
            1,555,144
            
            Ps
            12,786,184As
                of and for the year ended December 31, 2005Chicken
            
            
            Egg
            
            
            TotalNet
                revenues
            
            Ps
            12,064,265
            
            Ps
            1,304,352
            
            Ps
            13,368,616**As
                of and for the year ended December 31,****2006****Chicken**
            
            
            **Egg**
            
            
            **Total**Net
                revenues
            
            **Ps**
            **11,616,620**
            
            **Ps**
            **1,380,821**
            
            **Ps**
            **12,997,441**





**16.
      New accounting Pronouncements**





On
      December 22, 2006, the issuing council of the Mexican Financial Reporting
      Standards Research and Development Board ( *Consejo
      Mexicano para la Investigación y Desarrollo de Normas de Información Financiera,
      A.C.* or
      CINIF) issued Financial Reporting Standard (FRS) B-3, *Statements
      of Operations* ;
      FRS
      B-13, *Subsequent
      Events* ;
      FRS
      C-13, *Related
      Parties* ,
      and FRS
      D-6, *Capitalization
      of the Comprehensive Cost of Financing* ,
      each of
      which come into force in the year beginning on January 1, 2007.





**FRS
      B-3 Statements of Operations**





A
      new
      approach is included to identify revenues, costs and expenses as either ordinary
      and extraordinary and eliminate the special and extraordinary item
      classification. Employee profit sharing is no longer recognized in the tax
      section of the income statement but instead will be presented as an
      expense.





The
      accumulated effect of accounting changes at the beginning of the year is
      eliminated from the statement of income, since, based on FRS B-1, *Accounting
      Changes and Error Corrections,* any
      effect derived from the first application of the FRS affecting the financial
      information from prior years must be recognized in retained earnings and not
      in
      the income or loss of the current period.




F-28





**FRS
      B-13 Subsequent Events**





FRS
      B-13
      establishes that certain events such as the restructuring of assets and
      liabilities, the waiver of creditors to exercise rights, the date authorized
      for
      the issuance of the financial statements and the responsible officer shall
      be
      disclosed in the notes to the financial statements and recognized in the period
      in which they took place.





**FRS
      C-13 Related Parties**





The
      definition of related parties is broadened and now covers any: joint business
      involving either: 1) the reporting entity 2) immediate family members of key
      management personnel or directors or 3) funds derived from labor obligation
      plans.





**FRS
      D-6 Capitalization of the comprehensive cost of financing**





It
      is now
      obligatory to capitalize the comprehensive cost of financing (under bulletin C-4, *Inventories* ,
      and
      bulletins C-6 and B-10, such capitalization was optional).





This
      FRS
      establishes the conditions necessary for the capitalization of comprehensive
      cost of financing, as well as guidelines for determining when such
      capitalization must be suspended and concluded.





Considerations
      regarding the result of valuing financial instruments acquired for hedging
      purposes are also included.





**17.
      Differences Between Mexican and United States Generally
      Accepted** **Accounting
      Principles**





These
      consolidated financial statements are prepared in accordance with "Mexican
      GAAP", which differ in certain respects from United States generally accepted
      accounting principles ("U.S. GAAP").





The
      accompanying reconciliations to U.S. GAAP do not include the reversal of the
      adjustments to the financial statements for the effects of inflation required
      under bulletin B-10, as amended, because the application of bulletin B-10
      represents a comprehensive measure of the effects of price level changes in
      the
      Mexican economy and, as such, is considered a more meaningful presentation
      than
      historical cost based financial reporting for both Mexican and U.S. accounting
      principles.





To
      determine the net effect on the consolidated financial statements of recognizing
      U.S. GAAP adjustments, it is necessary to recognize the effects of applying
      Mexican GAAP inflation accounting provisions (described in Note 2) to the U.S.
      GAAP adjustments.





