**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 **FORM
        20-F**


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


**OR**




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


**For
      the fiscal year ended December 31, 2007**




**OR**




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


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




** ̈**
            **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)**


Daniel
        Salazar Ferrer
 Avenida
        Tecnológico No. 401
 Ciudad
        Industrial C.P. 38010
 Celaya,
        Guanajuato, México
 Telephone:
        (+011-52-461-618-3555)
 Facsimile:
        (+011-52-461-611-6502)
 Email:
        inversionistas@bachoco.net
 **(Name,
        Telephone, E-mail and/or Facsimile number and Address of Company Contact
        Person)**


**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 ** ̈**  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 ** ̈**




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 ** ̈**




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 ** ̈**  Accelerated
      filer **x** Non-accelerated
      filer **** ** ̈**


Indicate
        by check mark which basis of accounting the registrant has used to prepare
        the
        financial statements included in this filing:
  U.S. GAAP ** ̈**
              
              International
                  Financial Reporting Standards as issued by the
                  International Accounting Standards Board ** ̈**
              
              Other**x**
  If
“Other
        has been checked in resonse to the previous question, indicate by check mark
        which financial statement item the reigstrant has elected to
        follow:


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


Item
      17 ** ̈**  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 ** ̈**  No **x**


(APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE
        YEARS)
  Indicate
        by check mark whether the registrant has filed all documents and reports
        required to be filed by Sections 12, 23 or 15(d) of the Securities Exchange
        Act
        of 1934 subsequent to the distribution of securities under a plan confirmed
        by
        the court.
  Yes
        ** ̈** No
        ** ̈**





**TABLE
      OF CONTENTS**





**Page****PART
                I**ITEM
                1.
            Identity
                of Directors, Senior Management and Advisers
            1ITEM
                2.
            Offer
                Statistics and Expected Timetable
            1ITEM
                3.
            Key
                Information
            1ITEM
                4.
            Information
                on the Company
            10ITEM
                5.
            Operating
                and Financial Review and Prospects
            25ITEM
                6.
            Directors,
                Senior Management and Employees
            39ITEM
                7.
            Major
                Stockholders and Related Party Transactions
            46ITEM
                8.
            Financial
                Information
            48ITEM
                9.
            The
                Offer and Listing
            50ITEM
                10.
            Additional
                Information
            53ITEM
                11.
            Quantitative
                and Qualitative Disclosures about Market Risk
            69ITEM
                12.
            Description
                of Securities Other Than Equity Securities
            70**PART
                II**ITEM
                13.
            Default,
                Dividend Arrearages and Delinquencies
            70ITEM
                14.
            Material
                Modifications to the Rights of Security Holders and Use of
                Proceeds
            70ITEM
                15.
            Controls
                and Procedures
            71ITEM
                16.
            [Reserved]
            73ITEM
                16A.
            Audit
                Committee Financial Expert
            73ITEM
                16B.
            Code
                of Ethics
            73ITEM
                16C.
            Principal
                Accountant Fees and Services
            73ITEM 16D.
            Exemptions
                from the Listing Standards for Audit Committees
            74ITEM
                16E.
            Purchases
                of Equity Securities by the Issuer and Affiliated
                Purchasers
            74**PART
                III**ITEM
                17.
            Financial
                Statements
            74ITEM
                18.
            Financial
                Statements
            74ITEM
                19.
            Exhibits
            74Index
                of Exhibits
            75


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 by laws. Our 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 87.7%
      of consolidated total assets on December 31, 2007. 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 Mexican Financial Reporting Standards (“Mexican
      FRS”). Until December 31, 2007, Mexican FRS required 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, 2007.




As
      of
      January 1, 2008, we have adopted the changes to “Inflationary Effects” in
      accordance with the new released Mexican FRS. (Mexican FRS B-10) Due to the
      relatively low inflation that the country has consistently achieved during
      the
      past several years, a new accounting principle went into effect on January
      1,
      2008, which eliminates the recognition of inflationary effects in our financial
      information. Consequently, financial information corresponding to periods prior
      to December 31, 2007 is expressed in millions of Mexican Pesos with purchasing
      power as of December 31, 2007, while the financial information for periods
      after
      December 31, 2007, will be presented in current or nominal Mexican
      Pesos.




Mexican
      FRS 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 FRS 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 19 to the Consolidated Financial Statements. The effect of price-level
      restatement under Mexican FRS has not been reversed in the reconciliation to
      U.S. GAAP. See Note 19 to the Consolidated Financial Statements.




References
      herein to “U.S. dollars,” “U.S.$” or “$” are to the lawful currency of the
      United States of America. 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.10.92 to U.S.$1.00, the exchange
      rate on December 31, 2007.




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”), turkey 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, turkey 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, turkey, balanced 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 FRS, which
      differ in certain respects from U.S. GAAP. Note 19 to the Consolidated Financial
      Statements provides a description of the main differences between Mexican FRS
      and U.S. GAAP as they relate to us; a reconciliation from Mexican FRS 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, 2006 and
      2007 and for the years ended December 31, 2005, 2006 and 2007. Our financial
      statements were prepared pursuant to Bulletin B-10, as amended, and Bulletin
      B-12, both issued by the Mexican Institute of Public Accountants.




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 5 of the Financial
                Statement);




·
            restate
                non-monetary liabilities using the
                NCPI;




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




·
            recognize
                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, 2007. 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 FRS have not been reversed in the reconciliation
      to
      U.S. GAAP. See Note 19 to the Consolidated Financial Statements.




As
      of
      January 1, 2008, we have adopted the new standard related to “Inflationary
      Effects” in accordance with Mexican FRS. (Mexican FRS B-10). Due to the
      relatively low inflation that the country has consistently achieved during
      the
      past several years, a new accounting principle went into effect on January
      1,
      2008, which eliminates the recognition of inflationary effects in our financial
      information. Consequently, financial information corresponding to periods prior
      to December 31, 2007 is expressed in millions of Mexican Pesos with purchasing
      power as of December 31, 2007, while the financial information for periods
      after
      December 31, 2007, will be stated in current or nominal Mexican
      Pesos.




1


**As
                  of and for the year ended December 31,****2003**
              
              **2004**
              
              **2005**
              
              **2006**
              
              **2007**
              
              **2007(2)**Income
                  Statement Data
              
              **(millions
                  of constant pesos as of December 31, 2007)(1)**
              
              **(millions
                  of**
                **U.S.**
                **dollars**)******Mexican
                  FRS:**Net
                  revenues
              
              Ps.
              12,616.6
              
              Ps.
              14,836.7
              
              Ps.
              15,617.7
              
              Ps.
              15,551.0
              
              Ps.
              18,219.6
              
              
              1,668.9Cost
                  of sales
              
              
              10,263.4
              
              
              12,032.42
              
              
              11,234.2
              
              
              12,053.0
              
              
              14,477.9
              
              
              1,326.2Gross
                  profit
              
              
              2,353.2
              
              
              2,804.3
              
              
              4,383.5
              
              
              3,498.0
              
              
              3,741.8
              
              
              342.7Operating
                  income
              
              
              507.2
              
              
              952.4
              
              
              2,378.1
              
              
              1,426.4
              
              
              1,496.3
              
              
              137.1Comprehensive
                  financing income (loss)
              
              
              146.8
              
              
              (79.8
              )
              
              (74.0
              )
              
              61.4
              
              
              19.1
              
              
              1.8Majority
                  net income
              
              
              633.1
              
              
              788.3
              
              
              1,908.4
              
              
              906.2
              
              
              1,270.9
              
              
              116.4Majority
                  net income per Share(3)
              
              
              1.06
              
              
              1.32
              
              
              3.19
              
              
              1.51
              
              
              2.12
              
              
              0.19Majority
                  net income per ADS(4)
              
              
              12.66
              
              
              15.8
              
              
              38.2
              
              
              18.1
              
              
              25.4
              
              
              2.3Dividends
                  per Share(5)
              
              
              0.60
              
              
              0.46
              
              
              0.44
              
              
              0.61
              
              
              0.59
              
              
              0.05Weighted
                  average Shares outstanding (thousands)
              
              
              598,738
              
              
              599,260
              
              
              599,694
              
              
              599,571
              
              
              600,000
              
              
              600,000**U.S.
                  GAAP:**Majority
                  net income
              
              Ps.
              590.4
              
              Ps.
              825.9
              
              Ps.
              1,893.3
              
              Ps.
              895.5
              
              Ps.
              1,261.8
              
              
              116.0**Statement
                  of Financial Position Data****Mexican
                  FRS:**Cash
                  and cash equivalents
              
              Ps.
              1,841.5
              
              Ps.
              2,608.4
              
              Ps.
              3,419.9
              
              Ps.
              3,583.9
              
              Ps.
              3,039.9
              
              
              278.5Total
                  assets
              
              
              14,577.1
              
              
              15,008.6
              
              
              16,530.9
              
              
              17,559.2
              
              
              19,116.4
              
              
              1,751.0Short-term
                  debt(6)
              
              
              68.2
              
              
              111.2
              
              
              100.0
              
              
              9.8
              
              
              58.8
              
              
              5.4Long-term
                  debt
              
              
              109.0
              
              
              80.9
              
              
              56.0
              
              
              35.5
              
              
              50.8
              
              
              4.6Stockholders’
                  equity
              
              
              11,805.2
              
              
              12,132.7
              
              
              13,502.7
              
              
              14,102.9
              
              
              15,127.2
              
              
              1,385.7**U.S.
                  GAAP:**Stockholders’
                  equity
              
              
              11,772.7
              
              
              12,144.7
              
              
              13,499.0
              
              
              14,053.2
              
              
              15,017.7
              
              
              1,381.0**Selected
                  Operating Data**Sales
                  volume (thousands of tonnes):Chicken
              
              
              655.4
              
              
              733.0
              
              
              773.0
              
              
              773.7
              
              
              837.2Eggs
              
              
              132.1
              
              
              138.1
              
              
              140.6
              
              
              143.4
              
              
              147.8Swine
                  and Others
              
              
              8.5
              
              
              9.1
              
              
              9.6
              
              
              8.9
              
              
              16.1Balanced
                  Feed
              
              
              316.2
              
              
              320.7
              
              
              389.6
              
              
              484.4
              
              
              438.8Gross
                  margin (%)
              
              
              18.7
              %
              
              18.9
              %
              
              28.1
              %
              
              22.5
              %
              
              20.5
              %Operating
                  margin (%)
              
              
              4.0
              %
              
              6.4
              %
              
              15.2
              %
              
              9.2
              %
              
              8.2
              %Net
                  margin (%)
              
              
              5.0
              %
              
              5.3
              %
              
              12.2
              %
              
              5.8
              %
              
              7.0
              %Total
                  employees
              
              
              18,495
              
              
              18,896
              
              
              20,432
              
              
              21,035
              
              
              23,088




(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.10.92 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, 2007) 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 showed high levels of volatility during the first four months
      of
      2003; it appreciated and remained stable during the middle of the year and
      increased its volatility in the last four months of the year. 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 level, it finished the
      year
      stronger against the dollar when 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.




In
      2007,
      the Mexican economy was stable overall, with an annual inflation rate of 3.8%,
      while the peso-dollar exchange rate at the year-end depreciated by 1.1% with
      respect to December 31, 2006.




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**2003
            
            
            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
            
            
            10.802007
            
            
            11.27
            
            
            10.67
            
            
            10.93
            
            
            10.92





(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
                2007
            
            
            10.92
            
            
            10.80January
                2008
            
            
            10.97
            
            
            10.82February
                2008
            
            
            10.82
            
            
            10.67March
                2008
            
            
            10.85
            
            
            10.63April
                2008
            
            
            10.60
            
            
            10.44May
                2008
            
            
            10.57
            
            
            10.31




3


(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
      May
      30, 2008, the exchange rate for cable transfers in pesos as certified for
      customs purposes by the Federal Reserve Bank of New York was Ps.10.329 per
      $1.00
      U.S. dollar.





**Risk
      Factors**




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




*México
      has experienced adverse economic conditions*




·
            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%.




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




·
            In
                2007, GDP increased by 3.3% and the inflation rate was
                3.8%.




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 from 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.




·
            In
                2007, the Mexican peso remained reasonably stable in its peso-dollar
                exchange rate. According with the U.S. Federal Reserve Bank, the
                peso was
                depreciated with respect to the U.S.
                dollar by 1.1% at year-end. The average value of the Mexican peso
                was
                0.21% lower than the average of
                2006.




4




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.




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 3.98% in 2003, 5.19% in 2004, 3.33% in 2005, 4.05%
      in
      2006 and 3.76% in 2007. Inflation for the first four months of 2008 was 1.72%
      according to the Mexican Central Bank.




According
      to Bank of México the average interest rates on 28-day Mexican treasury bills,
      or *Cetes* ,
      was
      6.23%, 6.82%, 9.20%, 7.19% and 7.19% during 2003, 2004, 2005, 2006 and 2007,
      respectively. On June 6, 2008, the 28-day *Cetes* rate was
      7.44%. 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 a 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 *Partido
      Acción 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*




5


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.




*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.




Additionally,
      the prices of corn and soybean meal experienced high volatility in 2007 and
      through the first half of 2008. Prices of corn reached historically high prices
      worldwide, as a result of strong demand and consequently, lower inventories
      worldwide. We can offer no assurance that corn and soybean meal prices will
      not
      continue to experience strong volatility in the future. Such a continued
      increase in prices could adversely affect our profits.




*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. 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 2007, Mexico lifted importation restrictions for those remaining
      11
      counties in the state of Texas.




6


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




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
      2006
      we experienced a loss of chickens at our Norwest Complex due to the effects
      of
      Hurricane Lane. 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 can offer no assurance, 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*




According
      to the UNA, 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 2007, we accounted for approximately 31.2% 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 55.0% 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.


7


*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.




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. On January 1, 2008, the safeguard was phased
      out.




*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, 2007.




*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




o
            directly,
                or




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




·
            the
                perception arose that such a sale could
                occur.




8




*The
      protection afforded to minority stockholders in México is different from that in
      the United States*




Under
      Mexican law, the protection afforded to minority stockholders is 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.




*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


9


·
            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.




*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 (52)(461) 618-3500 and (52)(461)618-3555. Our main product
      lines are: chicken, table egg, balanced feed and swine. At the present almost
      all of our production and almost all of our sales are made in México.




According
      to the UNA, we are the largest poultry producer in México. In 2007, we produced
      more than 9.0 million chickens per week and accounted for approximately 31.2%
      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 2007. Please also
      see the table under Item 5. “General—Results of Operations for the Years Ended
      December 31, 2006 and 2007.”




We
      are
      also a significant producer of commercial balanced feed. We sell our feed both
      through distributors and directly to small producers. During 2007, we sold
      approximately 438,000 tonnes of balanced feed to external customers, which
      amounted to 8.0% of our total revenues for that year.




Currently,
      Bachoco is the second largest producer of table eggs products. In 2007, we
      sold
      approximately 147,700 tons. Table egg sales accounted for 9.6% of our net
      revenues in 2007.


10


As
      part
      of our other product lines we also sell swine on the hoof to meat packers for
      pork product production, miscellaneous poultry-related products, and we have
      recently entered into two new business lines: turkey and beef value-added
      products. In 2007, sales of swine and these other lines accounted for 4.8%
      of
      our net revenues.




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,****2003**
            
            **2004**
            
            **2005**
            
            **2006**
            
            **2007**Chicken
            
            
            655.5
            
            
            733.0
            
            
            773.0
            
            
            773.7
            
            
            837.2Eggs
            
            
            132.1
            
            
            138.1
            
            
            140.6
            
            
            143.4
            
            
            147.8Swine(1)
            
            
            8.5
            
            
            9.1
            
            
            9.6
            
            
            8.9
            
            
            16.1Balanced
                Feed
            
            
            316.2
            
            
            320.7
            
            
            389.6
            
            
            484.4
            
            
            438.8




***(1)
      Includes Swine, Turkey and Beef products.***




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 (“Unit”) consisted of one Series B Share and one Series L Share. Each B
      Unit (“B Unit”) consisted 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, 2007, 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
      November 1998, we approved a stock repurchase plan (the “Repurchase Plan”),
      which allows us to repurchase up to 3.0% 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.321.6 million (expressed in nominal pesos), which
      reduced retained earnings on our balance sheet. As of May 31, 2008, we had
      repurchased no 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 with the United States.




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




In
      December 2007, we reached an agreement with “Grupo Agra,” a table eggs company
      located in the states of Nuevo Leon and Coahuila in Northeast Mexico. The
      agreement provides for leasing of their facilities, which include laying hens
      farms (with a capacity of approximately 1.0 million hens), a processing table
      eggs plant, distribution centers and the Agra brands. In addition, we acquired
      all of their working capital.


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. At the end of 2007 and beginning
                of
                2008, we launched Bachoco’s new
                image.




**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 (nominal pesos):




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




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




13


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




o
            made
                the acquisition of certain assets of Grupo Sanjor.




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




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




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




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




·
            In
                2007, we made capital expenditures of Ps.991.7 million net, with
                which
                we:




o
            began
                the construction of the new complex in the state of
                Sonora.




o
            finished
                the construction of our new feed mill in the state of
                Aguascalientes;




o
            increased
                capacity in the production of live
                chicken;




o
            increased
                capacity of the secondary process at some of our processing plants;
                and




o
            updated
                our transportation fleet, processing plants and feed
                mills.




**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 the UNA. Traditionally,
      value-added chicken products, 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 products are growing rapidly; we participate
      significantly in the market and try to lead the supplying of these products.
      According to the UNA, value-added chicken products currently account for
      approximately 7.0% of the chicken sold in México.




Mexican
      consumers traditionally 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* ),
      which
      have developed rapidly in México.




According
      to data obtained from the UNA, total Mexican chicken consumption per capita
      increased by 12.4% from 2003 to 2007. Chicken is the leading meat consumed
      in
      México, and it accounted for approximately 34.1% of all meat produced in México
      in 2007. The following table sets forth total Mexican production of chicken,
      pork and beef for 2003 to 2007:




14


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


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




**2003**
            
            **2004**
            
            **2005**
            
            **2006**
            
            **2007**Chicken
            
            
            2,290
            
            
            2,390
            
            
            2,498
            
            
            2,592
            
            
            2,683Beef
            
            
            1,496
            
            
            1,543
            
            
            1,559
            
            
            1,602
            
            
            1,628Swine
            
            
            1,100
            
            
            1,150
            
            
            1,088
            
            
            1,102
            
            
            1,116





*(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
      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.




During
      2007, chicken prices increased by 5.5% as compared with 2006, due to increases
      in the price of the main feed ingredients and a strong demand for
      chicken.




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 4.9% in 2003, 3.3% in 2004, 3.5% in 2005,
      2.6%
      in 2006 and 2.5% in 2007.




***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 the UNA, live chicken
      accounts for approximately 26% by volume of the chicken sold by producers in
      México.




**“Public
      Market”** chicken
      is a whole broiler presented either uneviscerated or eviscerated, generally
      sold
      within 48 hours after slaughter in public markets throughout México, but
      primarily concentrated in the México City metropolitan region. According to the
      UNA, public market chicken accounts for approximately 21% by volume of the
      chicken sold by producers in México.




15


**“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 the UNA,
      rotisserie chicken accounts for approximately 28% by volume of the chicken
      sold
      by producers in México.




**“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 the UNA, supermarket broiler chicken accounts for
      approximately 7% 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 the UNA, chicken
      parts account for approximately 11% by volume of the chicken sold by producers
      in México.




**“Value-added
      Products”** refers
      mainly to cut up fresh chicken parts with value-added treatment like marinating,
      breading and individual quantity frozen, sold mainly wrapped in trays
      principally to supermarkets and other institutional 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 the UNA, chicken parts account for approximately
      7%
      by volume of the chicken sold by producers in México




We
      sell
      value-added chicken products mainly 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,****2003**
            
            **2004**
            
            **2005**
            
            **2006**
            
            **2007****Volume**
            
            **% of
                Total**
            
            **Volume**
            
            **% of**
              **Total**
            
            **Volume**
            
            **% of**
              **Total**
            
            **Volume**
            
            **% of**
              **Total**
            
            **Volume**
            
            **% of**
              **Total****(thousands
                of tonnes, except percentages)**Public
                Market and Rotisserie
            
            
            288.1
            
            
            44.0
            
            
            319.1
            
            
            43.5
            
            
            349.6
            
            
            45.2
            
            
            344.3
            
            
            44.5
            
            
            371.0
            
            
            44.3Supermarket
                Broiler, Chicken Parts and Other(1)
            
            
            194.9
            
            
            29.7
            
            
            219.6
            
            
            30.0
            
            
            219.1
            
            
            28.4
            
            
            228.2
            
            
            29.5
            
            
            245.1
            
            
            29.3Live
            
            
            172.5
            
            
            26.3
            
            
            194.4
            
            
            26.5
            
            
            204.3
            
            
            26.4
            
            
            201.2
            
            
            26.0
            
            
            221.2
            
            
            26.4Total
            
            
            655.5
            
            
            100.0
            %
            
            733.1
            
            
            100.0
            %
            
            773.0
            
            
            100.0
            %
            
            773.7
            
            
            100.0
            %
            
            837.2
            
            
            100.0
            %





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




Our
      product mix varies from region to region in México, 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.




***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.


16


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:




·
            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. We also started to build a
                new complex in Hermosillo City.




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 slowly away from live
                chicken.




·
            ***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 in containers
                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.




17


·
            ***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 10.3% over 2006 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.