The
      principal differences between Mexican GAAP and U.S. GAAP, as they relate to
      the
      Company, are described below together with an explanation, where appropriate,
      of
      the method used to determine the adjustments that affect consolidated operating
      income, net income, stockholders’ equity and changes in financial position for
      each of the three years ended December 31, 2004, 2005 and 2006.





**Agriculture**





Effective
      January 1, 2003, the Company adopted the requirements of the Mexican accounting
      bulletin E-1, *Agriculture* ,
      which
      establishes the rules for recognizing, valuing, presenting and disclosing
      biological assets and agricultural products; it also establishes the treatment
      to be given to government subsidies on biological assets.




F-29





This
      bulletin establishes that biological assets and the agricultural products (the
      latter at the time of their harvesting) are to be valued at their fair value,
      net of estimated costs at point of sale. Also, the bulletin establishes that
      whenever the fair value cannot be determined in a reliable, verifiable and
      objective manner, the assets are to be valued at their production cost, net
      of
      accumulated impairment, if any.





In
      conformity with U.S. GAAP, under SOP 85-3 biological assets and agricultural
      products are to be valued at cost. Accordingly, the reconciliation between
      Mexican GAAP and U.S. GAAP for 2004, 2005 and 2006 includes a reversal of the
      unrealized (gain) loss on valuation of biological assets and agricultural
      products at fair value, which gave rise to an increase of Ps. 22,745, and
      decrease of Ps (27,055) and
      Ps. (10,485) ,
      respectively including as reconciling item, the Company’s biological assets and
      agricultural products which have been valued at their average production cost,
      which approximates replacement cost, not in excess of net realizable
      value.





**Capitalized
      financing cost**





Under
      Mexican GAAP, until December 31 2006, capitalization of comprehensive financing
      cost on assets under construction or in the pre-operating stage is allowed
      but
      not required. During 2004, 2005 and 2006 Bachoco has elected not to capitalize
      such comprehensive financing cost. Beginning in 2007, the capitalization of
      comprehensive cost of financing is obligatory under Mex GAAP when the assets
      comply with certain characteristics to be considered qualifying assets. Under
      U.S. GAAP when financing is in Mexican pesos, the monetary gain is included
      in
      this computation; when financing is denominated in U.S. dollars, only the
      interest is capitalized and exchange losses are not included as capitalized
      costs. The amount of interest or net financing cost capitalized for U.S. GAAP
      purposes was determined by reference to the Companies average cost of
      outstanding debt and to construction in progress during the years presented.
      The
      Company also included in the reconciliation table the effect of the additional
      depreciation expense related to the capitalized interest.





**Deferred
      income tax and employee profit sharing**





The
      Company follows the requirements of Mexican accounting bulletin D-4,
“ *Accounting
      for Income Tax, Asset Tax and Employee Profit Sharing”,* issued
      by
      the Mexican Institute. Bulletin D-4 requires the recognition of deferred taxes
      on all temporary differences in balance sheet accounts for financial and tax
      reporting purposes, using the enacted income tax rate at the date of the
      financial statements.





For
      U.S.
      GAAP purposes, Bachoco has applied Statement of Financial Accounting Standards
      (SFAS) No. 109, *Accounting
      for Income Taxes”* ,
      for all
      periods presented, which requires that deferred income taxes be determined
      using
      the liability method for all temporary differences between financial reporting
      amounts and the tax basis of assets and liabilities, and that deferred taxes
      on
      such differences be measured at the enacted income tax rates for the year in
      which such taxes are expected to be payable or refundable.





In
      the
      Company’s case the application of both rules did not generate a reconciling
      difference in 2004, 2005 and 2006; therefore, there is no difference between
      Mexican and US GAAP in those years.





In
      addition, as described in Note 14e), under Mexican labor law, the Company is
      required to pay employee profit sharing. As of December 31, 2004, 2005 and
      2006,
      the Company did not recognize deferred employee profit sharing, due to its
      immateriality. Employee profit sharing expense should be included in operating
      expenses for US GAAP presentation purposes.




F-30




The
      deferred tax adjustment included in net income and stockholders’ equity
      reconciliations represent the effect of deferred taxes on other U.S. GAAP
      adjustments reflected in the respective summaries.





As
      of
      December 31 2005 and 2006, the deferred tax liability is Ps 1,770,775 and Ps
      2,095,535, respectively, for US GAAP purposes. Current deferred tax liability
      is Ps
      247,310 and 632,986 for 2005 and 2006 respectively. Under US GAAP, the balance
      sheet classification is based on the classification of the underlying item
      which
      gives rise to the deferred income taxes. Under Mexican GAAP, the balance sheet
      classification is non-current.





**Business
      combinations**





The
      FASB
      issued SFAS No. 141, “ *Business
      Combinations”* (Statement 141), and No. 142, “ *Goodwill
      and Other Intangible Assets”* .
      Statement 141 requires that the purchase method of accounting be used for all
      business combinations initiated after June 30, 2001. Statement 141 also includes
      guidance on the initial recognition and measurement of goodwill and other
      intangible assets arising from business combinations completed after June 30,
      2001. SFAS 142 prohibits the amortization of goodwill and intangible assets
      with
      indefinite useful lives. Statement 142 requires that these assets be reviewed
      for impairment at least annually. Intangible assets with finite lives will
      continue to be amortized over their estimated useful lives.





For
      US
      GAAP and Mex GAAP reconciliation purposes, the Company adopted the provisions
      of
      SFAS 142 on January 1, 2002, and consequently ceased amortizing goodwill. As
      of
      that date, the Company has performed annual impairment tests, determining that
      no impairment of goodwill existed.





Under
      Mexican GAAP, for 2004 goodwill was amortized using the straight-line method
      over a period of 20 years. In 2004, the reconciliation shows the amount of
      goodwill amortization not performed for U.S. GAAP purposes in the amount of
      Ps.
      18,840.





Effective
      January 1, 2005, the Company adopted the requirements of Mexican accounting
      bulletin B-7, Business Acquisitions, issued by the Mexican Institute of Public
      Accountants. bulletin B-7 addresses the financial accounting and reporting
      for
      business and entity acquisitions and requires that all business combinations
      be
      accounted for using the purchase method. Since goodwill is no longer amortized,
      it should be evaluated for impairment at the end of each year. As a result
      of
      the adoption of this bulletin, the difference between Mexican GAAP and U.S.
      GAAP
      has been eliminated.





**Minority
      interest**





In
      conformity with Mexican GAAP, minority interest is not added back in the
      company’s income statement, also it is included as a component of stockholders’
equity and is presented immediately after the caption total majority
      stockholders’ equity and minority interest in net income is not eliminated from
      net income. For U.S. GAAP purposes, minority interest is excluded from the
      Company’s net income and from stockholders’ equity and included as a separate
      caption in the balance sheet. At December 31, 2005 and 2006, total minority
      interest under US GAAP aggregates Ps. 44,685 and Ps. 43,779, respectively;
      in
      addition, minority interest shown in the statements of income decreases net
      income under US GAAP for the years ended December 31, 2004, 2005 and 2006 by
      Ps.
      4,096, Ps. 1,719 and Ps.908, respectively.




F-31




**Reporting
      comprehensive income**





For
      US
      GAAP reconciliation purposes, the Company has adopted the SFAS No. 130, *“Reporting
      Comprehensive Income”* SFAS
      130, which establishes rules for reporting and disclosure of comprehensive
      income and its components. SFAS 130 requires the minimum additional pension
      liability adjustment, the deficit from restatement of stockholders’ equity to
      reflect inflation effects, deferred taxes on the difference between indexed
      cost
      and replacement cost and the effective portion of changes in the market value
      of
      cash flow hedges, to be included in other comprehensive income. The U.S. GAAP
      statements of changes in stockholders’ equity include the disclosure
      requirements of SFAS 130.