**Table
      Eggs**




According
      to the UNA, México has one of the largest per capita consumption of table eggs
      in the world with 21.6 kilograms per capita a year a 2.3% decrease when compare
      to the previous year. 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 the UNA, the ten largest producers of table eggs in
      México now account for approximately 43% of the market.




18


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 approximately 9.0%
      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 semester of 2005.




In
      2005,
      as part of the acquisition of Grupo Sanjor, we acquired some table egg farms
      located in the Yucatán Peninsula.




In
      December 2007, we reached an agreement with “Grupo Agra”, located in the states
      of Nuevo Leon and Coahuila in Northeast Mexico. The agreement provides for
      leasing of their facilities, which include laying hens farms with a capacity
      of
      approximately 1.0 million hens, a processing table eggs plant, distribution
      centers and the Agra brands. In addition, we acquired all of their working
      capital.




In
      2007,
      we began to enter into foreign markets. We are testing our brand by selling
      table eggs in the southern US states with products produced in the US. This
      test
      will allow us to see how our brand is received and identify opportunities and
      strategies going forward.




We
      have
      designed our egg distribution system to transport eggs from our laying farms
      at
      Celaya, Los Mochis, Obregón, Mexicali, Tecamachalco, Mérida, Saltillo 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).




**Balanced
      Feed**




According
      to *Consejo
      Nacional de Fabricantes de Alimento Balanceado y de la Nutrición Animal,
      A.C* )
      (”CONAFAB”) , Mexican production of balanced feed increased from 22.1 million
      tonnes in 2001 to 25.2 million tonnes in 2006. In 2006, México was ranked the
      fourth largest producer of feed in the world and the second largest in Latin
      America.




19


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 64.0% of total production. Imports of feed
      come almost entirely from the United States and represent approximately 1.2%
      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 4.8% 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 2003, swine prices began
      to
      recover, increasing by 7.0%, 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%. In 2007, swine prices decrease 5.5%
      as
      a result of over-supply conditions in the swine market. Traditionally, Mexicans
      consume less swine products than chicken and eggs products.




**Turkey
      and Prepared Beef Products**




At
      the
      beginning of 2007, as a result the “Del Mezquital” and “Grupo Libra” agreements
      we introduced two new product lines: turkey and value-added beef and pork
      products. We do not raise either turkey or cattle; we only process these
      products.




In
      2007,
      these products lines represented less than 1.0% of our total sales. However
      we
      see opportunities to grow these businesses by taking advantage of our
      distribution network.




**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.




20




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 were eliminated on January 1, 2008. We expect
      these developments to allow us more flexibility in our cost of production as
      the
      cost of our ingredients more closely tracks prices in the international
      commodity markets.




Since
      the
      end of 2006, throughout all of 2007 and through the first months of 2008, prices
      of corn and soybean meal have experienced high volatility and have demonstrated
      historically high prices world-wide.




We
      take
      advantage of lower-cost feed ingredients from Mexican sources, when available.
      In 2007, we obtained approximately 36.4% 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 limited. 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 56% 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 the UNA, in 2007, imports
      of poultry products decreased 13.7% in volume over imports in 2006. This
      decrease was caused by a better level of prices in others foreign markets.




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




21




***Table
      Eggs***




We
      are
      one of the largest producers of table eggs in México, with approximately 6.5% of
      total Mexican egg production at the end of 2007.




***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
      4.8% 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, 2007, 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.




*Import
      limits and short-term tariffs:*




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 2007, the tariff in effect was 19.8% for imports
                of
                chicken leg quarters above the quota of 104 thousand
                tonnes.




·
            On
                January 1, 2008, the safeguard was phased out. This allows American
                producers to export any amount of chicken leg quarters free of tariffs
                to
                México.




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.




22




***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.




**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 87.7% of
      consolidated total assets as of December 31, 2007, and 88.9% of our consolidated
      revenues for the year ended December 31, 2007. 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, 2005, 2006 and
      2007:




23




**Percentage
                Equity Interest****2005**
            
            **2006**
            
            **2007**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
            
            
            100Bachoco
                Comercial, S.A. de C.V.
            
            
            -
            
            
            -
            
            
            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
            
            
            100





In
      November 2004, the Company acquired all the Shares of Seceba, S.A. de C.V.
      from
      a related party for Ps.14.4 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.





In
      December 2006 and July 2007 we created Induba Pavos, S.A. de C.V. and Bachoco
      Comercial, S.A. de C.V. respectively. They are both 100% owned subsidiaries
      of
      Industrias 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.




The
      following table summarizes the types and number of each type of our production
      facilities as March 2008:




**Bachoco
      Production Facilities**




**Type**
            
            **Number**Chicken
                breeding farms
            
            
            152Broiler
                grow-out farms
            
            
            481Broiler
                processing plants
            
            
            9Egg
                incubation plants
            
            
            22Egg
                production farms
            
            
            109Swine
                breeding farms
            
            
            1Swine
                grow-out farms
            
            
            10Feed
                mills
            
            
            17Further
                process plants
            
            
            4





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.




24




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 380,000 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 part of the feed from feed mills to farms, live chickens
      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 FRS, which differs in certain respects from U.S.
      GAAP. Note 19 to the Consolidated Financial Statements provides a description
      of
      the principal differences between Mexican FRS 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, 2006 and 2007 and for the years ended December 31, 2005, 2006 and
      2007.




In
      accordance with Mexican FRS 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, 2007. The effects of price-level restatement
      in accordance with Mexican FRS 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, 2005, 2006 and
      2007.




***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.




25




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 presidential 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
      2007
      the Mexican economy was stable with an annual inflation rate of 3.8% and a
      final
      dollar-peso depreciation rate of the peso against the dollar of 1.1%, as
      compared to the end of 2006. Rates on 28 day Cetes had an average of 7.19%
      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.”.




***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-p
      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.




In
      2007,
      average producer prices increased by approximately 10.0% mainly due to increases
      in the cost of raw materials and a balance between supply and demand in the
      market, particularly in the second and third quarter of the year.




26




As
      of
      December 31, 2007, we have an outstanding total indebtedness of Ps.109.6 million
      all denominated in Mexican pesos. In 2007, we had foreign exchange loss of
      Ps.3.4 million due to fluctuations of the peso against the U.S. dollar, as
      compared to a foreign exchange gain of Ps.40.8 million in 2006 and a foreign
      exchange loss of Ps.62.3 million in 2005.




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.




***Volume
      of Chicken Sold***




The
      volume of our chicken sold decreased by 1.5% in 2003 and increased by 11.8%,
      5.5%, 0.1% and 8.2% in each of 2004, 2005, 2006 and 2007, respectively.




The
      decrease in volume in 2003 was mainly due to the effects of Hurricane Isidore
      on
      our Peninsula Complex, this situation affected our production 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 of 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.




The
      8.2%
      increase in the volume in 2007 was mainly due the business agreements entered
      into in 2007, domestic grow and productivity efforts.




***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.


27


In
      2007,
      our chicken prices increased 8.3% as a result of a stable market conditions
      and
      increases in the cost of our main raw materials.




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,
      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.




In
      2007
      our egg prices increased 18.5% as a result of a strong demand, particularly
      in
      the second half of the year.




Bachoco
      continues to work to improve its sales mix by increasing the mix of packaged
      product with brand identification with better profit margins.




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 Mexico increased.




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




The
      same
      conditions in the swine market that were present in 2006 were also present
      in
      2007, causing a 5.5% decline in our swine prices.




We
      believe that, among other factors, industry price competition may continue
      to
      exert downward pressure on 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.




28




At
      present, Mexican feed prices tend to parallel U.S. and international prices.
      In
      2003, the percentage of grain purchased from domestic markets was 38%. In 2004,
      it was approximately 35%, in 2005 it was 30%, in 2006 it was 31.3% and in 2007
      it was approximately 36.4%.




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, and through 2007, international corn prices increased
      significantly as a result of lower inventories and increases in alternative
      uses
      of corn, such as ethanol production.




International
      grain prices also increased dramatically in 2007 reaching historically high
      prices worldwide in that year, due mainly to strong demand and alternative
      uses
      for grain such as ethanol production. Soybean meal prices alse increased,
      particularly in the second half of the year, due to strong demand, and lower
      inventories worldwide.




In
      recent
      years, reductions in tariffs under NAFTA have generally resulted in reductions
      of our costs of importing feed ingredients. Restriction on importing grain
      under
      NAFTA, began to phase out in the beginning of 2008.




***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
                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 an 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.




29




·
            In
                December 2006, the Company started 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 lease
                for the use of their facilities, which included 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.




·
            In
                December 2007, we reached an agreement with “Grupo Agra”, a table eggs
                producer company located in the states of Nuevo Leon and Coahuila
                in
                Northeast Mexico. The agreement provides for leasing of their facilities,
                which include laying hens farms with a capacity of approximately
                1.0
                million hens, a processing table eggs plant, distribution centers
                and the
                Agra brands. In addition, we acquired all their working
                capital.




**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,****2005**
            
            **2006**
            
            **2007****(percentage
                of net revenues)**Net
                revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            (71.9
            )
            
            (77.5
            )
            
            (79.5
            )Gross
                profit
            
            
            28.1
            
            
            22.5
            
            
            20.5Selling,
                general and administrative expenses
            
            
            (12.8
            )
            
            (13.3
            )
            
            (12.3
            )Operating
                income
            
            
            15.2
            
            
            9.2
            
            
            8.2Comprehensive
                financing (cost) income
            
            
            (0.5
            )
            
            0.4
            
            
            0.1Income
                tax and asset tax
            
            
            (2.4
            )
            
            (3.9
            )
            
            (1.7
            )Net
                income
            
            
            12.2
            
            
            5.8
            
            
            7.0





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,****2005**
              
              **2006**
              
              **2007****(percentage
                  of net revenues)**Chicken
              
              
              80.1
              %
              
              77.6
              %
              
              77.6
              %Feed
              
              
              7.2
              %
              
              9.0
              %
              
              8.0
              %Eggs
              
              
              8.7
              %
              
              9.2
              %
              
              9.6
              %Swine
                  and Others
              
              
              4.0
              %
              
              4.2
              %
              
              4.8
              %Total
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %




30




**Results
      of Operations for the Years Ended December 31, 2006 and
      2007**




***General***




In
      2007,
      the Mexican economy showed signs of stability: GDP grew by 3.3%, the annual
      inflation rate was 3.8% and the peso-dollar exchange rates was reasonably stable
      with a dollar-peso depreciation rate of 1.1% at the end of the year, as compared
      to the end of 2006.




According
      to the UNA, the production volume of the Mexican chicken industry grew by
      approximately 3.5% in 2007. 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 decreased by almost 5.3%,
      which
      contributed to a better balanced supply in the market particulary in the second
      half of the year.




We
      were
      able to increase our sales in all our main product lines. We sold our entire
      production and achieved an operating margin of 8.2%, which is lower than the
      9.2% reached in 2006.




***Net
      revenues***




Net
      sales
      during 2007 were Ps. 18,219.6 million, 17.2% higher than the Ps. 15,551.0
      million reported in 2006. This was due to an increase in sales in all of our
      business lines.




Chicken
      sales grew by 17.3% as compared to the sales in 2006. The increase was due
      to an
      8.3% price increase, as a result of a balance between supply and demand in
      the
      chicken market for most of the year. Chicken volume grew by 8.2%, due to
      increases in capacity driven by the business agreements with the “Del Mezquital”
and “Libra” companies, as detailed previously.




Table
      egg
      sales grew by 22.2% in 2007 as compared to sales in 2006, due to an 18.5% price
      increase, while volume grew by 3.1%. The sales increase was due to a stable
      supply in the Mexican table eggs industry, particularly during the second half
      of the year and more than 50% of our eggs being packaged under our brand
      name.




In
      2007,
      balanced feed sales grew by 4.2%, while the volume of balanced feed sold
      decreased by 9.4% in comparison to 2006. Balanced feed price increased by 15.1%
      with respect to the prior year, driven by increases in the costs of raw
      materials.




We
      increased our pork sales by 24.3% in 2007, due to a 31.5% increase in volume
      sold while the price fell by 5.5% in comparison with 2006. This price drop
      was
      caused by a greater supply of these products in the Mexican market.




We
      recognized Ps.10.9 million in our 2007 revenue as a result of fair valuing
      part
      of the Company’s inventories, see Note 2-h, and 5-b in our audited financial
      statements.




31




***Cost
      of sales***




The
      consolidated cost of sales was Ps. 14,477.9 million, an increase of 20.1% with
      respect to the prior year, as a result of increases in the prices of raw
      materials, particularly grains, which are one of our main raw
      materials.




***Gross
      profit***




As
      a
      percentage of net sales, gross profit was 20.5% in 2007, compared to 22.5%
      reported in 2006. The decline was due primarily to the increase in the cost
      of
      sales, resulting of the increase in cost of our main raw materials.




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




Operating
      expenses increased to Ps. 2,245.5 million in 2007, an 8.4% increase over the
      prior year, primarily as a result of the increase in the volume of sales. These
      expenses represented 12.3% of the Company’s sales, which was lower than the
      13.3% reported in 2006.




***Operating
      income***




Consolidated
      operating income in 2007 was Ps. 1,496.3 million; 4.9% more than the Ps. 1,426.4
      million reported in 2006. The operating margin was 8.2% in 2007, lower than
      the
      9.2% reported in 2006.




***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. We had a comprehensive financing income of Ps. 19.1
      million primarily due to Ps. 177.3 million of net interest income. This result
      was lower than the Ps. 61.4 million reported in 2006.




***Other
      income, net***




Other
      income, net represented a net gain of Ps.69.6 million in 2007 as compared to
      a
      gain of Ps.18.4 million in 2006. Other income, net in both 2007 and 2006 was
      attributable mainly to sales of used equipment, income from governmental aid
      and
      miscellaneous services. See Note 16 of the Consolidated Financial Statements
      for
      more detail.




***Income
      before income tax, asset tax, and minority interested***




Income
      before income tax, asset tax, and minority interest was Ps, 1,585.0 million
      in
      2007, Ps. 78.7 million more than Ps. 1,506.3 reported in 2006. In 2007, taxes
      recognized by the Company amounted to Ps. 312.7 million, a decrease with respect
      to the Ps. 599.6 million recognized in 2006, primarily due to a unique charge
      amount in deferred taxes recognized at the end of 2006, due to the tax rate
      increase that affected the poultry industry and consequently our Company in
      fiscal year 2007, see note 15-a of the Consolidated Financial Statements for
      more detail.




32




***Net
      income***




Net
      income was Ps. 1,272.2 million in 2007, 40.2% higher than the Ps. 907.1 million
      reported in 2006. Earnings per share of Ps. 2.12 (US$ 2.33 per ADR), compared
      to
      Ps.1.51 (US$ 1.66 per ADR) reported in 2006.




**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 the 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.15.6 billion, compared to $15.6 billion
      reported in 2005, a 0.4% decrease. This was mostly due to a decrease in the
      sales of chicken, our main product line.




Our
      chicken sales decreased by 3.5% due to a decrease in price of 3.6%, while volume
      increased smoothly by 0.1%, mainly as a result of an increase in supply in
      the
      chicken market as 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.10.9 million in our 2006 revenue as a result of fair valuing
      part
      of the Company’s inventories, see Note 2-h and 5-b in our audited financial
      statements.




***Cost
      of sales***




The
      consolidated cost of sales in 2006 was Ps.12.1 billion, representing an increase
      over 2005 of Ps.0.82 billion, or 7.3%, as a result of higher costs in raw
      materials, particularly during the second half of the year.




33




***Gross
      profit***




Bachoco’s
      gross profit reached Ps.3.5 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.2.1 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 to 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.61.4 million in 2006, compared with a cost of Ps. 74.0 million
      in
      2005.




This
      change was due mainly to a net gain in foreign exchange of Ps. 40.8 million
      due
      to a more efficiency in buying U.S. dollars needed for our normal operations
      and
      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.




***Other
      income, net***




Other
      income, net represented a net gain of Ps.18.4 million in 2006 as compared to
      a
      net expense of Ps.26.0 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. 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, 278.2
      million to Ps.1,506.3 million, due primarily to a decrease in operating income.




***Net
      income***




Net
      income for 2006 decreased to Ps.907.1 million compared to Ps.1, 910.3 million
      reached in 2005. This result includes a Ps.336.4 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.




34




**Income
      Tax, Asset Tax and Employee Profit Sharing, Year 2007**




For
      a
      more detailed discussion on this topic, please see Note 15 to 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, 29% in 2006 and 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 debit of Ps.336.4 millions to income,
      reflected in deferred taxes.




As
      a
      result, the income tax rate under the New Simplified Regime was 19% in
      2007.




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
      was
      1.25% in 2007, (1.8% in year 2006); BSACV is subject to a 0.848% 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 2005, 2006 and 2007
      amounted to Ps.21.4 million, Ps.28.3 million and Ps.27.2 million, respectively.
      In each of the three years we credited against these amounts the income tax
      paid.




As
      of
      December 31, 2007, we had Ps.6.4 million in asset tax credits. See Note 15-b
      to
      the Consolidated Financial Statements for more detail.




During
      2007, a new tax reform was enacted and it abolished the asset tax effective
      in
      2008 as discussed below.




In
      2007,
      we recognized a total income tax and asset tax charge of Ps.312.7 million,
      (an
      effective income tax rate of 19.80%), compared to a total income and asset
      tax
      charge of Ps.599.1 million in 2006 and Ps.367.8 million in 2005. This amount
      was
      lower than the amount recognized in 2006 due to the recognition of deferred
      taxes in 2006 as a result of the tax rate increase on the Mexican poultry
      industry for 2007. (See Note 15-a to the Consolidated Financial
      Statements).




Neither
      Industrias Bachoco, S.A.B. de C.V. nor Bachoco, S.A. de C.V. 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. According to the interpretation of Mexican FRS 4, employee profit
      sharing must be presented in the statements of income as an ordinary expense.
      Thus, effective 2007, we classified employee profit-sharing included it in
      the
“other ordinary expenses” section of the income statement (in prior years it was
      disclosed as a single caption before net income). (See Notes 16 and 2-x to
      the
      Consolidated Financial Statements).




35




***Flat-Rate
      Business Tax (FRBT or IETU in Spanish).***




The
      Flat-Rate Business Tax (FRBT or IETU in Spanish) Law was published in the
      Official Gazette on October 1, 2007. This Law came into effect as of January
      1,
      2008 and abolished the Asset Tax Law.




The
      current-year FRBT is computed by applying the 17.5% rate to income determined
      on
      the basis of cash flows (as defined), net of authorized credits. The rate for
      2008 is 16.5% and for 2009 is 17.0%.




FRBT
      credits derive principally from the unamortized negative FRBT base and salary
      credits and social security contributions, as well as credits derived from
      the
      deduction of certain investments, such as inventories and fixed assets, during
      the transition period, which began starting on the date on which the FRBT came
      into force.




FRBT
      shall be payable only to the extent it exceeds income tax for the same period.
      Should a negative FRBT base be determined because deductions exceed taxable
      income, there will be no FRBT payable. The amount of the negative base
      multiplied by the FRBT rate results in a FRBT credit, which may be applied
      against income tax for the same year or, if applicable, against FRBT payable
      in
      the next ten years.




Based
      on
      tax result projections, we consider that our Company will be subject to the
      payment of income tax in the following years. (See Note 15-c to our Consolidated
      Financial Statements).




**Liquidity
      and Capital Resources**




Our
      working capital (current assets less current liabilities) increased year over
      year from Ps.5.7 billion on December 31, 2006 to Ps.6.5 billion on December
      31,
      2007. We believe that our working capital is sufficient for our present
      requirements. The ratio of current assets to current liabilities on December
      31,
      2007 was 5.4. Cash and cash equivalents were Ps.3.0 billion on December 31,
      2007, representing a decrease of Ps.544.0 million from the previous year
      primarily due to increases in the working capital required by our operations
      and
      an increase in our level of capital expenditures.




Inventories
      were Ps.3.3 billion as of December 31, 2007, representing an increase of Ps.1.1
      billion from the previous year, due mainly to larger inventories and higher
      cost
      of raw materials.




Total
      debt, including the current portion of long term debt, equaled Ps.109.6 million
      as of December 31, 2007, an increase of Ps. 64.14 million from December 31,
      2006.




Stockholders’
      equity increased to Ps.15.1 billion on December 31, 2007 from Ps.14.1 billion
      on
      December 31, 2006.




Long
      term
      debt on December 31, 2006 represented 0.3% of our capitalization, without change
      as compared to 0.3% on December 31, 2006.




In
      2007,
      capital investments amounted to Ps.991.7 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.




36




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, 2007, we have Ps. 40.0 million in notes payable to
                banks.




•
            Long
                term debt to banks, as of December 31, 2007, was Ps.50.8 million
                outstanding (excluding current portion). The weighted average interest
                rate on long term debt was 7.892%.




The
      following table summarizes certain contractual liabilities as of December 31,
      2007. 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, 2007)****Contractual
                Obligations**
            
            **Total**
            
            **2008**
            
            **2009**
            
            **2010**
            
            **2011**
            
            **2012**Long-term
                debt
            
            Ps.
            50.8
            
            
            0.0
            
            
            19.8
            
            
            19.8
            
            Ps.
            7.5
            
            Ps.
            3.7Operating
                leases
            
            
            310.9
            
            Ps.
            70.0
            
            Ps.
            62.7
            
            Ps.
            56.7
            
            
            55.1
            
            
            54.4Total
            
            Ps.
            361.7
            
            Ps.
            70.0
            
            Ps.
            82.5
            
            Ps.
            76.5
            
            Ps.
            62.6
            
            Ps.
            58.1





**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 FRS and U.S. GAAP, as they relate to
      us,
      concern (i) net cost of labor obligations (ii) capitalization of financing
      costs, (iii) biological assets and agricultural products valuation at fair
      value, and (iv) treatment of minority interest. Each of these differences also
      affects our balance sheet.