Total
      other comprehensive income items under US GAAP are comprised of the result
      from
      holding non-monetary assets net of taxes and the effective portion of changes
      in
      the value of financial instruments. At December 31, 2006, these items aggregate Ps.
      (4,888,206) and Ps. 357 , respectively, giving rise to a decrease in
      stockholders’ equity.





**Derivative
      financial instruments acquired for hedging purposes**





SFAS
      No.
      133, as amended “ *Accounting
      for Derivative Instruments and Hedging Activities”* requires
      the Company to recognize all derivatives on the balance sheet at fair value.
      Derivatives that are not hedges must be adjusted to fair value through income.
      If the derivative is a hedge, depending on the nature of the hedge, changes
      in
      the fair value of derivatives are either offset against the change in fair
      value
      of assets, liabilities, or firm commitments through earnings or recognized
      in
      other comprehensive income until the hedged item is recognized in earnings.
      The
      ineffective portion of a derivate’s change in fair value will be immediately
      recognized in earnings. There is no difference between US and Mexican GAAP
      for
      2006 and 2005.





**Disclosures
      about Fair Value of Financial Instruments**





In
      accordance with SFAS No. 107, *“Disclosures
      about Fair Value of Financial Instruments”* ,
      information is provided about the fair value of certain financial instruments
      for which it is practicable to estimate that value. The carrying amounts of
      cash
      and cash equivalents, accounts receivable, accounts payable, notes payable
      and
      accrued liabilities approximate their fair values, due to the short maturity
      of
      these instruments. The fair value of long-term debt, based on quoted market
      prices for the same or similar issues or on the current rates offered to the
      Company for debt of the same remaining maturities, approximates their carrying
      amounts.





**Impairment
      of Assets**





FASB
      issued SFAS No. 144, “ *Accounting
      for the Impairment or Disposal of Long-Lived Assets”* addresses financial accounting and reporting for the impairment or disposal
      of
      long-lived assets. SFAS
      144
      is effective for fiscal years that begun after December 15, 2001. For US GAAP
      and Mex GAAP reconciliation purposes, the Company adopted the requirements
      of
      Statement 144 on January 1, 2002 and has not identified any impairment
      adjustments to the carrying value of its long lived assets.




F-32


**Recent
      Accounting Pronouncements in the US**





FIN
      48




FASB
      Interpretation No. 48, (FIN 48) “Accounting for Uncertainty in Income Taxes” an
      interpretation of FASB Statement No. 109. FIN 48 clarifies the accounting for
      uncertainty in income taxes recognized under SFAS No. 109, “Accounting for
      Income Taxes”. FIN 48 prescribes a comprehensive model for how a company should
      recognize, measure, present, and disclose in its financial statements uncertain
      tax positions that the company has taken or expects to take on a tax return
      or
      payment. This interpretation shall be effective for fiscal years beginning
      after
      December 15, 2006. The Company has not determined the effect, if any, this
      new
      pronouncement will have on its financial statements.





SFAS
      158




SFAS
      158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans, an amendment of FASB Statements no. 87, 88, 106 and 132(R)” requires (1)
      recognition on the balance sheet of an asset for a defined benefit plan’s
      overfunded status or a liability for a plan’s underfunded status, (2)
      measurement of a defined benefit plan’s assets and its obligations that
      determine its funded status as of the end of the employer’s fiscal year, and (3)
      recognition of the changes in the funded status of a defined benefit
      postretirement plan as a component of other comprehensive income in the year
      the
      changes occur.





The
      requirement to recognize the funded status of a defined benefit plan and the
      disclosure requirements are effective for fiscal years ending after December
      15,
      2006. The requirement to measure the defined benefit plan assets and benefit
      obligations as of the date of the employer’s fiscal year-end will be effective
      for the fiscal years ending after December 15, 2008.





In
      2006
      the Company adopted SFAS 158 and recognized additional pension liabilities
      of
      approximately $ 33,647. The Company also increased its stockholders’ equity by
      approximately Ps 883 on an after-tax basis due the extinguishment of the minimum
      labor obligations liability adjustment.





The
      incremental effects of adopting of statement 158 o the Company’s statement of
      financial position at December 31, 2006 are presented in the following
      table:





Prior
                adopting SFAS 158
            
            Effect
                of adopting SFAS 158
            
            As
                reported at December 31, 2006Net
                projected benefit obligation (pension)
            
            Ps
            13,662
            
            Ps
            14,224
            
            Ps
            27,886Net
                projected benefit obligation (senioritypremium)
            
            
            25,527
            
            
            21,792
            
            
            47,319Net
                projected benefit obligation (Severance)
            
            
            34,747
            
            
            -
            
            
            34,747Minimum
                labor obligation liabilityadjustment
                (Seniority premium)
            
            
            883
            
            
            883
            
            
            -Ps
            35,133
            
            Ps
            109,952





F-33




As
      of
      December 31, the defined benefit plan’s funded status is as
      follows:





2006Pension
                plan
            
            Seniority
                premium
            
            Severance
            
            TotalProjected
                benefit obligation
            
            Ps
            182,495
            
            Ps
            47,319
            
            Ps
            34,747
            
            Ps
            264,561Market
                value of plan assets
            
            
            154,609
            
            
            -
            
            
            -
            
            
            154,609Under-funded
                defined benefit plan
            
            Ps
            27,886
            
            Ps
            47,319
            
            Ps
            34,747
            
            Ps
            109,952




**SFAS
      157 - Fair Value Measurements**





In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
      (SFAS 157). This Statement defines fair value, establishes a framework for
      measuring fair value, and expands disclosures about fair value measurements.
      SFAS 157 applies under other accounting pronouncements that require or permit
      fair value measurement. The provisions of SFAS 157 are effective for
      financial statements issued for fiscal years beginning after November 15,
      2007 and interim periods within those fiscal years.





**SFAS
      159 “Fair Value Option for Financial Assets and Financial
      Liabilities”,**





Statement
      159 “Fair Value Option for Financial Assets and Financial Liabilities” (FVO),
      issued in February 2007, allows entities to voluntarily close to measure many
      financial assets and financial liabilities at fair value through earnings.
      The
      FVO Statement is effective as of the beginning of fiscal year starting after
      November 15, 2007. The fair value election is made on an
      instrument-by-instrument basis, is irrevocable, and results in all subsequent
      changes in the fair value of elected items being reported in earnings. Upon
      initial adoption, Statement 159 provides entities with a one-time chance to
      elect the fair value option for existing eligible items, including Available
      For
      Sale and held-to-maturity securities. The Company is currently evaluating the
      effect the adoption of FASB 159, but does not expect it to have a material
      impact.





**Cash
      flow information**





Under
      Mexican GAAP, the Company presents consolidated statements of changes in
      financial position, as described in Note 2.





In
      accordance with Mexican GAAP, the change in current and long-term debt due
      to
      restatements in constant Mexican pesos, including the effect of exchange
      differences, is presented in the statements of changes in financial position
      in
      the financing activities section.





The
      gain
      from monetary position and the exchange gain or loss are not presented in the
      operating activities section as reconciling adjustments, as they are included
      in
      the respective monetary asset or liability line. Statement of Financial
      Accounting Standards No. 95 (“SFAS 95”), *“Statement
      of Cash Flows”* ,
      does
      not provide guidance with respect to price-level restated financial
      statements.




F-34





The
      Company has adopted, for its U.S. GAAP presentation of cash flow information,
      the guidance issued by the AICPA SEC Regulations Committee’s International
      Practices Task Force in its meeting held on November 24, 1998, requiring foreign
      registrants that file price level adjusted financial statements to provide
      cash
      flow statements that show separately the effects of inflation on cash flows.