Our
      consolidated net income under U.S. GAAP was Ps.1, 893.3 million in 2005,
      Ps.895.5 million in 2006 and Ps.1, 261.8 **** million
      in 2007, compared to Ps.1, 910.3 million, Ps.907.1 **** million
      and Ps.1,272.2 million, respectively, under Mexican FRS. For further
      explanation, please see Note 19 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
      generate a reconciling difference in 2005, 2006 and 2007, therefore, there
      is no
      difference between Mexican FRS 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. **




37




**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.




***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 2007 amounted to Ps. 6,702.7
      million. As applied to our 2007 financial results, the depreciation was Ps.571.4
      million, or 3.1% of our net revenues. For further explanation, see Notes 2-i
      and
      6 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 FRS 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, turkey, beef 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.




38




For
      more
      details, see “Inventories and biological assets” in Note 2-h and 5 of the
      Consolidated Financial Statements.




***Allowance
      for Doubtful Accounts***




We
      periodically and systematically review the aging and collection of our accounts
      receivable. We consider that such accounts are those which are more than 60
      days
      overdue or in litigation. See Note 2-g to our Consolidated Financial Statements.




***Pension
      Plan***




We
      have a
      retirement plan in which all non-union workers participate. 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-m
      in
      our Consolidated Financial Statements.





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. We
      recognize 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 assumptions net of
      inflation.





**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 2008, their positions and
      their years of service:




39




**Name**
            
            **Position**
            
            **Years
                as****a**
              **Member
                of the**
              **Board
                of Director**Enrique
                Robinson Bours Almada
            
            Honorary
                Chairman of the board
            
            54Mario
                Javier Robinson Bours Almada
            
            Life
                Honorary Shareholder Director
            
            54Francisco
                Javier R. Bours Castelo
            
            Chairman
                of the Board and Proprietary Shareholder Director
            
            26Eduardo
                Rojas Crespo
            
            Secretary
                of the Board
            
            Since
                April, 2008Jose
                Gerardo Robinson Bours Castelo
            
            Proprietary
                Shareholder Director
            
            Since
                April, 2008Juan
                Bautista Salvador Robinson Bours
            
            Proprietary
                Shareholder Director
            
            54Arturo
                Bours Griffith
            
            Proprietary
                Shareholder Director
            
            14Jesús
                Enrique Robinson Bours Muñoz
            
            Proprietary
                Shareholder Director
            
            14Ricardo
                Aguirre Borboa
            
            Proprietary
                Shareholder Director
            
            14Octavio
                Robinson Bours Griffith
            
            Proprietary
                Shareholder Director
            
            11Jesús
                Rodolfo Robinson Bours Muñoz
            
            Proprietary
                Shareholder Director
            
            6José
                Eduardo Robinson Bours Castelo
            
            Alternate
                Director
            
            14Juan
                Salvador Robinson Bours Martínez
            
            Alternate
                Director
            
            14José
                Francisco Robinson Bours Griffith
            
            Alternate
                Director
            
            14Guillermo
                Pineda Cruz
            
            Alternate
                Director
            
            14Avelino
                Fernández Salido
            
            Independent
                Director
            
            5Humberto
                Schwarzbeck Noriega
            
            Independent
                Director
            
            5




·
            Enrique
                Robinson Bours Almada, Mario Javier Robinson Bours Almada and Juan
                Bautista Salvador Robinson Bours are brothers.




·
            Francisco
                Javier R. Bours Castelo, José Gerardo Robinson 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 Almada, Mario Javier Robinson
                Bours
                Almada and Juan Bautista Salvador Robinson Bours.




·
            Jesús
                Enrique Robinson Bours Muñoz and Jesús Rodolfo Robinson Bours Muñoz are
                sons of Enrique Robinson Bours Almada.




·
            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 Almada, 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 26
      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.




During
      the Annual Shareholder meeting on April 23, 2008 the Company announced the
      retirement of Mr. Mario Javier Robinson Bours Almada as a member of the Board
      of
      Directors and he was named as a Life Honorary Propriety Shareholder Director.
      Also during this meeting Mr. José Gerardo Robinson Bours Castelo was named as a
      Proprietary Shareholder Director in the place of Mr. Mario Javier Robinson
      Bours
      Almada.




40




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 23, 2008.




Our
      board, as of June 2008, is composed of the following members:




Proprietary
      Shareholder Directors:


Francisco
      Javier R. Bours Castelo


Jose
      Gerardo Robinson Bours Castelo


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 Salido


Humberto
      Schwarzbeck Noriega





Life
      Honorary Chairman of the Board:


Enrique
      Robinson Bours Almada





Life
      Honorary Shareholder Director:


Mario
      Javier Robinson Bours Almada





Francisco
      Javier R. Bours Castelo, Chairman of the Board of Directors, has been a member
      of the board for 26 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 Hortícola, S.A.
      de C.V., Inmobiliaria of Trento S.A. de C.V., Acuícola 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.




Jose
      Gerardo Robinson Bours Castelo, Proprietary Shareholder Director, is member
      of
      the board since April, 2008. He previously served as Systems Manager. Mr. Bours,
      holds a degree in Computer Engineering from the Instituto Tecnológico y de
      Estudios Superiores Monterrey (ITESUM). He currently serves as member of the
      following companies: Grupo Megacable, S.A. de C.V., Congeladora Hortícola, S.A.
      de C.V., Acuícola Boca, S.A. de C.V., Industrias Boca, S.A. de C.V. and
      Promotora Empresarial del Noroeste, S.A. de C.V. He is also Chairman of
      Fundación Mexicana para el Desarrollo Rural and Instituto Tecnológico y de
      Estudios Superiores de Monterrey Campus Obregón.




41




Juan
      Bautista S. Robinson Bours Almada, Proprietary Shareholder Director, has been
      a
      member of the board for 54 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 14 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 6 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 14 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 11 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 14
      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 14 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 14 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.




José
      Francisco Robinson Bours Griffith, Alternate Director, has been a member of
      the
      board for 14 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 14 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.




42




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, 2007 are set forth in the table
      below:




**Name**
            
            **Position**
            
            **Age**Cristóbal
                Mondragón Fragoso
            
            Chief
                Executive Officer
            
            62Daniel
                Salazar Ferrer
            
            Chief
                Financial Officer
            
            43David
                Gastélum Cazares
            
            Director
                of Sales
            
            56José
                Luis López Lepe
            
            Director
                of Personnel
            
            62Rodolfo
                Ramos Arvizu
            
            Technical
                Director
            
            50Ernesto
                Salmón Castelo
            
            Director
                of Operations
            
            45Andres
                Morales Astiazaran
            
            Director
                of Marketing and Value-added Products
            
            39





*Cristóbal
      Mondragón Fragoso* ,
      Chief
      Executive Officer, 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).




*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.*




43




*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 joining 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, the 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.




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;




44




(e)
            Receive
                observations formulated by shareholders, Board members, relevant
                officers,
                employees and, in general, any third party with regard to the matters
                under the Audit Committee 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
      a
      member of the audit committee and the audit committee is now comprised of 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.




**Compensation
      of Directors and Officers**




For
      the
      year ended December 31, 2007, we paid approximately Ps.33.4 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, 2005, 2006 and 2007, we had approximately 20,432, 21,035 and 23,088
      employees, respectively.




In
      2007,
      approximately 62.4% 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.




45




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 of our Shares. At this time, we have not developed
      a
      share options plan for our employees.




**Comparison
      of our Corporate Governance Rules and the Rules of the NYSE Applicable to U.S.
      Registered 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 Interim
                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 http://www.bachoco.com.mx/?p=94




**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 B Units consisting in two Series
      B
      Shares.




During
      the extraordinary meeting hold on April 26, 2006 Shareholders approved the
      Company’s 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.


46


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”),




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 April 2008, Fidelity Low
      Priced Stock Fund and Fidelity Management & Research Co. each own 5.03% of
      our Common Stock, representing a total of 2,515,000 and 2,515,200 shares
      respectively.




In
      November 1998, in accordance with rules established by the CNBV, we established
      a reserve in the amount of Ps.180.0 million in nominal pesos, for the repurchase
      of Shares. At the end of 2007, the Company had repurchased zero
      Shares.




During
      our stockholders’ meeting of April 23, 2008, we capped the share repurchase
      program for 2008 to a maximum amount of Ps.313.6 million. As of May 20, 2008,
      we
      had repurchased zero Shares.




The
      following table sets the percentages of the Shares held in México and other
      Countries as of December 31, 2007.




**Year**
            
            **Percentage**México
            
            
            85.0
            %Other
                Countries
            
            
            15.0
            %




From
      the
      100% of the total Shares of the Company we accounted for approximately 48
      shareholders in the NYSE and 58 in the BMV.


47


**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 4 to the Consolidated Financial
      Statements. We expect to engage in similar transactions in the
      future.




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.58.6 million, Ps. 63.5 million and Ps.95.8 million for the
      years ended December 31, 2005, 2006 and 2007, 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.
      4.7 million, Ps.4.2 million and Ps.3.2 million for the years ended December
      31,
      2005, 2006 and 2007, 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.194.1 million, Ps.251.9.0 million and Ps.192.8 million
      for the years ended December 31, 2005, 2006 and 2007, respectively.




Our
      accounts payable to related parties totaled Ps.12.7 million and Ps.26.8 million
      as of ended December 31, 2006 and 2007, respectively. These transactions took
      place among companies owned by the same set of stockholders. See Note 4 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
      FRS, which differ in certain respects from U.S. GAAP. Note 19 to the
      Consolidated Financial Statements provides a description of the principal
      differences between Mexican FRS 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, 2006 and 2007,
      and for the years ended December 31, 2005, 2006 and 2007.


48


**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.




**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.239.1 million in 2005,
      Ps.353.9 million in 2006 and Ps.353.9 million in 2007.




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 FRS.




**Significant
      Changes in Accounting Practices**




*New
      Accounting pronouncements*




The
      most
      important new accounting pronouncements that came into effect in 2007 are:
      Mexican FRS B-3, (Statement of Operation), Mexican FRS C-13, (Related Parties),
      Mexican FRS D-6, (Capitalization of the Comprehensive Cost of Financing),
      Mexican IFRS 4, (Presentation of Employee Profit Sharing in the Statement of
      Operation) and Mexican IFRS8, (Effects of the Flate-Rate Business Tax (FRBT)).
      For more detail see Note 2-x and Note 18 to the Consolidated Financial
      Statements.




The
      most
      important new accounting pronouncements that will come into effect in 2008
      are:
      Mexican FRS B-2, (Statement of Cash Flows), Mexican FRS B-10 (Effects of
      Inflation), Mexican FRS D-3, (Employees Benefits), Mexican FRS D-4, (Taxes
      on
      Profits), Mexican FRS 5, (Accounting Recognition of the Additional Consideration
      Agreed at the Inception of a Derivative to Adjust the Instrument to its Fair
      Value), Mexican FRS 6, (Formally Designating a Hedge) and Mexican FRS 7,
      (Application of Comprehensive Income Item Generated by a Cash Flow Hedge on
      a
      Forecasted Purchase of a Non-financial Asset).


49


We
      consider that the application of the Mexican FRS 5, Mexican FRS 6 and Mexican
      FRS 7 will have no material effect on our financial position or results of
      operations. We will apply Mexican FRS B-10 by ceasing to recognize the effects
      of inflation in our financial information and we are analyzing the effect of
      Mexican FRS B-2, FRS D-3 and FRS D-4. For more detail see Note 18 to the
      Consolidated 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
      May 1,
      2008, there were 7,654 thousands ADSs outstanding, representing 15.3% 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 2003 to 2007, for each quarter
      from 2006 and 2007 and for each complete month from December 2007 to May 2008,
      the high, low 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**2003
            
            
            9.65
            
            
            7.00
            
            
            9.452004
            
            
            13.35
            
            
            8.50
            
            
            13.102005
            
            
            20.70
            
            
            12.22
            
            
            17.252006
            
            
            23.70
            
            
            15.70
            
            
            23.662007
            
            
            30.96
            
            
            20.00
            
            
            28.60





**New
      York Stock Exchange**


**(U.S.$
      per ADS)**




**Year**
            
            **High**
            
            **Low**
            
            **Close**2003
            
            
            10.78
            
            
            7.73
            
            
            10.452004
            
            
            14.19
            
            
            8.8
            
            
            14.192005
            
            
            23.02
            
            
            12.87
            
            
            19.502006
            
            
            29.00
            
            
            16.33
            
            
            29.002007
            
            
            35.11
            
            
            24.10
            
            
            31.81


50





**Mexican
      Stock Exchange**


**(Nominal
      pesos per Share)**





**Period**
            
            **High**
            
            **Low**
            
            **Close**First
                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
            
            
            23.66First
                Quarter 2007
            
            
            28.00
            
            
            20.00
            
            
            25.80Second
                Quarter 2007
            
            
            30.08
            
            
            25.89
            
            
            28.60Third
                Quarter 2007
            
            
            30.96
            
            
            24.00
            
            
            29.50Fourth
                Quarter 2007
            
            
            29.02
            
            
            23.00
            
            
            27.01





**New
      York Stock Exchange**


**(U.S.$
      per ADS)**





**Period**
            
            **High**
            
            **Low**
            
            **Close**First
                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
            
            
            29.00First
                Quarter 2007
            
            
            30.75
            
            
            24.10
            
            
            28.34Second
                Quarter 2007
            
            
            33.55
            
            
            28.51
            
            
            32.25Third
                Quarter 2007
            
            
            35.11
            
            
            27.14
            
            
            32.06Fourth
                Quarter 2007
            
            
            32.61
            
            
            26.04
            
            
            30.77





**Mexican
      Stock Exchange**


**(Nominal
      pesos per Share)**





**Month**
            
            **High**
            
            **Low**
            
            **Close**December
                2007
            
            
            29.02
            
            
            26.91
            
            
            28.60January
                2008
            
            
            30.15
            
            
            26.35
            
            
            28.50February
                2008
            
            
            28.50
            
            
            22.00
            
            
            26.00March
                2008
            
            
            26.33
            
            
            22.00
            
            
            25.12April
                2008
            
            
            25.56
            
            
            22.11
            
            
            25.05May
                2008
            
            
            25.36
            
            
            23.71
            
            
            25.36





**New
      York Stock Exchange**


**(U.S.$
      per ADS)**





**Period**
            
            **High**
            
            **Low**
            
            **Close**December
                2007
            
            
            32.61
            
            
            30.00
            
            
            31.81January
                2008
            
            
            33.34
            
            
            29.46
            
            
            30.90February
                2008
            
            
            29.53
            
            
            27.39
            
            
            29.30March
                2008
            
            
            29.99
            
            
            28.23
            
            
            29.12April
                2008
            
            
            29.25
            
            
            27.80
            
            
            29.03May
                2008
            
            
            29.48
            
            
            27.56
            
            
            29.00




**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.


51


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.




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.


52


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)
            Defines
                and assigns specific duties to the General Director or
                CEO.




d)
            Defines
                more precisely and widely 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. An English translation of our bylaws was submitted with
      our annual report for year 2006 and is incorporated by reference herein and
      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.




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.


53


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 consists of 12 underlying Shares,
      but
      they are all 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.”




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**




Series
      B
      Shares 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.


54


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
      Corporations 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.




**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 23, 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.


55


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 Corporations 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 Corporations 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.”




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 Corporation 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.


56


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.”




**Members
      of the Board**




Under
      the
      Mexican Corporations 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.


57


Besides
      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 or 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,
      2007, 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 Shares participate in
      any
      distribution to the extent that such Shares have been paid at the time of the
      distribution or, if not paid, only with respect to the proportion
      paid.




**Changes
      in Capital Stock**




An
      increase of capital stock may generally be affected through the issuance of
      new
      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
      Shares of capital stock have been fully paid. Generally, a reduction of capital
      stock may be effected to absorb losses, to redeem Shares, or to release
      stockholders from payments not made. A reduction of capital stock to redeem
      Shares is effected by reimbursing holders of Shares pro rata or by lot.
      Stockholders may also approve the redemption of fully paid Shares with retained
      earnings. Such redemption would be affected by a repurchase of Shares on the
      Mexican Stock Exchange (in the case of Shares listed thereon).




Except
      under limited circumstances, the bylaws ** require
      that any capital increase affected pursuant to a capital contribution be
      represented by new Series B Shares.


58


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 Shares
      and
      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.”




**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 holders. The Robinson
      Bours Stockholders have advised us that they intend to maintain a control
      position. Pursuant to our bylaws *,* foreigners may only own Shares up to 49%.




**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.


59


In
      no
      case may the capital of the Company be decreased to less than the minimum
      required by law and any decrease in the shareholders’ equity must be registered
      in the Equity 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 had been
      unable to acquire 100% 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.




*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.


60




*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 Corporations 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 corporation 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.




*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 of Directors. 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:




61


·
            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.




See
      the
      Article35 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.


62


**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 Goverment 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 holders. The
      Robinson Bours Stockholders have advised us that they intend to maintain a
      control position of his shares. Pursuant to our bylaws, foreigners may only
      own
      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.




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.




If
      a
      partnership holds Shares or ADSs, the tax treatment of a partner will generally
      depend upon the status of the partner and upon the activities of the
      partnership. A partner of a partnership considering the purchase of Shares
      or
      ADSs should consult its own independent tax advisor regarding the U.S. federal
      income tax consequences of investing in Shares or ADSs through a
      partnership.


63


Except
      where specifically described below, this discussion assumes that we are not
      a
      passive foreign investment company, or PFIC, for U.S. federal income tax
      purposes. See “—Passive Foreign Investment Company Rules.” 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 (and some
      changes may have retroactive effect) and different interpretations. Further,
      this discussion does not address U.S. federal estate and gift tax or the
      alternative minimum tax consequences of holding Shares or ADSs or the indirect
      consequences to holders or equity interests in partnerships (or any other entity
      treated as a partnership for U.S. federal income tax purposes) that own Shares
      or ADSs. In addition, this discussion does not address the non-U.S.,
      non-Mexican, state or local tax consequences of holding Shares or ADSs.
      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 material 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.


64


A
      U.S.
      Holder will be entitled, subject to a number of complex limitations and
      conditions, to claim a U.S. foreign tax credit in respect of any Mexican income
      taxes withheld on dividends received on Shares or ADSs. U.S. Holders who do
      not
      elect to claim a credit for any foreign income taxes paid during the taxable
      year may instead claim a deduction in respect of such Mexican income taxes.
      Dividends received with respect to Shares or ADSs will be treated as foreign
      source income, subject to various classifications and other limitations. For
      purposes of the U.S. foreign tax credit limitation, foreign source income is
      separated into different “baskets,” and the credit for foreign taxes on income
      in any basket is limited to the U.S. federal income tax allocable to such
      income. Dividends paid with respect to Shares or ADSs generally will constitute
      “passive category income” in most cases. The U.S. Treasury Department has
      expressed concerns that parties to whom depositary shares such as the ADSs
      are
      released may be taking actions that are inconsistent with the claiming of
      foreign tax credits by U.S. Holders of such ADSs. Accordingly, the analysis
      of
      the creditability of Mexican income taxes described above could be affected
      by
      future actions that may be taken by the U.S. Treasury Department. The rules
      relating to computing foreign tax credits or deducting foreign taxes are
      extremely complex, and U.S. Holders are urged to consult their own independent
      tax advisors regarding the availability of foreign tax credits with respect
      to
      any Mexican income taxes withheld.




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% if such dividends represent “qualified
      dividend income.” Dividends paid on the ADSs will be treated as qualified
      dividend income if (i) the ADSs are readily tradable on an established
      securities market in the United States and (ii) we were not in the year prior
      to
      the year in which the dividend was paid, and are not in the year in which the
      dividend is paid, a PFIC. Under current guidance recently issued by the Internal
      Revenue Service (“IRS”), the ADSs should qualify as readily tradable on an
      established securities market in the United States so long as they are listed
      on
      the New York Stock Exchange, but no assurances can be given that the ADSs will
      be or remain readily tradable under future guidance.




Based
      on
      existing guidance, it is not entirely clear whether dividends received with
      respect to Shares will be treated as qualified dividend income, because the
      Shares are not themselves listed on a U.S. exchange. In addition, 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.




65


**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.




**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, among other things, 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.




Based
      on
      current estimates of our income and assets, we do not believe that we were
      classified for our most recently-ended taxable year, or will be classified
      for
      our current taxable year, as 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).


66


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.




**U.S.
      Backup Withholding** **and Information Reporting**




In
      general, dividends on Shares or ADSs, and payments of the proceeds of a sale
      or
      other taxable disposition of Shares or ADSs, paid within the United States,
      by
      the U.S. payor or through certain U.S.-related financial intermediaries to
      a
      U.S. Holder are subject to information reporting and may be subject to backup
      withholding at a current rate of 28% unless the holder (i) establishes that
      it
      is a corporation or other exempt recipient or (ii) with respect to backup
      withholding, provides an accurate taxpayer identification number and certifies
      that it is a U.S. person and that no loss of exemption from backup withholding
      has occurred. Payments made within the United States, by a U.S. payor or through
      certain U.S.-related financial intermediaries to a Non-U.S. Holder will not
      be
      subject to backup withholding tax and information reporting requirements if
      an
      appropriate certification is provided by the holder to the payor or intermediary
      and the payor or intermediary does not have actual knowledge or a reason to
      know
      that the certificate is incorrect.




Backup
      withholding is not an additional tax. The amount of any backup withholding
      withheld from a payment to a U.S. Holder will be allowed as a credit against
      the
      U.S. Holder’s U.S. federal income tax liability, provided that the required
      information is timely furnished to the IRS. A U.S. Holder generally may obtain
      a
      refund of any amounts withheld under the backup withholding rules that exceed
      its U.S. federal income tax liability by filing a timely refund claim with
      the
      IRS.




**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.


67


**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 of. 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.




**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* .




68


**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 financial position 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 2007. We experienced
      foreign exchange losses of Ps.62.3 million in 2005, 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. We had a gain of Ps.40.8 million in 2006, due to the net position
      of our liabilities and assets. In 2007, we experienced a foreign exchange loss
      of Ps.3.4 million since the Mexican peso demonstrated low volatility during
      the
      year.




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.




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
      2006 and 2007, we have observed different strategies with respect to derivatives
      which involve call and put options in U.S. dollars.




At
      December 31, 2007, we maintained positions in several financial instrument
      derivatives. For details, please see Note 9 to our Consolidated Financial
      Statements.




Based
      on
      our position in December 2007 (please see Note 12 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.15.4 million and gains
      of
      Ps.78.6 million in our Foreign Exchange Results.




69


**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, 2007, we had borrowings
      of approximately Ps.109.6 million pursuant to variable rate debt instruments,
      representing approximately 0.6% of our total assets.




Based
      on
      our position on December 31, 2007, 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.0.5 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.




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 2002 we purchased approximately 30.1% of grain
      from local sources. The percentage of grain purchased from domestic markets
      was
      38.3%, 35.0%, 30.1%, and 31.3% in 2003, 2004, 2005 and 2006 respectively. In
      2007 we purchased approximately 36.4% of grain from local
      sources.




During
      2007, grain reached historically high prices worldwide, due principally to
      strong demand and alternative uses of grain such as ethanol production. Soybean
      meal prices also increased, particularly in the second half of the year, as
      a
      result of strong demand coupled with lower supply than expected worldwide.
      This
      situation also extended into 2008.




Based
      on
      results for 2007, we estimate that a hypothetical variation of 10% in the cost
      of our feed ingredients would have an  impact
      of 6.2%
      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.


70


**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, 2007. 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.




***Management’s
      Report on Internal Control over Financial Reporting***




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. Effective control over financial reporting
      cannot, and does not, provide absolute assurance of achieving our control
      objectives. Also, 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, 2007. 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, 2007, the
      Company’s internal control over financial reporting is effective based on those
      criteria.




The
      effectiveness of the Company’s internal control over financial reporting as of
      December 31, 2007, has been audited by Mancera, S.C., a member of Ernst &
Young Global, an independent registered public accounting firm, as stated in
      their report which appears herein.




***Changes
      in Internal Controls***




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.




***Attestation
      Report of the Registered Public Accounting Firm***




Report
      of
      Independent Registered Accounting Firm on Internal Control Over Financial
      Reporting




The
      Board
      of Directors and stockholders’ of Industrias Bachoco, S.A.B. de
      C.V.




We
      have
      audited Industrias Bachoco, S.A.B. de C.V.’s internal control over financial
      reporting as of December 31, 2007, based on criteria established in Internal
      Control—Integrated Framework issued by the Committee of Sponsoring Organizations
      of the Treadway Commission (the COSO criteria). Industrias Bachoco, S.A.B.
      de
      C.V.’s management is responsible for maintaining effective internal control over
      financial reporting, and for its assessment of the effectiveness of internal
      control over financial reporting included in the accompanying Management’s
      Annual Report on Internal Control over Financial Reporting. Our responsibility
      is to express an opinion on the company’s internal control over financial
      reporting based on our audit.


71


We
      conducted our audit 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
      effective internal control over financial reporting was maintained in all
      material respects. Our audit included obtaining an understanding of internal
      control over financial reporting, assessing the risk that a material weakness
      exists, testing and evaluating the design and operating effectiveness of
      internal control based on the assessed risk, and performing such other
      procedures as we considered necessary in the circumstances. We believe that
      our
      audit provides a reasonable basis for our opinion.




A
      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 Mexican Financial Reporting Standards, including the reconciliation to
      U.S
      generally accepted accounting principles, in accordance with Item 18 of Form
      20-F. A company’s internal control over financial reporting includes those
      policies and procedures that (1) pertain to the maintenance of records that,
      in
      reasonable detail, accurately and fairly reflect the transactions and
      dispositions of the assets of the company; (2) provide reasonable assurance
      that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with Mexican Financial Reporting Standards, including
      the reconciliation to U.S. generally accepted accounting principles in
      accordance with Item 18 of Form 20-F, and that receipts and expenditures of
      the
      company are being made only in accordance with authorizations of management
      and
      directors of the company; and (3) provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use, or disposition
      of the company’s assets that could have a material effect on the financial
      statements.




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.




In
      our
      opinion, Industrias Bachoco, S.A.B. de C.V. maintained, in all material
      respects, effective internal control over financial reporting as of December
      31,
      2007, based on the COSO criteria.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States of America), the consolidated balance sheets
      of
      Industrias Bachoco, S.A.B. de C.V. and subsidiaries, as of December 31, 2007
      and
      2006, and the related consolidated statements of income, changes in
      stockholders’ equity, and changes in financial position for each of the three
      years in the period ended December 31, 2007 of Industrias Bachoco, S.A.B. de
      C.V. and our report dated June 26, 2008 expressed an unqualified opinion
      thereon.




Mancera
                S.C.A
                Member Practice ofErnst
                & Young GlobalC.P.C.
                José Sánchez González




72




**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 its 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 in nominal pesos by our
      independent auditors, Mancera, S.C., independent registered public accountanting
      firm, during the fiscal years ended December 31, 2006 and 2007:




**Year ended December 31,****2006**
            
            **2007**Audit
                fees
            
            Ps.
            2,724,350
            
            Ps.
            4,456,250Audit-related
                fees
            
            
            —
            
            
            —Tax
                fees
            
            
            872,006
            
            
            953,465All
                other fees
            
            
            —
            
            
            —Total
                fees
            
            Ps.
            3,596,356
            
            Ps.
            5,409,715




Audit
      fees in the above table are the aggregate fees billed by Mancera, S.C., 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 Mancera, S.C. for services related to
      tax
      refund claims.




**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.




73




**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.




**ITEM
                19.**
            **Exhibits******




74





**Index
      of 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. de C.V. dated June 29, 2007 (incorporated
                by
                reference to Exhibit 1.1 on Form 20-F filed with the U.S. Securities
                and
                Exchange Commission on June 29, 2007 (File No.
                333-07950)).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. 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.


75


**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 FerrerChief
                Financial Officer




Date:
      June 30, 2008







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


**AND
      SUBSIDIARIES**





**Consolidated
      Financial Statements**





As
      of


December
      31, 2006 and 2007


With
      Report of Independent Registered Public Accounting Firm


F-1


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


**AND
      SUBSIDIARIES**





**Consolidated
      Financial Statements**





As
      of
      December 31, 2005, 2006 and 2007





**Content**


Report
                  of Independent Registered Public Accounting Firm
              F-3Consolidated
                  Financial Statements:Balance
                  Sheets
              F-4Statements
                  of Income
              F-5Statements
                  of Changes in Stockholders’ Equity
              F-6Statements
                  of Changes in Financial Position
              F-7Notes
                  to the Financial Statements
              F-8


F-2
  **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, 2006 and 2007, 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,
        2007. 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). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as 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 2006 and 2007, and the
        consolidated results of their operations and their cash flows for each of
        the
        three years in the period ended December 31, 2007, in conformity with Mexican
        Financial Reporting Standards which differ in certain respects from U.S.
        generally accepted principles (see Note 19).
 
 We
        also
        have audited, in accordance with the standards of the Public Company Accounting
        Oversight Board (United States), Industrias Bachoco, S.A.B. de C.V.'s internal
        control over financial reporting as of December 31, 2007, based on criteria
        established in Internal Control-Integrated Framework issued by the Committee
        of
        Sponsoring Organizations of the Treadway Commission and our report dated
        June 27
        2008 expressed an unqualified opinion thereon.
 
 Mancera,
                  S.C.
                A
                  Member Practice of
                Ernst
                  & Young Global
                
                Francisco
                  José Sánchez González
 
 Mexico
        City, Mexico
 June
        27,
        2008
  F-3
  **INDUSTRIAS
        BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES**
 
 **Consolidated
        balance sheets**
 
 (Thousands
        of constant Mexican pesos as of December 31, 2007)
 **December
                  31,****(Thousands
                  of U.S. dollars )****(Note
                  2)****2006**
              
              **2007**
              
              **2007****ASSETS****Current
                  assets**Cash
                  and cash equivalents
              
              Ps
              3,583,891
              
              **Ps**
              **3,039,876**
              
              **$**
              **278,453**Accounts
                  receivable:Trade,
                  net
              
              
              539,874
              
              
              **765,502**
              
              
              **70,120**Value
                  added and other recoverable taxes
              
              
              330,490
              
              
              **440,945**
              
              
              **40,391**Total
                  accounts receivable
              
              
              870,364
              
              
              **1,206,447**
              
              
              **110,511**Inventories,
                  net –Note 5
              
              
              2,224,095
              
              
              **3,329,340**
              
              
              **304,968**Biological
                  current assets –Note 5
              
              
              91,905
              
              
              **108,502**
              
              
              **9,939**Derivative
                  financial instruments– Note 9
              
              
              -
              
              
              **123,503**
              
              
              **11,313**Prepaid
                  expenses and other current assets
              
              
              98,119
              
              
              **129,582**
              
              
              **11,870****Total
                  current assets**
              
              
              6,868,374
              
              
              **7,937,250**
              
              
              **727,054**Property,
                  plant and equipment, net –Note 6
              
              
              9,835,895
              
              
              **10,256,239**
              
              
              **939,474**Biological
                  non-current assets –Note 5
              
              
              515,118
              
              
              **575,413**
              
              
              **52,708**Intangible
                  assets from labor obligations–Note 13
              
              
              22,232
              
              
              **28,341**
              
              
              **2,596**Goodwill,
                  net –Note 7
              
              
              300,848
              
              
              **300,848**
              
              
              **27,558**Other
                  assets
              
              
              16,772
              
              
              **18,333**
              
              
              **1,679****TOTAL
                  ASSETS**
              
              Ps
              17,559,239
              
              **Ps**
              **19,116,424,**
              
              **$**
              **1,751,069****LIABILITIES
                  AND STOCKHOLDERS’ EQUITY****Current
                  liabilities:**Notes
                  payable to banks –Note 8
              
              Ps
              -
              
              **Ps**
              **40,000**
              
              **$**
              **3,664**Current
                  portion of long-term debt –Note 8
              
              
              9,708
              
              
              **18,844**
              
              
              **1,726**Accounts
                  payable
              
              
              837,445
              
              
              **1,138,011**
              
              
              **104,242**Related
                  parties –Note 4
              
              
              12,650
              
              
              **26,819**
              
              
              **2,457**Income
                  tax
              
              
              45,390
              
              
              **-**
              
              
              **-**Other
                  taxes payable and other accruals –Note 11
              
              
              243,573
              
              
              **243,429**
              
              
              **22,298**Derivative
                  financial instruments– Note 9
              
              
              10,818
              
              
              **-**
              
              
              **-****Total
                  current liabilities**
              
              
              1,159,584
              
              
              **1,467,103**
              
              
              **134,387****Long-term
                  liabilities:**Long-term
                  debt –Note 8
              
              
              35,494
              
              
              **50,757**
              
              
              **4,649**Deferred
                  income tax –Note 15
              
              
              2,182,034
              
              
              **2,375,025**
              
              
              **217,553**Labor
                  obligations –Note 13
              
              
              79,173
              
              
              **96,373**
              
              
              **8,828****TOTAL
                  LIABILITIES**
              
              
              3,456,285
              
              
              **3,989,258**
              
              
              **365,417****COMITMENTS
                  AND CONTINGENCIES**–**Note
                  10****STOCKHOLDERS’
                  EQUITY**–**Note 14**Majority
                  stockholders’ equity:Capital
                  stock
              
              
              2,294,927
              
              
              **2,294,927**
              
              
              **210,216**Paid-in
                  capital
              
              
              743,674
              
              
              **743,674**
              
              
              **68,121**Reserve
                  for repurchase company stock
              
              
              159,455
              
              
              **159,455**
              
              
              **14,606**Retained
                  earnings
              
              
              13,707,747
              
              
              **14,250,225**
              
              
              **1,305,324**Net
                  majority income of the year
              
              
              906,186
              
              
              **1,270,941**
              
              
              **116,418**Minimum
                  seniority premium liability adjustment –Note 13
              
              
              (916
              )
              
              **(2,512**
              **)**
              ****
              **(230**
              **)**Deficit
                  from restatement of stockholders’ equity
              
              
              (3,753,915
              )
              
              **(3,735,254**
              **)**
              ****
              **(342,150**
              **)**Derivative
                  financial instruments–Note 9
              
              
              370
              
              
              **98,922**
              
              
              **9,061**Total
                  majority stockholders' equity
              
              
              14,057,528
              
              
              **15,080,378**
              
              
              **1,381,366**Minority
                  interest
              
              
              45,426
              
              
              **46,788**
              
              
              **4,286****Total
                  stockholders' equity**
              
              
              14,102,954
              
              
              **15,127,166**
              
              
              **1,385,652****TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              Ps
              17,559,239
              
              **Ps**
              **19,116,424**
              
              **$**
              **1,751,069**
 
 See
        accompanying notes.
  F-4
  **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, 2007)
 
 **Years
                  ended December 31,****(Thousands of**
                **U.S.
                  dollars)****(Note
                  2)****2005**
              
              **2006**
              
              **2007**
              
              **2007**Net
                  revenues
              
              Ps
              15,618,192
              
              Ps
              15,550,965
              
              **Ps**
              **18,219,647**
              
              **$**
              **1,668,924**Cost
                  of sales
              
              
              (11,234,562
              )
              
              (12,052,986
              )
              
              **(****14,477,861**
              **)**
              
              **(****1,326,176**
              **)**Gross
                  profit
              
              
              4,383,630
              
              
              3,497,979
              
              
              **3,741,786**
              
              
              **342,748**Selling,
                  general and administrative expenses
              
              
              (2,005,544
              )
              
              (2,071,553
              )
              
              **(****2,245,522**
              **)**
              
              **(****205,690**
              **)**Operating
                  income
              
              
              2,378,086
              
              
              1,426,426
              
              
              **1,496,264**
              
              
              **137,058**Comprehensive
                  financing income (cost):Interest
                  income
              
              
              316,514
              
              
              302,910
              
              
              **318,879**
              
              
              **29,209**Interest
                  expense and financing costs
              
              
              (209,504
              )
              
              (131,852
              )
              
              **(****141,578**
              **)**
              
              **(****12,969**
              **)**Net
                  interest income
              
              
              107,010
              
              
              171,058
              
              
              **177,301**
              
              
              **16,240**Foreign
                  exchange (loss) gain, net
              
              
              (62,259
              )
              
              40,782
              
              
              **(****3,351**
              **)**
              
              **(****307**
              **)**Loss
                  on net monetary position
              
              
              (118,724
              )
              
              (150,438
              )
              
              **(****154,814**
              **)**
              
              **(****14,181**
              **)**(73,973
              )
              
              61,402
              
              
              **19,136**
              
              
              **1,752**Other
                  ordinary (expense) income, net –Note 16
              
              
              (25,961
              )
              
              18,427
              
              
              **69,571**
              
              
              **6,374**Income
                  before income tax, asset tax, and minority interest
              
              
              2,278,152
              
              
              1,506,255
              
              
              **1,584,971**
              
              
              **145,184**Income
                  tax and asset tax –Note 15
              
              
              (367,833
              )
              
              (599,126
              )
              
              **(****312,745**
              **)**
              
              **(****28,648**
              **)****NET
                  INCOME**
              
              Ps
              1,910,319
              
              Ps
              907,129
              
              Ps
              **1,272,226**
              
              **$**
              **116,536**Majority
                  net income
              
              
              1,908,535
              
              
              906,186
              
              
              **1,270,941**
              
              
              **116,418**Minority
                  net income
              
              
              1,784
              
              
              943
              
              
              **1,285**
              
              
              **118****NET
                  INCOME**
              
              Ps
              1,910,319
              
              Ps
              907,129
              
              **Ps**
              **1,272,226**
              
              **$**
              **116,536**Weighted
                  average shares outstanding(in
                  thousands)
              
              
              599,694
              
              
              599,571
              
              
              **600,000**
              
              
              **600,000****NET
                  MAJORITY INCOME PER SHARE**
              
              Ps
              3.18
              
              Ps
              1.51
              
              **Ps**
              **2.12**
              
              **$**
              **0.19**
 
 See
        accompanying notes.
  F-5
 
 **INDUSTRIAS
        BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES**
 
 **Consolidated
        statements of changes in stockholders’ equity**
 
 **Years
        ended December 31, 2005, 2006 and 2007**
 
 (Thousands
        of constant Mexican pesos as of
 December
        31, 2007)
 **Number
                    of shares of capital**
                  **stock**
                  **(thousands)**
                
                **Capital**
                  **stock**
                
                **Paid-in
                    capital**
                
                **Reserve
                    for**
                  **repurchase
                    of company stock**
                
                **Retained**
                  **earnings**
                
                **Net**
                  **income
                    of**
                  **the**
                  **year**
                
                **Labor
                    obligations**
                  **minimum
                    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, 2004
                
                
                599,200
                
                Ps
                2,294,711
                
                Ps
                723,116
                
                Ps
                170,917
                
                Ps
                11,656,919
                
                Ps
                784,087
                
                Ps
                (1,129
                )
                Ps
                (
                    3,541,472
                )
                Ps
                -
                
                Ps
                12,087,149
                
                Ps
                45,879
                
                Ps
                12,133,028Transfer
                    of prior year ́s net income based on stockholders ́meeting held in April,
                    2005.
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                784,087
                
                
                (784,087
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Repurchase
                    of stock
                
                
                (920
                )
                
                (251
                )
                
                -
                
                
                (11,462
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (11,713
                )
                
                -
                
                
                (11,713
                )Sales
                    of repurchased stock
                
                
                800
                
                
                222
                
                
                2,954
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                3,176
                
                
                -
                
                
                3,176Cash
                    dividends paid
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (263,719
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (263,719
                )
                
                -
                
                
                (263,719
                )Comprehensive
                    income, net of tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,908,535
                
                
                (2,207
                )
                
                (172,155
                )
                
                (92,374
                )
                
                1,641,799
                
                
                487
                
                
                1,642,286Balance
                    at December 31, 2005
                
                
                599,080
                
                
                2,294,682
                
                
                726,070
                
                
                159,455
                
                
                12,177,287
                
                
                1,908,535
                
                
                (3,336
                )
                
                (3,713,627
                )
                
                (92,374
                )
                
                13,456,692
                
                
                46,366
                
                
                13,503,058Transfer
                    of prior year ́s net income based on stockholders ́meeting held in April,
                    2006.
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                1,908,535
                
                
                (1,908,535
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Sales
                    of repurchased stock
                
                
                920
                
                
                245
                
                
                17,604
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                17,849
                
                
                -
                
                
                17,849Cash
                    dividends paid
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (378,075
                )
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                (378,075
                )
                
                -
                
                
                (378,075
                )Comprehensive
                    income, net of tax
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                906,186
                
                
                2,420
                
                
                (40,288
                )
                
                92,744
                
                
                961,062
                
                
                (940
                )
                
                960,122Balance
                    at December 31, 2006
                
                
                600,000
                
                
                2,294,927
                
                
                743,674
                
                
                159,455
                
                
                13,707,747
                
                
                906,186
                
                
                (916
                )
                
                (3,753,915
                )
                
                370
                
                
                14,057,528
                
                
                45,426
                
                
                14,102,954Transfer
                    of prior year ́s net income based on stockholders ́meeting held in April,
                    2007.
                