**Years
                ended December 31,****Cash
                Flow Information**
            
            2004
            
            2005
            
            **2006****OPERATING
                ACTIVITIES:**Net
                income
            
            Ps
            795,980
            
            Ps
            1,824,801
            
            **Ps**
            **863,125**Adjustments
                to reconcile net income tonet
                cash provided by operating activities:Depreciation
            
            
            454,196
            
            
            482,545
            
            
            **521,267**Deferred
                income tax
            
            
            94,608
            
            
            (2,049
            )
            
            **318,991**Loss
                (gain) on net monetary position
            
            
            104,558
            
            
            114,124
            
            
            **144,397**Labor
                obligations, net period cost
            
            
            21,268
            
            
            39,038
            
            
            **56,048**1,470,610
            
            
            2,458,459
            
            
            **1,903,828**Changes
                in assets and liabilities:Accounts
                receivable
            
            
            67,791
            
            
            (207,073
            )
            
            **(82,222**
            **)**Inventories
                and biological assets
            
            
            (324,577
            )
            
            (581,503
            )
            
            **(752,177**
            **)**Prepaid
                expenses and other accountsreceivable
            
            
            27,324
            
            
            (35,587
            )
            
            **24,578**Accounts
                payable
            
            
            41,685
            
            
            (9,296
            )
            
            **378,108**Related
                parties
            
            
            3,987
            
            
            51
            
            
            **6,178**Other
                taxes payable and other accruals
            
            
            43,765
            
            
            142,661
            
            
            **(58,297**
            **)**Labor
                obligations, net
            
            
            (33,713
            )
            
            (56,356
            )
            
            **(25,140**
            **)**Derivative
                Financial instruments
            
            
            
            
            
            
            
            
            **(5,644**
            **)****Cash
                flows provided by operating****activities**
            
            
            1,296,872
            
            
            1,711,356
            
            
            **1,389,212****FINANCING
                ACTIVITIES:**Proceeds
                from issuance of notes payableto
                banks
            
            
            213,914
            
            
            170,193
            
            
            -Repayment
                of long-term debt and notesPayable
            
            
            (199,470
            )
            
            (204,869
            )
            
            **(103,436**
            **)**Cash
                dividends paid
            
            
            (265,655
            )
            
            (254,165
            )
            
            **(364,378**
            **)**Repurchase
                (sale) of stock
            
            
            (12,080
            )
            
            (8,227
            )
            
            **17,202****Cash
                flows used in financing activities**
            
            
            (263,291
            )
            
            (297,068
            )
            
            **(450,612**
            **)****INVESTING
                ACTIVITIES:**Acquisition
                of property, plant andequipment
            
            
            (480,200
            )
            
            (817,106
            )
            
            **(871,539**
            **)**Other
                assets
            
            
            3,128
            
            
            (2,611
            )
            
            **(2,597**
            **)****Cash
                flows used in investing activities**
            
            
            (477,072
            )
            
            (819,717
            )
            
            **(874,136**
            **)****Effect
                of inflation accounting**
            
            
            182,637
            
            
            187,618
            
            
            **93,446****Net
                ( decrease ) increase in cash****and
                cash equivalents**
            
            
            739,146
            
            
            782,189
            
            
            **157,910****Cash
                and cash equivalents at beginning****of
                the year**
            
            
            1,774,807
            
            
            2,513,953
            
            
            **3,296,142****Cash
                and cash equivalents at end of year**
            
            Ps
            2,513,953
            
            Ps
            3,296,142
            
            **Ps**
            **3,454,052**




F-35




**Summary
      of adjustments to reconcile Mexican GAAP and U.S. GAAP**





The
      following is a summary of net income adjusted to take into account certain
      material differences between Mexican GAAP and U.S. GAAP.