                
                -
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **906,186**
                
                
                **(****906,186**
                **)**
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**Cash
                    dividends paid
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **(****363,708**
                **)**
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **(****363,708**
                **)**
                
                **-**
                
                
                **(****363,708**
                **)**Comprehensive
                    income, net of tax
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **-**
                
                
                **1,270,941**
                
                
                **(****1,596**
                **)**
                
                **18,661**
                
                
                **98,552**
                
                
                **1,386,558**
                
                
                **1,362**
                
                
                **1,387,920****Balance
                    at December 31, 2007 (Note 14)**
                ****
                ****
                **600,000**
                ****
                **Ps**
                **2,294,927**
                ****
                **Ps**
                **743,674**
                ****
                **Ps**
                **159,455159,455**
                ****
                **Ps**
                **14,250,225**
                ****
                **Ps**
                **1,270,941**
                ****
                **Ps**
                **(
                    2,512**
                **)**
                **Ps**
                **(3,735,254**
                **)**
                **Ps**
                **98,922**
                ****
                ******Ps**
                **15,080,378**
                ****
                **Ps**
                **46,788**
                ****
                **Ps**
                **15,127,166**
 
 See
        accompanying notes.
  F-6
  **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, 2007)
 
 **Years
                  ended December 31,****(Thousands
                  of U.S. dollars) (Note 2)****2005**
              
              **2006**
              
              **2007**
              
              **2007****Operating
                  activities**Net
                  income
              
              Ps
              1,910,319
              
              Ps
              907,129
              
              **Ps**
              **1,272,226**
              
              **$**
              **116,536**Adjustments
                  to reconcile net income to resources provided by operating
                  activities:Depreciation
              
              
              497,819
              
              
              537,383
              
              
              **571,393**
              
              
              **52,340**Deferred
                  income tax
              
              
              1,068
              
              
              346,110
              
              
              **169,716**
              
              
              **15,547**Labor
                  obligations, net period cost
              
              
              40,505
              
              
              37,464
              
              
              **42,112**
              
              
              **3,857**2,449,711
              
              
              1,828,086
              
              
              **2,055,447**
              
              
              **188,280**Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (190,464
              )
              
              (51,435
              )
              
              **(****336,083**
              **)**
              
              **(****30,785**
              **)**Inventories
                  and biological assets
              
              
              (352,768
              )
              
              (535,933
              )
              
              **(****1,140,124**
              **)**
              
              **(****104,437**
              **)**Prepaid
                  expenses and other current assets
              
              
              (34,523
              )
              
              (11,081
              )
              
              **(****31,463**
              **)**
              
              **(****2,882**
              **)**Accounts
                  payable
              
              
              (25,527
              )
              
              364,813
              
              
              **300,566**
              
              
              **27,531**Related
                  parties
              
              
              (168
              )
              
              6,002
              
              
              **14,169**
              
              
              **1,298**Taxes
                  payable and other accruals
              
              
              137,953
              
              
              (73,193
              )
              
              **(****45,534**
              **)**
              
              **(****4,170**
              **)**Labor
                  obligations,plan
                  contributions
              
              
              (26,149
              )
              
              (27,576
              )
              
              **(****32,617**
              **)**
              
              **(****2,988**
              **)**Derivative
                  financial instruments
              
              
              -
              
              
              (6,407
              )
              
              **(****35,769**
              **)**
              
              **(****3,276**
              **)****Resources
                  provided by operating activities**
              
              
              1,958,065
              
              
              1,493,276
              
              
              **748,592**
              
              
              **68,571****Financing
                  activities**Proceeds
                  from issuance of long-term debt
              
              
              185
              
              
              -
              
              
              **40,000**
              
              
              **3,664**Proceeds
                  from issuance of notes payable to banks
              
              
              176,405
              
              
              -
              
              
              **40,000**
              
              
              **3,664**Repayment
                  of long-term debt and notes payable
              
              
              (206,375
              )
              
              (104,836
              )
              
              **(****13,963**
              **)**
              
              **(****1,279**
              **)**Constant
                  pesos effect on notes payable to banks andlong
                  term-debt
              
              
              (6,194
              )
              
              (6,081
              )
              
              **(****1,638**
              **)**
              
              **(****150**
              **)**Cash
                  dividends paid
              
              
              (263,719
              )
              
              (378,075
              )
              
              **(****363,708**
              **)**
              
              **(****33,316**
              **)**Sales
                  (repurchases) of Company’s own stock, net
              
              
              (8,537
              )
              
              17,849
              
              
              **-**
              
              
              **-****Resources
                  used in financing activities**
              
              
              (308,235
              )
              
              (471,143
              )
              
              **(****299,309**
              **)**
              
              **(****27,417**
              **)****Investing
                  activities**Acquisition
                  of property, plant and equipment, net
              
              
              (835,529
              )
              
              (856,227
              )
              
              **(****991,737**
              **)**
              
              **(****90,843**
              **)**Other
                  assets
              
              
              (2,709
              )
              
              (2,060
              )
              
              **(****1,561**
              **)**
              
              **(****143**
              **)****Resources
                  used in investing activities**
              
              
              (838,238
              )
              
              (858,287
              )
              
              **(****993,298**
              **)**
              
              **(****90,986**
              **)**Net
                  increase (decrease) in cash and cash equivalents
              
              
              811,592
              
              
              163,846
              
              
              **(****544,015**
              **)**
              
              **(****49,832**
              **)**Cash
                  and cash equivalents at beginning of year
              
              
              2,608,453
              
              
              3,420,045
              
              
              **3,583,891**
              
              
              **328,285**Cash
                  and cash equivalents at end of year
              
              Ps
              3,420,045
              
              Ps
              3,583,891
              
              **Ps**
              **3,039,876**
              
              **$**
              **278,453**
 
 See
        accompanying notes.
  F-7
  **INDUSTRIAS
        BACHOCO, S.A.B. DE C.V.**
 **AND
        SUBSIDIARIES**
 
 **Notes
        to the consolidated financial statements**
 
 **Years
        ended December 31, 2005, 2006 and 2007**
 
 (Thousands
        of constant Mexican pesos as of
 December
        31, 2007, 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
        18, 2008, the accompanying financial statements and related notes were
        authorized by the Company’s Finance Director, Daniel Salazar Ferrer, for the
        Audit Committee and Board of Directors ́approval and issuance.
 
 **2.
        Accounting Policies and Practices**
 
 The
        Company’s consolidated financial statements are prepared in accordance with
        Mexican Financial Reporting Standards (Mexican FRS). The significant accounting
        policies and practices observed by the Company in the preparation of the
        financial statements are described below:
 
 **a)
        Consolidation**
 
 The
        consolidated financial statements include the accounts of the Company and
        all of
        its majority-owned subsidiaries.
 
 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
        results of operations of the subsidiaries and affiliates were included in
        the
        Company’s consolidated financial statements as of the month following the
        acquisition.
  F-8
  The
        accompanying consolidated financial statements include the following
        consolidated subsidiaries as of December 31, 2005, 2006 and 2007:
  **Percentage
                  equity interest**2005
              
              2006
              
              **2007**%
              
              %
              
              **%**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”) (Consolidated)
              
              
              100
              
              
              100
              
              
              **100**Bachoco,
                  Comercial, S.A. de C.V
              
              
              -
              
              
              -
              
              
              **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
              
              
              **100**
 
 The
        main
        subsidiaries of the group are as follows:
 
 -
        Bachoco, S.A. de C.V. (“BSACV”) (Consolidated)
 This
        company is engaged in breeding, processing and marketing of poultry (chicken
        and
        eggs).
 
 -
        Campi
        Alimentos, S.A. de C.V.
 -
        Acuícola Bachoco S.A. de C.V.
 These
        companies are engaged in producing and marketing of balanced animal
        feed.
 
 -
        Aviser,
        S.A. de C.V.
 -
        Operadora de Servicios de Personal, S.A. de C.V.
 -
        Secba,
        S.A. de C.V.
 -
        Sepetec, S.A. de C.V.
 -
        Servicios de Personal Administrativo, S.A. de C.V.
 These
        companies are engaged in providing administrative and operative services
        to
        their related parties.
 
 On
        December, 2006 and July, 2007, the subsidiaries Induba Pavos, S.A. de C.V.
        and
        Bachoco Comercial, S.A. de C.V. were incorporated. Both entities have 100%
        ownership from its holding company, Industrias Bachoco, S.A.B. These entities
        are engaged to import and trading of turkey.
 
 **b)
        Revenue recognition**
 
 In
        conformity with International Financial Reporting Standard (IFRS) No. 18
        “Revenues”.
 
 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.
  F-9
  **c)
        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,
        2007. The restatement factor applied to the financial statements for the
        years
        ended December 31, 2005 and 2006 was 1.0796 and 1.0376, respectively, which
        corresponds to the annual rate of inflation from December 31, 2005 and December
        31, 2006, respectively, through December 31, 2007, 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 *Accounting
        Recognition of the Effects of Inflation on Financial
        Information* (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.
 
 **d)
        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.
 
 **e)
        Estimates in financial statements**
 
 The
        preparation of financial statements in conformity with MexFRS 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.
  F-10
  **f)
        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.
 
 **g)
        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.
 
 **h)
        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 MexFRS E-1, “ *Agriculture”* ,
        which
        establishes the rules for recognizing, valuing, presenting and disclosing
        biological assets and agricultural products.
 
 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 impairment loss.
 
 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.
  F-11
  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 based on their availability
        and the business operating cycle.
 
 **i)
        Property, plant and equipment**
 
 Property,
        plant and equipment are carried at cost and then restated based on adjustment
        factors derived from the NCPI.
 
 As
        of
        January 1, 2007, as a result of the adoption of MexFRS D-6 *“Capitalization
        of the Comprehensive Cost of Financing”* ,
        the
        Company started the capitalization of the comprehensive financing cost incurred
        during the construction or installation of property, plant and equipment
        in
        process, which is subsequently restated by applying factors based on the
        NCPI.
        The amount of comprehensive financing cost to be capitalized is determined
        by
        applying the weighted average interest rate of financing to the weighted
        average
        of the investments in qualifying assets made during the qualifying period.
        In
        the case of foreign currency denominated financing, comprehensive financing
        cost
        includes the related exchange gains or losses.
 
 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
        6).
 
 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
        recoverable 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 recoverable
        amount.
 
 For
        the
        years ended December 31, 2006 and 2007, there were no indications of impairment
        in the Company’s fixed assets.
 
 **j)
        Leases**
 
 Leased
        property, plant and equipment arrangements are recognized as capital leases
        if
        a) the ownership of the leased asset is transferred to the lessee upon
        termination of the lease; b) the agreement includes an option to purchase
        the
        asset at a reduced price; c) the term of the lease is basically the same
        as the
        remaining useful life of the leased asset; or d) the present value of minimum
        lease payments is basically the same as the market value of the leased asset,
        net of any benefit or scrap value.
 
 When
        the
        risks and benefits inherent to the ownership of the leased good remain mostly
        with the lessor, they are classified as operating leases and accrued rent
        is
        charged to income.
  F-12
  **k)
        Goodwill**
 
 Goodwill
        represents the difference between the purchase price and the fair value of
        the
        net assets acquired at the purchase date.
 
 Goodwill
        is recorded initially at acquisition cost and then restated using adjustment
        factors derived from the NCPI. Goodwill is subject to annual impairment testing.
 
 At
        December 31, 2006 and 2007, the Company recognized no loss from impairment
        in
        the value of goodwill shown in the consolidated balance sheet.
 
 **l)
        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) it is more likely than
        not
        that the liability will 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.
 
 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.
 
 **m)
        Pension plan, seniority premiums and severance benefits**
 
 The
        Mexican Institute of Public Accountants (IMCP) issued the revised MexFRS
        D-3,
        Labor Obligations, which came into force on January 1, 2005. The revised
        bulletin establishes additional new 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.
  F-13
  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 assumptions
        including effect of inflation.
 
 **n)
        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. Exchange rate differences determined from such date are
        charged or credited to income of the year.
 
 See
        Note
        12 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.
 
 **o)
        Comprehensive income**
 
 Comprehensive
        income consists of the net income or loss for the year, plus the result from
        holding non-monetary assets, the tax effect of the items which are recorded
        directly in stockholders’ equity, the effective portion of the unrealized gain
        or loss on cash flow hedges, the minimum liability adjustment for labor
        obligations and the minimum effect of minority interest as required by MexFRS
        B-4, Comprehensive Income.
 
 **p)
        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.
  In
        the
        normal course of business, the Company is exposed to foreign currency exchange
        risks and the price of corn and sorgum. The Company mitigates these risks
        through a program that includes the use of derivative financial
        instruments.
 
 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
        are major financial institutions.
 
 The
        derivatives are recognized in conformity with the rules established in MexFRS
        C-10 and Statement of Financial Accounting Standard (SFAS) 133, “Accounting for
        Derivative Instruments and Hedging Activities”, and its related interpretations
        (US GAAP). When the company does not meet the requirements for hedge accounting,
        the fair value of the financial instruments are recorded directly in the
        income
        statement. ,
 
 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.
  F-14
  The
        options in more of the 90% of the cases 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.
 
 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 be
        considered perfectly effective and, consequently, there will be no recognition
        of ineffectiveness in income, provided the certain criteria are met such
        as:
 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).
 
 In
        2006,
        the Company followed G20, 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, rather than being
        reclassified to results of operations they are cancelled upon their maturity,
        as
        they are considered perfectly effective in accordance with G20. As of December
        31, 2007, the Company did not follow G20 because it did not have such
        instruments.
 
 For
        derivatives other than zero cost collar (the Company did not have such
        instruments at December 31, 2007) 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.
 
 Effective
        in 2007, the Company entered into hedge transactions through ASERCA (Support
        and
        Services related to Agricultural Trading, which is a governmental entity
        related
        to the National Ministry of Agriculture and Farming), in order to monitor
        the
        availability of grains, like corn, sorgum and wheat. The Company has bought
        from
        a counterparty a combined instrument comprised of a future of a grain price
        and
        a put option. The future instruments will guarantee a future price of the
        grain.
        Otherwise, the put option has a strike price related to the future price
        agreement and both are based on the price of Chicago Board of Trade at a
        specific date. Additionally, the Company receives a 50% subsidy of the premium
        related to the put option from ASERCA.
  F-15
  As
        a
        result of this combined instrument Bachoco will obtain the best market price
        for
        the grain; therefore if the market price goes below of the future price
        contracted by Bachoco the strike price of the option will be paid and ASERCA
        will refund the difference between the strike price and the market price.
 
 In
        2007,
        the premium paid on behalf of the Company by ASERCA amounts USD 2,944 thousands.
        The Company can not predict whether these subsidies will be available in
        the
        future.
 
 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 2006
        and
        2007. 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 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.
 
 **q)
        Deferred taxes**
 
 The
        Company records deferred taxes on temporary differences between in the balance
        sheet accounts for financial and tax reporting purposes, using the enacted
        income tax rate at the balance sheet date, 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 recognized only on temporary differences considered
        non-recurring with a known turnaround time.
 
 Asset
        tax
        is recorded as part of deferred taxes, after making the appropriate evaluation
        of its recovery.
 
 As
        a
        result of the adoption of interpretation to MexIFRS8, *Effects
        of the Flat-Rate Business Tax,* as
        of
        October 2007, the Company has taken into account the provision related to
        the
        effects of deferred FRBT established in the interpretation (see Note
        15).
  F-16
  **r)
        Concentration of risk**
 
 The
        Company invests a portion of its surplus cash in cash deposits in financial
        institutions with good 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 diverse, thus
        spreading the credit risk.
 
 **s)
        Income statement presentation**
 
 Costs
        and
        expenses in the Company’s income statement are presented based on their
        function, since such classification allows for an accurate evaluation of
        both
        operating income and gross profit margins.
 
 Although
        MexFRS B-3 *Statement
        of income* ,
        does
        not require the presentation of operating income, this caption is shown in
        the
        income statement, since operating income is an important indicator used to
        evaluate the Company’s performance. Operating income consists of ordinary
        revenues and operating costs and expenses and thus excludes other ordinary
        income (expenses).
 
 This
        presentation is comparable to the one used in the financial statements for
        the
        year ended December 31, 2006.
 
 **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 MexFRS
        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 segment is disclosed in Note 17.
 
 **v)
        Convenience translation**
 
 United
        States dollar amounts as of December 31, 2007, 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 10.917 to one U.S.
        dollar, which was the exchange rate at December 31, 2007. 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 “Foreign Currency Translation”* ).
  F-17
  **w)**  **Reclassifications**
 
 Certain
        captions shown in the 2005 and 2006 financial statements as originally issued
        have been reclassified for uniformity of presentation with the 2007 financial
        statements.
 
 The
        changes in these reclassifications were recognized retrospectively in the
        statement of income at December 31, 2005 and 2006, in conformity with MexFRS
        B-1, *Accounting
        Changes and Error Corrections* .
        As of
        December 2005 and 2006, the employee profit sharing is charged to the statement
        of income, under the caption other income (expenses). The effects of the
        reclassifications are as follows:
 
 Other
        ordinary (expenses) income net
  2005
              
              2006Original
                  amount
              
              Ps
              (22,504
              )
              Ps
              22,789Reclassified
              
              
              (25,961
              )
              
              18,427
 
 **x)
        New accounting pronouncements**
 
 The
        most
        important new pronouncements that came into force in 2007 are as
        follows:
 
 **MexFRS
        B-3,** ***Statement
        of Operations***
 MexFRS
        B-3 establishes the guidelines for classifying income, costs and expenses
        as
        either ordinary or non-ordinary and modifies certain MexFRS. The primary
        sections of the statement of income have been redefined to embody the concepts
        of “ordinary items” and the classification of income. Also, the caption Initial
        accumulated effect of accounting changes has been eliminated from the income
        statement, as established in MexFRS B-1, *Accounting
        Changes and Error Corrections* .
 
 MexFRS
        B-3 also allows entities to present costs and expenses in the statement of
        operations, based on their function or nature or a combination of both. MexFRS
        B-3 does not require the presentation of operating income in the statement
        of
        operations, but still allows for it when operating income is deemed to be
        an
        important indicator for evaluating a particular entity’s performance. When an
        entity does decide to include the operating income caption, MexFRS B-3 requires
        the disclosure of the items comprising such caption and a justification for
        its
        inclusion in the statement of income.
 
 **MexFRS
        C-13,** ***Related
        Parties***
 This
        MexFRS broadens the definition of related parties to include the immediate
        family members of key management personnel or directors and funds derived
        from
        labor obligation plans, as well. MexFRS C-13 also requires the following
        disclosures:
 1)
        the
        relationship between the controlling company and its subsidiaries, irrespective
        of whether transactions were actually carried out between them in the period;
        2)
        the name of the direct controlling company and, when different from such,
        the
        name of the principal controlling company of the economic group to which
        the
        entity belongs; 3)
        compensations granted to the entity’s key management personnel or directors (in
        the case of public companies). Lastly, this standard allows entities to disclose
        that the pricing of its transactions carried out with its related parties
        are
        similar to prices that would be established for similar transactions between
        third parties, provided that such parity may be demonstrated.
 
 **MexFRS
        D-6,** ***Capitalization
        of the Comprehensive Cost of Financing***
 MexFRS
        D-6 establishes that entities must capitalize comprehensive financing cost
        (CFC), which had been optional under the previous MexFRS C-6, *Property,
        Plant and Equipment* ;
        this
        rule eliminated the choice to capitalize or not the comprehensive cost of
        financing.
  F-18
  Capitalizable
        CFC is defined as the amount attributable to qualifying assets that could
        have
        been avoided if such acquisition had not taken place, and includes in the
        case
        of Mexican peso denominated financing, interest and the net monetary position,
        and in the case of foreign currency denominated financing, it also includes
        exchange gains and exchange losses. Qualifying assets are defined as those
        assets acquired by an entity requiring a prolonged acquisition or construction
        period for their use, as well as assets that are to be sold or leased that
        require a prolonged period to be acquired or readied for sale or
        lease . The
        capitalization of the comprehensive cost of financing starts and continues
        provided the investments in the acquisition are actually being made, the
        activities required for conditioning the asset for sale or use are underway
        and
        interest is being accrued.
 
 MexFRS
        D-6 establishes that the amount of capitalizable CFC will be determined based
        on
        the loans that were specifically use to acquire the qualifying assets, or
        if
        such identification can not be made, by applying the weighted average
        capitalization rate for financing to the weighted average of investments
        in
        qualifying assets made during the acquisition period. Financing with imputed
        interest cost may be capitalized against the cost of acquired assets, since
        the
        financing is recognized at its present value.
 
 The
        adoption of MexFRS D-6 did not materially affect the comprehensive financing
        income as of December 31, 2007.
 
 **MexFRS
        4,** ***Presentation
        of Employee Profit Sharing in the Statement of
        Operations***
 The
        Interpretation to MexFRS 4 establishes, based on the result of the analysis
        of
        MexFRS B-3, MexFRS D-3 and MexFRS D-4, that employee profit sharing must
        be
        presented in the statements of income as an ordinary expense, then effective
        2007, employee profit-sharing is classified and disclosed in “other ordinary
        expenses” into the income statement (prior years was disclosed as a single
        caption before net income). For comparative purposes this MexFRS is disclosed
        retroactively for 2005 and 2006. (See Note 16).
 
 **MexFRS
        8,** ***Effects
        of the Flat-Rate Business Tax (FRBT)***
 In
        December 2007, the CINIF issued the Interpretation to MexFRS 8, which is
        effective for years beginning on or after October 1, 2007. Such standard
        was
        created as a result of the need to clarify whether the flat-rate business
        tax
        should be treated as a tax on profits and to establish the guidelines for
        its
        accounting treatment.
 
 MexFRS
        8
        establishes that the FRBT is a tax on profit and that for the year ended
        December 31, 2007, its effects should be recognized in conformity with the
        provisions of MexFRS D-4, *Accounting
        for Income Tax, Asset Tax and Employee Profit Sharing* ,
        and as
        of January 1, 2008, in conformity with MexFRS D-4, *Taxes
        on Profits* .
        Based
        on the conclusions of this Interpretation, an entity must first determine
        whether its tax base generates FRBT payable or income tax payable. To do
        so,
        taxpayers should carry out financial projections to determine if their
        tax-on-profits base will be for income tax or FRBT. Based on the results
        of
        these projections, taxpayers will be able to plan in advance for either FRBT
        or
        income tax as it arises each year.
 
 Entities
        that have determined that they will essentially pay FRBT must recognize the
        effects of deferred FRBT in their financial statements at December 31, 2007.
        This deferred tax must correspond to the temporary differences and FRBT credits
        existing in 2007 for which payment or recovery of FRBT is expected as of
        or
        after 2008. Therefore, those entities that have determined that they will
        essentially pay FRBT in the future must eliminate the deferred income tax
        asset
        or liability recognized at such date. These adjustments give rise to an expense
        or income that must be recognized in the 2007 statement of operations as
        part of
        the caption Taxes on profits or in stockholders’ equity when it relates to other
        comprehensive items.
  F-19
  In
        the
        determination of deferred FRBT asset or liability, taxpayers must consider
        that
        certain FRBT credits generate a deferred tax asset, provided that the law
        establishes the possibility of applying such credits against the FRBT of
        future
        periods. These credits must be reviewed at least once a year and written
        down
        for those portions for which there is uncertainty as to
        recoverability.
 
 The
        deferred tax rate is the rate enacted and established in the tax provisions
        at
        the date of the financial statements or the rate that is expected to be in
        force
        at the time the deferred FRBT assets and liabilities will be realized (16.5%
        for
        2008, 17% for 2009 and 17.5% for 2010 and subsequent years).
 
 Deferred
        FRBT for the period must be recognized as a deferred tax expense or income
        in
        the income statement of the period as part of the tax on profits caption
        (in
        stockholders’ equity for those amounts associated with comprehensive income
        items) and as a non-current asset or long-term liability in the balance sheet.
        In the notes to the financial statements, the Company must disclose an analysis
        of the taxes on profits presented in the income statement, listing the amounts
        of payable and deferred FRBT. The entity must also mention the deferred FRBT
        related to other comprehensive items.
 
 Under
        the
        FRBT Law, an entity must determine the amount of asset tax generated through
        2007 that it will be able to recover as of 2008. Such amount must be recognized
        in the 2007 financial statements as a recoverable tax account and any amount
        of
        asset tax considered unrecoverable must be cancelled from the 2007 balance
        sheet
        and recognized as an expense in the statement of operations of the same period
        as part of the Taxes on profit caption. As of 2008, the balance of recoverable
        taxes must be reviewed on each financial statement closing date and written
        down
        when there is evidence that some amounts may not be recoverable after
        all.
 
 The
        effects of adopting this new accounting pronouncement are described in Note
        15.
 
 **3.
        Accounts receivable**
 
 Accounts
        receivable at December 31, 2006 and 2007, are shown net of an allowance for
        bad
        debts for $ 31,852 and $ 36,154, respectively.
 
 **4.
        Related Parties**
 
 The
        companies mentioned above are considered affiliates, as the Company’s
        stockholders are also stockholders in such companies.
 
 a)
        A
        summary of related party accounts payable as of December 31, is as
        follows:
 
 **Relation**
              
              2006
              
              **2007**Vimifos,
                  S.A. de C.V.
              
              
              Affiliate
              
              Ps
              9,234
              
              **Ps**
              **21,311**Maquinaria
                  Agrícola, S.A. de C.V.
              
              
              Affiliate
              
              
              3,042
              
              
              **3,382**Autos
                  y Accesorios, S.A. de C.V.
              
              
              Affiliate
              
              
              318
              
              
              **438**Llantas
                  y Accesorios, S.A. de C.V.
              
              
              Affiliate
              
              
              56
              
              
              **1,168**Ps
              12,650
              
              **Ps**
              **26,819**
 
 At
        December 31, 2006 and 2007, balances due to related parties correspond to
        unsecured current accounts that bear no interest and are payable within 30
        days.
  F-20


b)
      For
      the years ended December 31, 2005, 2006 and 2007, the Company had the following
      transactions with related parties:





2005
            
            2006
            
            **2007**Purchases
                of feed, raw materials and packing suppliesVimifos,
                S.A. de C.V.
            
            Ps
            194,053
            
            Ps
            251,931
            
            **Ps**
            **192,188**Qualiplast,
                S.A. de C.V.
            
            
            -
            
            
            -
            
            
            **634**Purchases
                of vehicles, tires and spare partsMaquinaria
                Agrícola, S.A. de C.V.
            
            
            16,229
            
            
            17,585
            
            
            **47,155**Llantas
                y accesorios, S.A. de C.V.
            
            
            11,341
            
            
            12,289
            
            
            **23,349**Autos
                y Accesorios, S.A. de C.V.
            
            
            30,994
            
            
            33,585
            
            
            **14,985**Alfonso
                R. Bours, S.A. de C.V.
            
            
            -
            
            
            -
            
            
            **2,171**Distribuidora
                Automotriz los Mochis, S.A. de C.V.
            
            
            -
            
            
            -
            
            
            **8,095**Airplane
                leasing expensesTaxis
                Aéreos del Noroeste, S.A, de C.V.
            
            
            4,687
            
            
            4,196
            
            
            **3,153**





Sales
      and
      purchases transactions with related parties are made at markets prices, which
      are similar to other independent parties.





c)
      For
      the year ended December 31, 2007, the Company paid approximately Ps.33.4 million
      in aggregate compensation to our directors and executive officers, for services
      they rendered in their respective capacities. The Company has not implemented
      a
      share options plan for executives or employees.





**5.
      Inventories and biological assets**





a)
      Inventories consist of the following:




2006
            
            **2007**Raw
                materials and byproducts
            
            Ps
            1,087,148
            
            **Ps**
            **2,004,691**Medicine,
                materials and spare parts
            
            
            356,397
            
            
            **369,337**Finished
                feed
            
            
            42,694
            
            
            **56,608**1,486,239
            
            
            **2,430,636**Agricultural
                products:Live
                chicken
            
            
            565,879
            
            
            **667,022**Processed
                chicken
            
            
            147,361
            
            
            **177,719**Commercial
                egg
            
            
            24,616
            
            
            **22,551**Turkey
            
            
            -
            
            
            **28,339**Beef
            
            
            -
            
            
            **2,708**Others
            
            
            -
            
            
            **365**737,856
            
            
            **898,704**Total
            
            Ps
            2,224,095
            
            **Ps**
            **3,329,340**




F-21




b)
      Biological assets at December 31, 2006 and 2007 consist of the
      following:





2006
            
            **2007**Current
                biological assets:Breeder
                pigs
            
            Ps
            24,775
            
            **Ps**
            **32,464**Incubatable
                eggs for fattening
            
            
            67,130
            
            
            **76,038**Total
                current biological assets
            
            
            91,905
            
            
            **108,502**Non-current
                biological assets:Laying
                and breeder hens
            
            
            173,927
            
            
            **202,214**Incubatable
                eggs for laying hens
            
            
            7,714
            
            
            **-**Pigs
            
            
            25,231
            
            
            **27,280**Laying
                hens
            
            
            521,044
            
            
            **577,043**Allowance
                for productivity declines
            
            
            (212,798
            )
            
            **(****231,124**
            **)**Total
                non-current biological assets
            
            
            515,118
            
            
            **575,413**Total
                inventories and biological assets
            
            Ps
            2,831,118
            
            **Ps**
            **4,013,255**





The
      change in the historical value of biological assets and agricultural products
      to
      be presented at their fair value was Ps. 28,072 in 2005 (increase), Ps. 10,879
      in 2006 (increase) and Ps. 10,882 in 2007 (increase). In 2005, 2006 and 2007,
      the effects were included as part of the caption Net revenue.





**6.
      Property, Plant and Equipment**





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





**Useful
                lives**
              **(years)**
            
            2006
            
            **2007**Land
            
            
            -
            
            Ps
            811,584
            
            **Ps**
            **856,486**Buildings,
                farm structures and equipment
            
            
            7-27
            
            
            13,270,667
            
            
            **13,987,063**Office,
                furniture and equipment
            
            
            3
            
            
            218,498
            
            
            **227,183**Transportation
                equipment
            
            
            6
            
            
            1,159,922
            
            
            **1,162,747**15,460,671
            
            
            **16,233,479**Accumulated
                depreciation
            
            
            
            
            
            (6,264,119
            )
            
            **(6,702,709**
            **)**Net
            
            
            
            
            
            9,196,552
            
            
            **9,530,770**Construction
                in progress
            
            
            
            
            
            639,343
            
            
            **725,469**Total
            
            
            
            
            Ps
            9,835,895
            
            **Ps**
            **10,256,239**





b)
      Depreciation expense for the years ended December 31, 2005, 2006 and 2007,
      was Ps
      497,819, Ps 537,383, and Ps 571,393, respectively.





**7.
      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. 367,135. At December 31, 2005 and 2006, accumulated
      amortization aggregates Ps. 66,287. As mentioned in Note 2 k), in 2006 and
      2007,
      goodwill was not amortized derived from the adoption of bulletin B-7, *Business
      Acquisitions.*


F-22


**8.
      Notes Payable to Banks and Long-term Debt**





a)
      Short-term notes payable to banks, as of December 31, consists of the
      following:




2006
            
            **2007**Unsecured
                notes payable to banks:Denominated
                in Mexican pesos, interest rate: TIIE(1) FIRA(2) rate less 3.00
                points
            
            
            -
            
            
            **40,000**Total
                notes payable to bank
            
            Ps
            -
            
            **Ps**
            **40,000**





The
      weighted average interest rate on short-term notes payable at December 31,
      2006
      and 2007 was 5.32%, and 4.93%, respectively. Average interest rates on
      short-term debt for the years ended December 31, 2006 and 2007 were 5.25% and
      4.68%, respectively.





b)
      Long-term notes payable to banks, as of December 31, consists of the
      following:





2006
            
            **2007**Long-term
                debt to banks:Secured
                by equipment:Denominated
                in Mexican pesos, repayable in monthly installments:Through
                December, 2010, at CETES(3) rate plus 2 points
            
            Ps
            41,089
            
            **Ps**
            **30,400**Unsecured:Denominated
                in Mexican pesos, at TIIE(1) FIRA(2) rate less 3.30 points, with
                minimum
                rate of 2.90%, through December, 2010
            
            
            4,113
            
            
            **39,201**Total
            
            
            45,202
            
            
            **69,601**Less
                current portion
            
            
            (9,708
            )
            
            **(****18,844**
            **)**Total
                long-term debt
            
            Ps
            35,494
            
            **Ps**
            **50,757**





(1)
      TIIE
      = Interbank Equilibrium Rate


(2)
      FIRA
      = *Fideicomisos
      Instituidos en Relación con la Agricultura*


(3)
      CETE
      = Certificados de la Tesorería





Weighted
      average interest rates on long-term debt at December 31, 2006 and 2007 were
      8.58% and 7.80%, respectively. The weighted average interest rate on the
      Company’s total long term debt for the years ened as of December 31, 2006 and
      2007 was 9.26%, and 7.92%, respectively.





The
      weighted average interest rate of the Company’s total debt at December 31, 2006
      and 2007 was 6.67% and 6.75%, respectively.





c)
      At
      December 31, 2006 and 2007, unused lines of credit totaled Ps 835,918 and Ps
      956,050, respectively. In 2006 and 2007, the Company did not pay any fee for
      unused lines of credit.





d)
      The
      book value of assets collateralizing long-term debt was Ps 145,438 at December
      31, 2006 and Ps 137,857 at December 31, 2007.





e)
      Maturities of long-term debt as of December 31, 2007 are as
      follows:





**Year**
            
            **Amount**2009
            
            Ps
            19,7682010
            
            
            19,7692011
            
            
            7,4802012
            
            
            3,740Ps
            50,757


F-23


**9.
      Financial Instruments**





The
      Company has entered into contracts with Merrill Lynch, JP Morgan and Fimat
      USA,
      LLC, to hedge U.S. dollar exchange rates and corn and sorgum for the Company’s
      projected cash expenditures for the period from January through December
      2008.





A
      summary
      of instruments as of December 31, 2006 and 2007 is as follows:


2006
              
              
              
              
              
              
              
              
              
              Other
              
              IneffectiveDerivatives
                  financial
                Instruments
              
              
              Type
              
              
              Posi-tion
              
              
              Notional
                Amount
              
              
              Fair
                  value
              
              comprehensive
                income
              
              portion
                (income)Financial
                  Instruments – HedgingExchange
                  rate options
              
              
              Call
              
              
              Short
              
              Ps
              161,719
              
              Ps
              (24,351
              )
              Ps
              (4,121
              )Exchange
                  rate options
              
              
              Call
              
              
              Long
              
              
              220,169
              
              
              21,365
              
              
              4,698Exchange
                  rate options
              
              
              Put
              
              
              Short
              
              
              80,309
              
              
              (47,394
              )
              
              (119
              )(50,380
              )
              
              458Financial
                  InstrumentsExchange
                  rate options
              
              
              Put
              
              
              Long
              
              
              160,785
              
              
              30,552
              
              
              -
              
              Ps
              30,552Bean
                  and soy futures
              
              
              
              
              
              Long
              
              
              3,181
              
              
              2,143
              
              
              -
              
              
              2,143Corn
                  futures
              
              
              
              
              
              Long
              
              
              9,846
              
              
              3,809
              
              
              -
              
              
              3,809Bean
                  and soy options
              
              
              Call
              
              
              Long
              
              
              622
              
              
              236
              
              
              -
              
              
              236Bean
                  and soy options
              
              
              Put
              
              
              Short
              
              
              1,167
              
              
              (216
              )
              
              -
              
              
              (216
              )Corn
                  options
              
              
              Call
              
              
              Long
              
              
              2,967
              
              
              3,305
              
              
              -
              
              
              3,305Corn
                  options
              
              
              Put
              
              
              Short
              
              
              8,290
              
              
              (267
              )
              
              -
              
              
              (267
              )39,562
              
              
              -
              
              Ps
              39,562Total
              
              
              
              
              
              
              
              
              
              
              
              (10,818
              )
              
              458Deferred
                  tax effect
              
              
              
              
              
              
              
              
              
              
              
              2,055
              
              
              (88
              )Total
                net of taxes
              
              
              
              
              
              
              
              
              
              
              Ps
              (8,763
              )
              Ps
              370




**2007**
              
              
              
              
              
              
              
              
              
              Other
              
              IneffectiveDerivatives
                  financial
                Instruments
              
              Type
              
              Posi-
                  tion
              
              Notional
                Amount
              
              Fair
                  value
              
              comprehensive
                income
              
              portion
                (income)Financial
                  Instruments – HedgingBean
                  and soy futures
              
              
              
              
              
              Short
              
              Ps
              2,469
              
              Ps
              (3,442
              )
              Ps
              (3,442
              )Bean
                  and soy futures
              
              
              
              
              
              Long
              
              
              2,379
              
              
              4,424
              
              
              4,424Corn
                  futures
              
              
              
              
              
              Short
              
              
              167
              
              
              (420
              )
              
              (420
              )Corn
                  futures
              
              
              
              
              
              Long
              
              
              553
              
              
              1,424
              
              
              1,424Bean
                  and soy options
              
              
              Call
              
              
              Long
              
              
              1,890
              
              
              1,947
              
              
              1,947Bean
                  and soy options
              
              
              Put
              
              
              Long
              
              
              3,480
              
              
              (255
              )
              
              (255
              )Corn
                  options
              
              
              Call
              
              
              Long
              
              
              2,870
              
              
              3,815
              
              
              3,815Corn
                  options
              
              
              Put
              
              
              Short
              
              
              5,380
              
              
              (226
              )
              
              (226
              )Corn
                  options Acerca
              
              
              Put
              
              
              Long
              
              
              48,438
              
              
              99,310
              
              
              99,310Embedded
                  corn futures
              
              
              
              
              
              Long
              
              
              16,356
              
              
              15,549
              
              
              15,549122,126
              
              
              122,126Financial
                  InstrumentsExchange
                  rate options
              
              
              Call
              
              
              Long
              
              
              49,500
              
              
              9,424
              
              
              -
              
              Ps
              9,424Exchange
                  rate options
              
              
              Put
              
              
              Long
              
              
              7,500
              
              
              429
              
              
              -
              
              
              429Exchange
                  rate options
              
              
              Call
              
              
              Short
              
              
              8,500
              
              
              (15,632
              )
              
              -
              
              
              (15,632
              )Exchange
                  rate options
              
              
              Put
              
              
              Short
              
              
              85,000
              
              
              (3,871
              )
              
              -
              
              
              (3,871
              )Exchange
                  rate forward
              
              
              Call
              
              
              Long
              
              
              147,500
              
              
              21,246
              
              
              -
              
              
              21,246Exchange
                  rate forward
              
              
              Put
              
              
              Short
              
              
              120,000
              
              
              (10,219
              )
              
              -
              
              
              (10,219
              )1,377
              
              
              -
              
              Ps
              1,377Total
              
              
              
              
              
              
              
              
              
              
              
              123,503
              
              
              122,126Deferred
                  tax effect
              
              
              
              
              
              
              
              
              
              
              
              (23,466
              )
              
              (23,204
              )Total
                  net of taxes
              
              
              
              
              
              
              
              
              
              
              Ps
              100,037
              
              Ps
              98,922




F-24





As
      a part
      of the exchange rate strategy, there are certain financial derivatives to reduce
      the exchange rate risk in purchase transactions. There are contract agreements
      for call and put options for short-term hedge which cover assets of U.S. 367
      thousand for 2006 and U.S.277 thousand for 2007, as well as liabilities of
      U.S.
      233 thousand and U.S. 225 thousand for 2006 and 2007, respectively. These
      contracts resulted in a charge to the income statement by Ps 70,495 for 2006
      and
      a credit by Ps 8,097 for 2007 included in the comprehensive cost of
      financing.





**10.
      Commitments**





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**2005
            
            Ps
            33,1602006
            
            
            30,7622007
            
            
            40,733





b)
      Future
      minimum annual rental payments under existing operating leases with initial
      terms in excess of one year as of December 31, 2007, are as
      follows:





**Year
                ended**
              **December
                31,**
            
            **Amount**2008
            
            Ps
            69,9892009
            
            
            62,6582010
            
            
            56,6712011
            
            
            55,1412012
            
            
            54,4472013
                and thereafter
            
            
            12,006Total
            
            Ps
            310,912





c)
      In
      2005, 2006, and 2007 annual rental expense under operating leases was Ps.
      139,597, Ps 124,028, and Ps 153,165, respectively.





**11.
      Other taxes payable and other accruals**





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





2006
            
            **2007**Expenses
                payable
            
            Ps
            123,122
            
            **Ps**
            **91,981**IMSS,
                SAR and INFONAVIT
            
            
            49,491
            
            
            **56,476**Other
                accounts payable
            
            
            21,907
            
            
            **39,005**Trade
                advances
            
            
            32,914
            
            
            **38,204**Employee
                profit sharing
            
            
            5,254
            
            
            **5,756**Salaries
                payable
            
            
            5,707
            
            
            **4,514**Tax
                payable
            
            
            3,235
            
            
            **4,128**Payroll
                tax
            
            
            971
            
            
            **2,637**Interest
                payable
            
            
            972
            
            
            **728**Total
            
            Ps
            243,573
            
            **Ps**
            **243,429**




F-25





**12.
      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 is as follows:





**(Thousands
                U.S. dollars)**2006
            
            **2007****Assets:**Cash
                and cash equivalents
            
            $
            23,776
            
            **$**
            **34,862**Advances
                to suppliers (included in inventories andproperty,
                plant and equipment)
            
            
            39,001
            
            
            **37,116**62,777
            
            
            **71,978****Liabilities:**Accounts
                payable
            
            
            (15,984
            )
            
            **(****14,148**
            **)****Net
                long position**
            
            $
            46,793
            
            **$**
            **57,830**





b)
      As of
      December 31, 2006 and 2007, the exchange rate was Ps 10.82 and Ps 10.91 per
      dollar, respectively. At March 17, 2008, the date of the audit report on these
      financial statements, the exchange rate was $ 10.76 per U.S.
      dollar.





c)
      Assets
      from foreign origin included in the consolidated balance sheets as of December
      31, 2006 and 2007, were:





**(Thousands
                of U.S. dollars)**2006
            
            **2007**Inventories
            
            $
            20,654
            
            **$**
            **29,899**Property,
                plant and equipment
            
            
            140,093
            
            
            **141,695**





d)
      Imported raw materials, in thousands of U.S. dollars, were $ 416,974 in 2005, $
      483,278
      in 2006 and $ 655,922 in 2007.