**Years
                ended December 31,**2004
            
            2005
            
            **2006**Net
                income as reported under MexicanGAAP
            
            Ps
            759,777
            
            Ps
            1,841,111
            
            **Ps**
            **874,264**Adjustments
                to reconcile net income toU.S.
                GAAP:Biological
                assets and agriculturalproducts
                valuation at fair value
            
            
            22,745
            
            
            (27,055
            )
            
            **(****10,485**
            **)**Interest
                cost capitalized
            
            
            9,006
            
            
            11,848
            
            
            **8,377**Depreciation
                of capitalized interest
            
            
            (2,310
            )
            
            (2,761
            )
            
            **(****3,353**
            **)**Labor
                obligations
            
            
            -
            
            
            -
            
            
            **(****19,941**
            **)**Deferred
                income tax on US GAAPadjustments
            
            
            (7,588
            )
            
            3,078
            
            
            **14,580**Amortization
                of goodwill
            
            
            18,840
            
            
            -
            
            
            **-**Effect
                of inflation accounting onU.S.
                GAAP adjustments
            
            
            (393
            )
            
            299
            
            
            **591**Minority
                interest
            
            
            (4,096
            )
            
            (1,719
            )
            
            **(****908**
            **)**Net
                income under U.S. GAAP
            
            Ps
            795,980
            
            Ps
            1,824,801
            
            **Ps**
            **863,125**Weighted
                average number of sharesoutstanding
                (thousands)
            
            
            599,260
            
            
            599,694
            
            
            **599,571**Net
                income per share
            
            Ps
            1.33
            
            Ps
            3.04
            
            **Ps**
            **1.44**





After
      the
      adjustments for the depreciation of capitalized interest, the reclassification
      of employee profit sharing, the non amortization of goodwill (except for 2004)
      and biological assets and agricultural products valuation at fair value,
      operating income under U.S. GAAP would be Ps 953,971, Ps 2,258,784 and Ps
      1,336,765 in 2004, 2005 and 2006, respectively.





Total
      assets under U.S. GAAP were Ps 15,980,969 at December, 31 2005 and Ps
      16,945,159 at December 31, 2006. The difference in total assets between Mexican
      GAAP and U.S. GAAP is comprised of the foreign exchange loss and the monetary
      gain on financing in U.S. dollars capitalized in assets under construction
      net
      of accumulated depreciation, biological assets and agricultural products
      valuation at fair value, the extinguishment of intangible asset of labor
      obligations due to SFAS 112 adoption and the amortization of
      goodwill.




F-36




The reconciliation
      of the stockholders’ equity between Mexican GAAP and US GAAP is as
      follows:




**Years
                ended December 31**2005
            
            **2006**Majority
                stockholders' equity as reported under MexicanGAAP
            
            Ps
            12,969,177
            
            **Ps**
            **13,548,245**Adjustments
                to reconcile majority stockholders’equity
                to U.S. GAAP:Biological
                assets and agricultural products valuationat
                fair value
            
            
            (70,955
            )
            
            **(****81,440**
            **)**Accumulated
                differences between the financing costcapitalized
                for Mexican GAAP and U.S. GAAPpurposes
            
            
            76,046
            
            
            **84,423**Accumulated
                depreciation on the above items
            
            
            (12,725
            )
            
            **(****16,078**
            **)**Net
                period cost due SFAS 112
            
            
            -
            
            
            **(****19,941**
            **)**Deferred
                income taxes on U.S. GAAP adjustments
            
            
            (7,724
            )
            
            **7,447**Accumulated
                amortization of goodwill
            
            
            56,589
            
            
            **56,589**Other
                comprehensive loss due SFAS 158 adoption
            
            
            -
            
            
            **(****35,133**
            **)**Majority
                stockholders’ equity as reported under U.S.GAAP
            
            Ps
            13,010,408
            
            **Ps**
            **13,544,112**





The
      effects of the above adjustments do not have any impact on minority
      interest.