**13.
      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**2005
            
            2006
            
            **2007**
            
            2005
            
            2006
            
            **2007**
            
            2005
            
            2006
            
            **2007**Net
                period cost:Labor
                cost
            
            Ps
            10,798
            
            Ps
            11,791
            
            **Ps**
            **15,429**
            
            Ps
            3,296
            
            Ps
            3,781
            
            **Ps**
            **4,361**
            
            Ps
            9,143
            
            Ps
            9,475
            
            **Ps**
            **9,191**Return
                on plan assets
            
            
            (7,369
            )
            
            (8,395
            )
            
            **(****10,090**
            **)**
            
            -
            
            
            -
            
            
            **-**
            
            
            -
            
            
            -
            
            
            **-**Amortization
                of unrecognized prior past service costs
            
            
            2,698
            
            
            2,429
            
            
            **2,239**
            
            
            3,439
            
            
            3,757
            
            
            **1,215**
            
            
            4,583
            
            
            1,530
            
            
            **4,250**Interest
                cost
            
            
            7,906
            
            
            7,864
            
            
            **8,890**
            
            
            2,090
            
            
            2,298
            
            
            **2,348**
            
            
            1,877
            
            
            1,993
            
            
            **1,765**Net
                period cost
            
            Ps
            14,033
            
            Ps
            13,689
            
            **Ps**
            **16,468**
            
            Ps
            8,825
            
            Ps
            9,836
            
            **Ps**
            **7,924**
            
            Ps
            15,603
            
            Ps
            12,998
            
            **Ps**
            **15,206**Loss
                from early extinguishment of obligations
            
            Ps
            -
            
            Ps
            -
            
            **Ps**
            **-**
            
            Ps
            -
            
            Ps
            -
            
            **Ps**
            **-**
            
            Ps
            2,044
            
            Ps
            941
            
            **Ps**
            **2,514**




F-26





**Pension
                plan**
            
            **Seniority
                Premium**
            
            **Severance**2006
            
            **2007**
            
            2006
            
            **2007**
            
            2006
            
            **2007****Labor
                Obligations:**Accumulated
                benefit obligation
            
            Ps
            160,280
            
            **Ps**
            **186,865**
            
            Ps
            33,063
            
            **Ps**
            **36,306**
            
            Ps
            31,936
            
            **Ps**
            **38,567**Current
                benefit obligation
            
            
            99,220
            
            
            **124,592**
            
            
            28,202
            
            
            **30,821**
            
            
            31,036
            
            
            **38,567**Projected
                benefit obligation
            
            
            189,355
            
            
            **199,333**
            
            
            49,098
            
            
            **56,601**
            
            
            36,053
            
            
            **42,895**Plan
                assets
            
            
            (160,421
            )
            
            **(****182,017**
            **)**
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**Unrecognized
                prior service cost
            
            
            (22,971
            )
            
            **(****20,959**
            **)**
            
            (6,930
            )
            
            **(****6,283**
            **)**
            
            -
            
            
            **-**Transition
                liability
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            (27,913
            )
            
            **(****23,198**
            **)**Unrecognized
                net gains
            
            
            36,756
            
            
            **48,415**
            
            
            (15,784
            )
            
            **(****21,490**
            **)**
            
            7,223
            
            
            **(****455**
            **)**Unrecognized
                changes or improvements
            
            
            (28,545
            )
            
            **(****27,322**
            **)**
            
            104
            
            
            **-**
            
            
            -
            
            
            **-**Net
                projected benefit obligation
            
            
            14,174
            
            
            **17,450**
            
            
            26,488
            
            
            **28,828**
            
            
            15,363
            
            
            **19,242**Unfunded
                accumulated benefit obligation
            
            
            4,624
            
            
            **15,960**
            
            
            33,063
            
            
            **36,307**
            
            
            31,936
            
            
            **38,567**Current
                net liability over net projected liability in some
                subsidiaries
            
            
            -
            
            
            **4,049**
            
            
            6,575
            
            
            **7,479**
            
            
            16,573
            
            
            **19,325**Additional
                liability
            
            
            -
            
            
            **(4,049**
            **)**
            
            (6,575
            )
            
            **(****7,479**
            **)**
            
            (16,573
            )
            
            **(****19,325**
            **)**Intangible
                assets
            
            
            -
            
            
            **4,049**
            
            
            5,659
            
            
            **5,967**
            
            
            16,573
            
            
            **18,325**Minimum
                labor obligation liability adjustment
            
            Ps
            -
            
            **Ps**
            **-**
            
            Ps
            916
            
            **Ps**
            **1,512**
            
            Ps
            -
            
            **Ps**
            **1,000****Change
                in benefit obligation:**Benefit
                obligation at beginning of year
            
            Ps
            152,360
            
            **Ps**
            **189,355**
            
            Ps
            46,546
            
            **Ps**
            **49,097**
            
            Ps
            42,671
            
            **Ps**
            **36,053**Service
                cost
            
            
            11,791
            
            
            **15,429**
            
            
            3,781
            
            
            **4,361**
            
            
            9,475
            
            
            **9,191**Interest
                cost
            
            
            7,864
            
            
            **8,890**
            
            
            2,298
            
            
            **2,348**
            
            
            1,992
            
            
            **1,765**Actuarial
                differences
            
            
            8,518
            
            
            **(****12,587**
            **)**
            
            2,339
            
            
            **6,379**
            
            
            (
                6,077
            )
            
            **9,726**Benefits
                paid
            
            
            (1,554
            )
            
            **(****1,754**
            **)**
            
            (5,867
            )
            
            **(****5,584**
            **)**
            
            (8,803
            )
            
            **(****13,840**
            **)**Changes
                      to plan not applied
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            (3,205
            )
            
            **-**Increase
                for plan improvement
            
            
            10,376
            
            
            **-**
            
            
            -
            
            
            **-**
            
            
            -
            
            
            **-**Projected
                benefit obligation at end of year
            
            Ps
            189,355
            
            **Ps**
            **199,333**
            
            Ps
            49,097
            
            **Ps**
            **56,601**
            
            Ps
            36,053
            
            **Ps**
            **42,895**





**Pension
                plan**2006
            
            **2007****Changes
                in plan assets:**Plan
                assets at beginning of the year
            
            Ps
            130,742
            
            **Ps**
            **160,421**Actual
                return on plan assets
            
            
            8,395
            
            
            **10,090**Employer
                contribution
            
            
            14,039
            
            
            **13,193**Actuarial
                differences
            
            
            8,799
            
            
            **67**Benefit
                paid
            
            
            (1,554
            )
            
            **(1,754**
            **)**Fair
                value of plan assets at end of year
            
            
            160,421
            
            
            **182,017**Funded
                status
            
            
            (28,934
            )
            
            **(****17,316**
            **)**Unrecognized
                net actuarial loss (gain)
            
            
            (36,758
            )
            
            **(****48,415**
            **)**Unrecognized
                prior service cost (benefit)
            
            
            22,971
            
            
            **20,959**Net
                amount recognized
            
            Ps
            (42,721
            )
            **Ps**
            **(****44,772**
            **)**





The
      Company used December 2005, 2006 and 2007 measurement date for pension plan,
      seniority premium, and December 31, 2006 and 2007 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).


F-27





The
      asset
      allocation for the Company’s pension plan at the end of 2005, 2006 and 2007 and
      the target allocation for 2008 by asset category are as follows:




**Percentage
                of plan at year end**
            
            **Target**
              **allocation**2005
            
            2006
            
            **2007**
            
            **2008**Fixed-income
                securities
            
            
            75
            %
            
            74
            %
            
            77
            %
            
            75
            %Fixed-variable
                income securities
            
            
            25
            %
            
            26
            %
            
            23
            %
            
            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 in 2004, 2005 and 2006 are as
      follows:




2005
            
            2006
            
            **2007**Labor
                obligations discount
            
            
            5.25
            %
            
            5.25
            %
            
            **5.25**
            **%**Future
                salary increases
            
            
            1.00
            %
            
            1.00
            %
            
            **1.00**
            **%**Return
                on assets
            
            
            6.25
            %
            
            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**
            
            **Severance**Expected
                benefit payment:2008
            
            **Ps**
            **6,972**
            
            **Ps**
            **6,395**
            
            **Ps**
            **8,215**2009
            
            
            **8,222**
            
            
            **6,857**
            
            
            **7,431**2010
            
            
            **9,482**
            
            
            **7,145**
            
            
            **7,002**2011
            
            
            **10,859**
            
            
            **7,282**
            
            
            **6,651**2012
            
            
            **11,957**
            
            
            **7,369**
            
            
            **6,303**2013-2017
            
            
            **76,959**
            
            
            **37,704**
            
            
            **27,856**Total
            
            **Ps**
            **124,451**
            
            **Ps**
            **72,752**
            
            **Ps**
            **63,458**





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





**14.
      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 .





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 issued and outstanding shares have voting
      rights.





b)
      In
      2005, 2006 and 2007, the Company declared and paid cash dividends at nominal
      values of Ps 239,098, Ps 353,880 and Ps 353,880, respectively (Ps 263,719,
      Ps
      378,025 and Ps 363,708, in constant Mexican pesos) or Ps 0.40, Ps 0.59 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, 2006 and 2007, included in retained earnings, was Ps
      205,735.


F-28


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 303,861 expressed in constant Mexican pesos) through the
      appropriation of retained earnings in 1998. During 2005 the Company repurchased
      920 thousand shares for Ps 11,462. During 2006 and 2007, no shares were
      repurchased. In 2005, and 2006, the Company sold 800 thousand and 920 thousand
      of shares, respectively, previously repurchased; the sales value of latter
      was
      for Ps 2,954 and


Ps
      17,604, respectively. In 2007 no shares were sold.





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 2005 through 2007, pretax income of BSACV,
      represented between 90% and 94% 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.





**15.
      Income Tax, Asset Tax, and Flat-Rate Business Tax**





a)
      Income
      tax





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 2005, and 2006. In 2007 it was 19%.





The
      income tax reforms passed in December 2004 include the elimination, as from
      beginning in the 2006 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. 336,376 to income,
      reflected in deferred taxes under “change in tax rates”.


F-29





b)
      Asset
      tax





As
      of
      January 1, 2007, asset tax rate is payable at the 1.25% rate and liabilities
      are
      no longer deductible from the asset tax base.  Through
      December 31, 2007, the 1.8% asset tax was payable on the average value of most
      assets net of certain liabilities. The asset tax in 2005, 2006 and 2007 amounted
      to Ps 21,418, Ps 28,267 and Ps 27,189, respectively. In each of the three years
      the Company credited against these amounts the income tax paid.





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, 2007, the Company had Ps 6,420 in asset tax credits.





**Base
                year**
            
            **Asset
                tax paid**
            
            **Year
                of expiration****2004**
            
            **Ps**
            **10**
            
            
            **2014****2005**
            
            
            **3,258**
            
            
            **2015****2006**
            
            
            **3,152**
            
            
            **2016****Ps**
            **6,420**





During
      2007, a new tax reform was enacted and it abolished the asset tax effective
      in
      2008.





c)
      Flat-Rate Business Tax (FRBT)





The
      Flat-Rate Business Tax (FRBT) Law was published in the Official Gazette on
      October 1, 2007. This Law will come into force as of January 1, 2008 and abolish
      the Asset Tax Law.





Current-year
      FRBT is computed by applying the 17.5% (16.5% for 2008 and 17% for 2009) rate
      to
      income determined on the basis of cash flows, as defined, net of authorized
      credits.





FRBT
      credits derive mainly from the unamortized negative FRBT base and salary credits
      and social security contributions, as well as credits derived from the deduction
      of certain investments, such as inventories and fixed assets, during the
      transition period starting on the date on which the FRBT came into
      force.





FRBT
      shall be payable only to the extent it exceeds income tax for the same period.
      In other words, to determine FRBT payable, income tax paid in a given period
      shall first be subtracted from the current FRBT of the same period and the
      difference shall be the FRBT payable.





Should
      a
      negative FRBT base be determined because deductions exceed taxable income,
      there
      will be no FRBT payable. The amount of the negative base multiplied by the
      FRBT
      rate results in a FRBT credit, which may be applied against income tax for
      the
      same year or, if applicable, against FRBT payable in the next ten years.





Based
      on
      tax result projections, the Company considers that it will be subject to the
      payment of income tax in the following years.


F-30





d)
      Income
      tax charged to results





For
      the
      years ended December 31, 2005, 2006 and 2007, income tax charged (credited)
      to
      results of operations was as follows:





2005
            
            2006
            
            **2007**Current
                year income tax
            
            Ps
            363,587
            
            Ps
            250,519
            
            **Ps**
            **143,029**Current
                year asset tax
            
            
            3,178
            
            
            2,497
            
            
            **-**Deferred
                income tax
            
            
            1,068
            
            
            346,110
            
            
            **169,716**Total
                income tax
            
            Ps
            367,833
            
            Ps
            599,126
            
            **Ps**
            **312,745**





e)
      Deferred income tax





On
      the
      basis of the financial projections for the next four years based on future
      computations and retrospectively, based on historical results, the Company
      considers that it will pay income tax, therefore, the new FRBT will not have
      effect on the Company’s financial information.





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




2006
            
            **2007**Assets:Accounts
                payable
            
            Ps
            (151,984
            )
            **Ps**
            **(****196,460**
            **)**Labor
                obligations
            
            
            (3,032
            )
            
            **(****8,082**
            **)**Tax
                loss carryforward
            
            
            (6,186
            )
            
            **(****4,613**
            **)**(161,202
            )
            
            **(****209,155**
            **)**Liabilities:Inventories
            
            
            330,483
            
            
            **420,993**Accounts
                receivable
            
            
            229,851
            
            
            **396,437**Other
                provisions
            
            
            2,491
            
            
            **269**Derivative
                financial instruments
            
            
            -
            
            
            **23,204**Fixed
                assets
            
            
            1,443,692
            
            
            **1,450,073**Effect
                due to change in tax rate
            
            
            336,376
            
            
            **-**Additional
                liability from stockholders’ equity
            
            
            6,529
            
            
            **288,591**2,349,422
            
            
            **2,579,567**Less:Valuation
                allowance
            
            
            6,186
            
            
            **4,613**Total
                deferred income tax liability, net
            
            Ps
            2,182,034
            
            **Ps**
            **2,375,025**





At
      December 31, 2006 and 2007, the deferred income tax liability determined by
      considering stockholders’ equity as a temporary item is greater than the amount
      determined using the assets and liabilities method. Due to the above, the
      Company recognized an additional liability of Ps. 290,214 in 2006 and Ps.
      359,717 in 2007 in order to recognize the difference between deferred tax
      determined using the asset and liability method and by considering the
      stockholders’ equity as the only temporary item.





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:





2005
            
            2006
            
            **2007**%
            
            %
            
            **%**Statutory
                income tax rate
            
            
            16.00
            
            
            16.00
            
            
            **19.00**Effect
                of companies outside simplified regime
            
            
            2.3
            
            
            4.42
            
            
            **4.20**Effect
                of non-taxable items
            
            
            (
                2.2
            )
            
            (
                3.04
            )
            
            **(
                3.40**
            **)**Effect
                due to change in tax rate from 16% to 19% in 2007
            
            
            
            
            
            22.27Effective
                income tax rate
            
            
            16.1
            
            
            39.65
            
            
            **19.80**




F-31





f)
      Net
      loss carryforward





At
      December 31, 2007, the Company has net loss carryforwards restated in accordance
      with the actual Mexican Tax Law, which can offset the future taxable income
      for
      the next ten years, as follows:





Net
                loss carryforwardBase
                year
            
            Year
                of
              expiration
            
            Restated
              amount2001
            
            
            2011
            
            Ps
            16,0922005
            
            
            2015
            
            
            229Ps
            16,321





g)
      Equity
      tax value





At
      December 31, 2006 and 2007, the tax value of the Company’s equity, which will
      not be subject to taxation, is comprised of the following:





2006
            
            **2007**Restated
                contributed capital (CUCA)
            
            Ps
            1,877,344
            
            **Ps**
            **1,877,344**Net
                tax profit (CUFIN) and net reinvested tax profit (CUFINRE)
            
            
            2,399,602
            
            
            **2,574,183**Total
            
            Ps
            4,276,946
            
            **Ps**
            **4,451,527**





**16.
      Other ordinary income, expense net**





As
      of
      December 31, 2006 and 2007, other ordinary income, expense net were as
      follows:





2005
            
            2006
            
            **2007**Other
                ordinary income:Sales
                of waste animals, raw materials, by-products and others.
            
            Ps
            215,587
            
            Ps
            206,528
            
            **Ps**
            **276,094**Tax
                incentives
            
            
            9,054
            
            
            32,379
            
            
            **73,054**Total
                other ordinary income
            
            
            224,641
            
            
            238,907
            
            
            **349,148**Other
                ordinary expense:Cost
                of waste animals, raw materials, by-products and others.
            
            
            (189,998
            )
            
            (182,324
            )
            
            **(****261,703**
            **)**Employee
                profits sharing
            
            
            (3,457
            )
            
            (4,362
            )
            
            **(****4,828**
            **)**Other
            
            
            (57,147
            )
            
            (33,794
            )
            
            **(****13,046**
            **)**Total
                other ordinary expense
            
            
            (250,602
            )
            
            (220,480
            )
            
            **(****279,577**
            **)**Total
                other ordinary income net:
            
            Ps
            (25,961
            )
            Ps
            18,427
            
            **Ps**
            **69,571**





Employee
      profits sharing





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.





Employee
      profit sharing is recorded as part of the other expenses caption.




F-32




**17.
      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 due to its similarity and to the fact that egg sales do not exceed
      10%
      of total revenue for the years ended on December 31, 2005, 2006 and 2007. 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, 2005Poultry
            
            Others
            
            TotalNet
                revenues
            
            Ps
            13,871,147
            
            Ps
            1,747,045
            
            Ps
            15,618,192Cost
                of sales
            
            
            (9,740,992
            )
            
            (1,493,570
            )
            
            (11,234,562
            )Gross
                profit
            
            
            4,130,155
            
            
            253,475
            
            
            4,383,630Interest
                income
            
            
            304,045
            
            
            12,469
            
            
            316,514Interest
                expense and other financing costs
            
            
            (209,129
            )
            
            (375
            )
            
            (209,504
            )Loss
                on net monetary position
            
            
            (118,724
            )
            
            -
            
            
            (118,724
            )Income
                tax and asset tax
            
            
            (335,554
            )
            
            (32,279
            )
            
            (367,833
            )Majority
                net income
            
            
            1,830,128
            
            
            78,407
            
            
            1,908,535Property,
                plant and equipment, net
            
            
            9,300,678
            
            
            216,373
            
            
            9,517,051Total
                assets
            
            
            15,836,258
            
            
            694,647
            
            
            16,530,905Total
                liabilities
            
            
            (2,838,443
            )
            
            (189,405
            )
            
            (3,027,848
            )Capital
                expenditures
            
            
            835,529
            
            
            -
            
            
            835,529Expenses
                not requiring cash disbursement:Depreciation
            
            
            489,396
            
            
            8,423
            
            
            497,819





As
                of and for the year ended December 31, 2006Poultry
            
            Others
            
            TotalNet
                revenues
            
            Ps
            13,486,020
            
            Ps
            2,064,945
            
            Ps
            15,550,965Cost
                of sales
            
            
            (10,220,870
            )
            
            (1,832,116
            )
            
            (12,052,986
            )Gross
                profit
            
            
            3,265,150
            
            
            232,829
            
            
            3,497,979Interest
                income
            
            
            288,932
            
            
            13,978
            
            
            302,910Interest
                expense and other financing costs
            
            
            (129,506
            )
            
            (2,346
            )
            
            (131,852
            )Loss
                on net monetary position
            
            
            (150,438
            )
            
            -
            
            
            (150,438
            )Income
                tax and asset tax
            
            
            (567,933
            )
            
            (31,193
            )
            
            (599,126
            )Majority
                net income
            
            
            826,642
            
            
            79,544
            
            
            906,186Property,
                plant and equipment, net
            
            
            9,576,266
            
            
            259,629
            
            
            9,835,895Total
                assets
            
            
            16,833,872
            
            
            725,367
            
            
            17,559,239Total
                liabilities
            
            
            (3,321,636
            )
            
            (134,649
            )
            
            (3,456,285
            )Capital
                expenditures
            
            
            856,227
            
            
            -
            
            
            856,227Expenses
                not requiring cash disbursement:Depreciation
            
            
            523,720
            
            
            13,663
            
            
            537,383


F-33





**As
                of and for the year ended December 31,**
              **2007****Poultry**
            
            **Others**
            
            **Total**Net
                revenues
            
            **$**
            **15,885,828**
            
            
            **Ps****2,333,819**
            
            
            **Ps****18,219,647**Cost
                of sales
            
            
            **(****12,353,458**
            **)**
            
            **(****2,124,403**
            **)**
            
            **(****14,477,861**
            **)**Gross
                profit
            
            
            **3,532,370**
            
            
            **209,416**
            
            
            **3,741,786**Interest
                income
            
            
            **304,030**
            
            
            **14,849**
            
            
            **318,879**Interest
                expense and other financing costs
            
            
            **(****133,913**
            **)**
            
            **(****7,665**
            **)**
            
            **(****141,578**
            **)**Loss
                on net monetary position
            
            
            **(****151,035**
            **)**
            
            **(****3,779**
            **)**
            
            **(****154,814**
            **)**Income
                tax and asset tax
            
            
            **(****280,792**
            **)**
            
            **(****31,953**
            **)**
            
            **(****312,745**
            **)**Majority
                net income
            
            
            **1,203,149**
            
            
            **67,792**
            
            
            **1,270,941**Property,
                plant and equipment, net
            
            
            **9,986,129**
            
            
            **270,110**
            
            
            **10,256,239**Total
                assets
            
            
            **18,264,882**
            
            
            **851,542**
            
            
            **19,116,424**Total
                liabilities
            
            
            **3,798,656**
            
            
            **190,602**
            
            
            **3,989,258**Capital
                expenditures
            
            
            **987,322**
            
            
            **4,415**
            
            
            **991,737**Expenses
                not requiring cash disbursement:Depreciation
            
            **Ps**
            **556,188**
            
            **Ps**
            **15,205**
            
            **Ps**
            **571,393**





Revenues
      from our poultry segment are analized as follows:





As
                of and for the year ended December 31, 2005Chicken
            
            Egg
            
            TotalNet
                revenues
            
            Ps
            12,517,765
            
            Ps
            1,353,382
            
            Ps
            13,871,147




As
                of and for the year ended December 31, 2006Chicken
            
            Egg
            
            TotalNet
                revenues
            
            Ps
            12,053,293
            
            Ps
            1,432,727
            
            Ps
            13,486,020




**As
                of and for the year ended December 31,****2007****Chicken**
            
            **Egg**
            
            **Total**Net
                revenues
            
            **Ps**
            **14,135,242**
            
            **Ps**
            **1,750,586**
            
            **Ps**
            **15,885,828**





**18.
      New accounting Pronouncements**





The
      most
      important new pronouncements that will come into force in 2008 are as
      follows:





**MexFRS
      B-2,** ***Statement
      of Cash Flows***


In
      November 2007, MexFRS B-2 was issued by the CINIF to replace MexFRS B-12, *Statement
      of Changes in Financial Position* .
      This
      standard establishes that the statement of changes in financial position will
      be
      substituted by a statement of cash flows as part of the basic financial
      statements. The main differences between both statements lie in the fact that
      the statement of cash flows will show the entity’s cash receipts and
      disbursements for the period, while the statement of changes in financial
      position showed the changes in the entity’s financial structure rather than its
      cash flows. In an inflationary environment, the amounts of both financial
      statements are expressed in constant Mexican pesos. However, in preparing the
      statement of cash flows, the entity must first eliminate the effects of
      inflation for the period and, accordingly, determine cash flows at constant
      Mexican pesos, while in the statement of changes in financial position, the
      effects of inflation for the period are not eliminated.