F-37




The consolidated
      statements of changes in stockholders’ equity in accordance with U.S.
      GAAP is as
      follows:




**Capital
                stock**
            
            **Paid
                in-capital**
            
            **Stock
                repurchase reserve**
            
            **Retained
                earnings**
            
            **Other
                comprehensive income**
            
            **Comprehensive**
              **income**
            
            **Total
                stockholders’ equity**Balance
                at December 31, 2003
            
            Ps
            2,211,798
            
            Ps
            683,455
            
            Ps
            190,049
            
            Ps
            12,750,058
            
            Ps
            (4,488,731
            )
            Ps
            -
            
            Ps
            11,346,629Repurchase
                of stock
            
            
            (616
            )
            
            -
            
            
            (25,324
            )
            
            -
            
            
            -
            
            
            -
            
            
            (25,940
            )Sales
                of repurchased stock
            
            
            395
            
            
            13,464
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            13,859Cash
                dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            (265,655
            )
            
            -
            
            
            -
            
            
            (265,655
            )Comprehensive
                income:Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            795,980
            
            
            -
            
            
            795,980
            
            
            795,980Components
                of other comprehensive income:Deficit
                from holding of non monetary assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (160,764
            )
            
            (160,764
            )
            
            (160,764
            )Minimum
                seniority premium liability adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            963
            
            
            963
            
            
            963Other
                comprehensive income, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (159,801
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Ps
            636,179Balance
                at December 31, 2004
            
            Ps
            2,211,577
            
            
            696,919
            
            
            164,725
            
            
            13,280,383
            
            
            (4,648,532
            )
            
            
            
            
            11,705,072Repurchase
                of stock
            
            
            (242
            )
            
            
            
            
            (11,047
            )
            
            -
            
            
            -
            
            
            -
            
            
            (11,289
            )Sales
                of repurchased stock
            
            
            214
            
            
            2,847
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,061Cash
                dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            (254,165
            )
            
            -
            
            
            -
            
            
            (254,165
            )Comprehensive
                income:Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            1,824,801
            
            
            -
            
            
            1,824,801
            
            
            1,824,801Components
                of other comprehensive income:Deficit
                from holding of non monetary assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (165,918
            )
            
            (165,918
            )
            
            (165,918
            )Derivative
                financial instruments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (89,027
            )
            
            (89,027
            )
            
            (89,027
            )Minimum
                labor obligations liability adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,127
            )
            
            (2,127
            )
            
            (2,127
            )Other
                comprehensive income, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (257,072
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Ps
            1,567,729Balance
                at December 31, 2005
            
            Ps
            2,11,549
            
            Ps
            699,766
            
            Ps
            153,678
            
            Ps
            14,851,019
            
            Ps
            (4,905,604
            )
            
            
            
            Ps
            13,010,408Sales
                of repurchased stock
            
            
            **236**
            
            
            **16,966**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **17,202**Cash
                dividends paid
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **(****364,378**
            **)**
            
            **-**
            
            
            **-**
            
            
            **(****364,378**
            **)**Comprehensive
                income:Net
                income for the year
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **863,125**
            
            
            **-**
            
            
            **863,125**
            
            
            **863,125**Components
                of other comprehensive income:Deficit
                from holding of non monetary assets
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **(****38,828**
            **)**
            
            **(****38,828**
            **)**
            
            **(****38,828**
            **)**Minimum
                labor obligations liability adjustment
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **2,332**
            
            
            **2,332**
            
            
            **2,332**Derivative
                financial instruments
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **89,384**
            
            
            **89,384**
            
            
            **89,384**Other
                comprehensive income, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **52,888****916,013**Other
                comprehensive income SFAS 158 adoption
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            
            
            
            **(****35,133**
            **)**
            
            **-**
            
            
            **(****35,133**
            **)****Balance
                at December 31, 2006**
            
            **Ps**
            **2,211,785**
            
            **Ps**
            **716,732**
            
            **Ps**
            **153,678**
            
            **Ps**
            **15,349,766**
            
            **$**
            **(4,887,849**
            **)**
            
            
            
            **Ps**
            **13,544,112**





F-38