F-34





MexFRS
      B-2 establishes that in the statement of cash flows, the entity must first
      present cash flows derived from operating activities, then from investing
      activities, the sum of these activities and finally cash flows derived from
      financing activities. The statement of changes in financial position first
      shows
      the entity’s operating activities, then financing activities and finally its
      investing activities. Under this new standard, the statement of cash flows
      may
      be determined by applying the direct or indirect method.





The
      transitional rules of MexFRS B-2 establish that the application of this standard
      is prospective. Therefore, the financial statements for years ended prior to
      2008 presented for comparative purposes, should include a statement of changes
      in financial position, as established by MexFRS B-12. The Company is analyzing
      the method to be applied as of January 1, 2008.





**MexFRS
      B-10,** ***Effects
      of Inflation***


In
      July
      2007, the CINIF issued MexFRS B-10, *Effects
      of Inflation* ,
      which
      is applicable for years beginning on or after January 1, 2008 and replaces
      MexFRS B-10, *Accounting
      Recognition of the Effects of Inflation on Financial
      Information* .
      MexFRS
      B-10 defines the two economic environments in Mexico that will determine whether
      or not entities must recognize the effects of inflation on financial
      information: 1) inflationary, when inflation is equal to or higher than 26%
      accumulated in the preceding three fiscal years (an 8% annual average); and
      2)
      non-inflationary, when accumulated inflation for the preceding three fiscal
      years is less than the aforementioned accumulated 26%. Based on these
      definitions, the effects of inflation on financial information must be
      recognized only when entities operate in an inflationary
      environment.





This
      standard also abolishes the use of the specific-indexation method for the
      valuation of imported fixed assets and the replacement-cost method for the
      valuation of inventories, thus eliminating the result from holding non-monetary
      assets. Therefore, at the date this MexFRS comes into force, entities which
      have
      recognized any accumulated result from holding non-monetary assets in their
      stockholders’ equity, under Retained earnings (accumulated deficit), must
      identify the realized and unrealized portions of such result.





The
      realized result from holding non-monetary assets must be reclassified to
      Retained earnings, while the unrealized portion must be maintained as such
      within stockholders’ equity, and reclassified to results of operations when the
      asset giving rise to it is realized. Whenever it is deemed impractical to
      separate the realized from the unrealized result from holding non-monetary
      assets, the full amount of this item may be reclassified to the Retained
      earnings caption.





The
      effect of the adoption of this standard on the Company’s 2008 financial
      statements shall be the Company’s ceasing to recognize the effects of inflation
      on its financial information and reclassifying the total amount of the result
      from holding non-monetary assets to retained earnings.





**MexFRS
      D-3,** ***Employees
      Benefits***


On
      January 1, 2008, the new MexFRS D-3, *Employee
      Benefits* ,
      issued
      by the CINIF, went into effect and replaced the old MexFRS D-3, *Labor
      Obligations.* The
      most
      significant changes contained in MexFRS D-3 are as follows: i) shorter periods
      for the amortization of unamortized items, with the option to credit or charge
      actuarial gains or losses directly to results of operations, as they accrue;
      ii)
      elimination of the recognition of an additional liability and resulting
      recognition of an intangible asset and comprehensive income item; iii)
      accounting treatment of current-year and deferred employee profit sharing,
      requiring that deferred employee profit sharing be recognized using the asset
      and liability method established under MexFRS D-4; and iv) current-year and
      deferred employee profit sharing expense is to be presented as an ordinary
      expense in the income statement rather than as part of taxes on
      profits.


F-35





The
      adoption of this standard in 2008 will require that both the additional
      liability and the related intangible asset and comprehensive income item be
      eliminated and that the unamortized items be carried to results of operations
      in
      a period not exceeding five years. The initial effect of the recognition of
      deferred employee profit sharing must be charged or credited to retained
      earnings with no effect on results of operations for the year ending December
      31, 2008.





At
      the
      date of the audit report on these financial statements, management is evaluating
      what effect the observance of this accounting pronouncement will have on the
      Company’s results of operations and financial position. Such effects are
      expected to be material.





**MexFRS
      D-4,** ***Taxes
      on Profits***


In
      July
      2007, the CINIF issued MexFRS D-4, *Taxes
      on Profits* ,
      which
      is applicable for years beginning on or after January 1, 2008 and replaces
      MexFRS D-4, *Accounting
      for Income Tax, Asset Tax and Employee Profit Sharing* .
      The
      most significant changes included in this standard with respect to MexFRS D-4
      are as follows: i) the concept of permanent differences is eliminated, since
      the
      asset and liability method requires the recognition of deferred taxes on all
      differences in balance sheet accounts for financial and tax reporting purposes,
      regardless of whether they are permanent or temporary; ii) since current-year
      and deferred employee profit sharing is considered as an ordinary expense,
      its
      treatment is excluded from this standard and is now addressed under MexFRS
      D-3;
      iii) asset tax is required to be recognized as a tax credit and, consequently,
      as a deferred income tax asset only in those cases in which there is certainty
      as to its future realization; and iv) the cumulative effect of adopting MexFRS
      D-4 is to be reclassified to retained earnings, unless it is identified with
      comprehensive items in stockholders’ equity not yet taken to income.





**MexFRS
      5,** ***Accounting
      Recognition of the Additional Consideration Agreed at the Inception of a
      Derivative to Adjust the Instrument to its Fair Value***


In
      November 2007, the CINIF issued the Interpretation to MexFRS 5, which is
      effective for years beginning on or after January 1, 2008. This Interpretation
      is intended to clarify whether or not the additional consideration agreed at
      the
      inception of a derivative to adjust the instrument to its fair value should
      be
      amortized over the life of the hedge.





MexFRS
      C-10, *Derivative
      Financial Instruments and Hedging Activities* ,
      establishes that transaction costs and cash flows received or delivered to
      adjust the derivative to its fair value at the inception of the hedge (excluding
      premiums on options) must be amortized over the life of the hedge. However,
      Bulletin C-10 requires derivatives to be recognized at their fair value and
      consequently, under this bulletin, the additional consideration should not
      be
      amortized, since it is part of the value of the derivative.





This
      Interpretation clarifies that the additional consideration is part of the fair
      value of the derivative and, accordingly, it must be included in the value
      at
      which the derivative is initially recorded, which will be adjusted to its fair
      value in subsequent periods. Therefore, the additional consideration should
      not
      be amortized.





The
      effects of the change established by this Interpretation must be prospectively
      recognized, affecting the result of operations of the period in which it is
      effective. If the effect of the change is significant, the entity must make
      the
      related disclosure.





Whenever
      changes to outstanding derivatives are agreed and give rise to considerations
      similar to those described in this Interpretation, such considerations must
      be
      valued based on the procedure established in the
      Interpretation.


F-36





**MexFRS
      6,** ***Formally
      Designating a Hedge***


In
      November 2007, the CINIF issued the Interpretation to MexFRS 6, which is
      effective for years beginning on or after January 1, 2008. This Interpretation
      is intended to clarify whether or not a derivative may be formally designated
      as
      a hedge on a date subsequent to its contract date.





MexFRS
      C-10, *Derivative
      Financial Instruments and Hedging Activities* ,
      requires the hedging relationship to be documented from the “inception of the
      hedge” to prevent the need for retrospective designation in the future. However,
      this bulletin fails to clarify the meaning of “inception of the
      hedge”.





The
      Interpretation to MexFRS 6 establishes that a derivative may be designated
      as a
      hedge at its inception date or contract date or at a subsequent date, provided
      that it meets the conditions established in MexFRS C-10 for such designation.
      Also, this standard establishes that the hedge accounting treatment must not
      commence until such time as the entity evaluates whether the instrument
      qualifies as and meets the conditions for hedge accounting.





When
      a
      derivative is designated as a hedge on a date subsequent to the agreement date,
      the related effects will only be recognized as of the date on which it first
      meets the formal conditions and qualifies for consideration as a
      hedge.





This
      Interpretation complements MexFRS C-10 with respect to the conclusion reached
      by
      the CINIF as to when a hedge may be formally designated.





**MexFRS
      7,** ***Application
      of Comprehensive Income Item Generated by a Cash Flow Hedge on a Forecasted
      Purchase of a Non-financial Asset***


In
      November 2007, the CINIF issued the Interpretation to MexFRS 7, which is
      effective for years beginning on or after January 1, 2008. This Interpretation
      is intended to clarify whether or not the amount resulting from a cash flow
      hedge on a forecasted transaction, that is recognized in stockholders’ equity as
      part of comprehensive income, may be included in the cost of the non-financial
      asset whose value is being set by the hedge.





MexFRS
      C-10, *Derivative
      Financial Instruments and Hedging Activities* ,
      establishes that if the result of a hedge of a forecasted transaction gives
      rise
      to the recognition of an asset or liability, the associated gains and losses
      that were previously recognized in stockholders’ equity as part of Comprehensive
      income shall be reclassified to the earnings of the same period or periods
      in
      which the asset or liability is carried to income.





This
      standard clarifies that if a derivative is designated as a cash flow hedge
      on a
      forecasted transaction, to set the price of the non-financial asset to the
      functional currency, the effect recognized in comprehensive income is considered
      a complement to the cost of the asset and, therefore, must be included in such
      cost.





Accordingly,
      MexFRS C-10 is complemented by the conclusion of the Interpretation to MexFRS
      7.





The
      effect of the adoption of this Interpretation to MexFRS 7 must be recognized
      by
      reclassifying, at the Interpretation’s effective date, all relevant balances
      presented in Comprehensive income to the cost of the asset
      acquired.





Management
      considers that the application of the MexFRS 5, FRS 6, and FRS 7 will have
      no
      material effect on the Company’s financial position or on its results of
      operations.





F-37





**19.
      Differences Between Mexican FRS and United States Generally Accepted Accounting
      Principles**





The
      Company’s consolidated financial statements are prepared in accordance with
      Mexican Financial Reporting Standards (“MexFRS”), which differ in certain
      respects from accounting principles generally accepted in the United States
      (“U.S. GAAP”).





The
      Mexican and U.S. GAAP prior periods amounts, included throughout Note 18, are
      presented in constant Mexican pesos by using the 1.0376 and 1.0796 Mexican
      inflation factor, respectively. The reconciliation to U.S. GAAP does not include
      the reversal of the adjustments to the financial statements for the effects
      of
      inflation required under MexFRS 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 US accounting
      purposes as permitted by the “Securities and Exchange Commission”
(SEC).





The
      principal differences between MexFRS and U.S. GAAP, as they relate to us, are
      described below together with an explanation, where appropriate, of the method
      used to determine the adjustments that affect income and stockholders’ equity.





***Cash
      flow information:***


Under
      MexFRS, the Company presents consolidated statements of changes in financial
      position, as described in Note 2 d).





Statement
      of Financial Accounting Standards No. 95 (“SFAS 95”), *Statement
      of Cash Flows* ,
      does
      not provide guidance with respect to inflation adjusted financial statements.
      In
      accordance with MexFRS, the changes in current and long-term debt due to
      re-expression in constant pesos, including the effect of exchange differences,
      is presented in the statement of changes in financial position in the financing
      activities section. Also, under U.S. GAAP non-cash investing activities are
      not
      reported in the Statement of Cash Flows, including the capitalization of debt;
      whereas under MexFRS non-cash transactions affecting the financial structure
      of
      an entity, such as converting debt into equity, must be presented separately
      in
      the statement of changes in financial position.


F-38





A
      consolidated statements of cash flows derived from information prepared in
      accordance with U.S. GAAP would be as follows:





**Cash
                Flow Information**
            
            **Years
                ended December 31,**2005
            
            2006
            
            **2007****OPERATING
                ACTIVITIES:**Net
                income
            
            Ps
            1,893,395
            
            Ps
            895,570
            
            **Ps**
            **1,261,883**Adjustments
                to reconcile net income to net cash provided by operating
                activities:Depreciation
            
            
            500,684
            
            
            540,862
            
            
            **575,306**Deferred
                income tax
            
            
            (2,126
            )
            
            330,982
            
            
            **168,405**Loss
                (gain) on net monetary position
            
            
            118,414
            
            
            149,825
            
            
            **154,765**Labor
                obligations, net period cost
            
            
            40,505
            
            
            58,155
            
            
            **44,619**2,550,872
            
            
            1,975,394
            
            
            **2,204,978**Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (214,857
            )
            
            (85,313
            )
            
            **(****375,590**
            **)**Inventories
                and biological assets
            
            
            (603,362
            )
            
            (780,452
            )
            
            **(****1,418,210**
            **)**Prepaid
                expenses and other accounts receivable
            
            
            (36,925
            )
            
            25,502
            
            
            **(****74,556**
            **)**Accounts
                payable
            
            
            (9,645
            )
            
            392,321
            
            
            **338,084**Related
                parties
            
            
            53
            
            
            6,410
            
            
            **14,944**Other
                taxes payable and other accruals
            
            
            148,024
            
            
            (60,488
            )
            
            **(****35,827**
            **)**Labor
                obligations, net
            
            
            (58,474
            )
            
            (26,085
            )
            
            **(****37,610**
            **)**Derivative
                financial instruments
            
            
            -
            
            
            (5,856
            )
            
            **(****36,131**
            **)****Cash
                flows provided by operating activities**
            
            
            1,775,686
            
            
            1,441,433
            
            
            **580,082****FINANCING
                ACTIVITIES:**Proceeds
                from issuance of notes payable to banks
            
            
            176,590
            
            
            -
            
            
            **80,000**Repayment
                of long-term debt and notes payable
            
            
            (212,570
            )
            
            (107,324
            )
            
            **(****12,529**
            **)**Cash
                dividends paid
            
            
            (263,719
            )
            
            (378,075
            )
            
            **(****363,708**
            **)**Repurchase
                (sale) of stock
            
            
            (8,536
            )
            
            17,849
            
            
            **-****Cash
                flows used in financing activities**
            
            
            (308,234
            )
            
            (467,550
            )
            
            **(****296,237**
            **)****INVESTING
                ACTIVITIES:**Acquisition
                of property, plant and equipment
            
            
            (847,821
            )
            
            (904,300
            )
            
            **(****998,622**
            **)**Other
                assets
            
            
            (2,711
            )
            
            (2,696
            )
            
            **(****2,216**
            **)****Cash
                flows used in investing activities**
            
            
            (850,532
            )
            
            (906,996
            )
            
            **(****1,000,838**
            **)****Effect
                of inflation accounting**
            
            
            194,673
            
            
            96,959
            
            
            **172,978****Net
                ( decrease ) increase in cash and cash
                equivalents**
            
            
            811,592
            
            
            163,846
            
            
            **(****544,015**
            **)****Cash
                and cash equivalents at beginning of year**
            
            
            2,608,453
            
            
            3,420,045
            
            
            **3,583,891****Cash
                and cash equivalents at end of year**
            
            Ps
            3,420,045
            
            Ps
            3,583,891
            
            **Ps**
            **3,039,876**




F-39





***Agriculture***


The
      Company follows the requirements of the MexFRS 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.





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
      MexFRS and U.S. GAAP for 2005, 2006 and 2007 includes a reversal of the
      unrealized (gain) on valuation of biological assets and agricultural products
      at
      fair value, which gave rise to a decrease of


Ps
      (28,072), Ps. (10,879) and Ps (10,882), respectively.





***Capitalized
      interest:***


Under
      U.S. GAAP, interest on borrowings in foreign currencies or comprehensive cost
      of
      financing incurred during the qualifying construction period must be considered
      as an additional cost of qualifying constructed assets to be capitalized in
      plant, property and equipment and depreciated over the lives of the related
      assets. The amount of the capitalized comprehensive cost of financing for U.S.
      GAAP purposes was determined by applying the weighted average interest
      rate.





Under
      MexFRS in force through December 31, 2006, the Company did not capitalize the
      comprehensive cost of financing in the MexFRS financial statements. Starting
      January 1, 2007, although we adopted the policy of capitalizing the
      comprehensive result of financing on assets under construction, as a result
      of
      MexFRS D-6, we did not capitalize any comprehensive result of financing due
      to
      its immateriality as described in Note 2. The reconciling items for 2007, 2006
      and 2005 show the capitalization of interest as required under
      U.S.GAAP.





***Deferred
      income tax and deferred employee profit sharing:***


As
      mentioned in Note 15, under MexFRS, deferred income tax is determined on all
      differences in balance sheets accounts for financial and tax reporting purposes,
      using the enacted tax rate at the balance sheet date, which also is in
      conformity with Statement of Financial Accounting Standards No. 109 (“SFAS
      109”), *Accounting
      for Income Taxes* .





As
      of
      December 31 2006 and 2007, the deferred tax liability is Ps 2,174,307 and


Ps
      2,365,939, respectively, for US GAAP purposes. Current deferred tax liability
      is


Ps
      497,282 and Ps 739,444 for 2006 and 2007 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 MexFRS, the balance
      sheet classification is non-current.





The
      Company is required to pay employee profit sharing in accordance with Mexican
      labor law. Deferred employee profit sharing under U.S. GAAP is determined
      following the guidelines of SFAS No.109, while under MexFRS, the deferred
      consequences of employee profit sharing are determined only on temporary
      non-recurring differences with a known turnaround time. Our reconciliations
      between MexFRS and U.S. GAAP do not include deferred employee profit sharing
      as
      related amounts are not significant.


F-40


The
      deferred tax adjustment included in the net income and stockholders’ equity
      reconciliations also includes the effect of deferred taxes on all U.S. GAAP
      adjustments reflected in the reconciliation between MexFRS and U.S.
      GAAP.





***Severance
      indemnities.***


Under
      MexFRS, revised D-3, effective 2005, companies are required to recognize a
      severance indemnity liability calculated based on actuarial valuations. Similar
      recognition criteria under U.S. GAAP are established in SFAS No. 112,
      " *Employers'
      Accounting for Post-employment Benefits* "
      which
      requires that a liability for certain termination benefits provided under an
      ongoing benefit arrangement such as these statutorily mandated severance
      indemnities be recognized in income when the likelihood of future settlement
      is
      probable and the liability can be reasonably estimated. MexFRS allows for the
      Company to amortize the transition obligation related to the adoption of revised
      MexFRS D-3 over the expected service life of the employees, (as from January
      1,
      2008 the transition obligation must be amortized at most in five years).


As
      of
      December 31, 2006 and 2007, the amount of past service cost to be amortized
      under MexFRS amounts to Ps 20,691 and Ps 2,507, respectively. These amounts
      were
      included in the US GAAP reconciliation of equity.





***SFAS
      158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
      Plans, an Amendment of FASB Statements No. 87, 88, 106 and
      132(R)”:***


This
      statement 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.





In
      2006
      the Company adopted SFAS 158 for USGAAP reconciliation purposes





The
      incremental effects of adopting of this adoption on the individual line items
      as
      of December 31, 2006 on the consolidated US GAAP balance sheet is shown in
      the
      following table:




2006Before
            
            SFAS
                158
            
            AfterNet
                projected benefit obligation (pension)
            
            Ps
            14,175
            
            Ps
            14,759
            
            Ps
            28,934Net
                projected benefit obligation (seniority premium)
            
            
            26,488
            
            
            22,610
            
            
            49,098Net
                projected benefit obligation (Severance)
            
            
            36,053
            
            
            -
            
            
            36,053Minimum
                labor obligation liability adjustment (Seniority premium)
            
            
            916
            
            
            (916
            )
            
            -Ps
            36,453
            
            Ps
            114,085





The
      components of the plan funded status that are reflected in the consolidated
      statement of financial position as of December 31, 2007 and 2006 are as
      follows:





2006Pension
              plan
            
            Seniority
              premium
            
            Severance
            
            **Total**Projected
                benefit obligation
            
            Ps
            189,355
            
            Ps
            49,098
            
            Ps
            36,053
            
            Ps
            274,506Market
                value of plan assets
            
            
            160,421
            
            
            -
            
            
            -
            
            
            160,421Under-funded
                defined benefit plan
            
            Ps
            28,934
            
            Ps
            49,098
            
            Ps
            36,053
            
            Ps
            114,085




F-41





**2007**Pension
              plan
            
            Seniority
              premium
            
            Severance
            
            **Total**Projected
                benefit obligation
            
            **Ps**
            **199,333**
            
            **Ps**
            **56,601**
            
            **Ps**
            **42,895**
            
            **Ps**
            **298,829**Market
                value of plan assets
            
            
            **182,017**
            
            
            **-**
            
            
            **-**
            
            
            **182,017**Under-funded
                defined benefit plan
            
            **Ps**
            **17,316**
            
            **Ps**
            **56,601**
            
            **Ps**
            **42,895**
            
            **Ps**
            **116,812**





***Effects
      of inflation accounting on U.S. GAAP adjustments:***


To
      determine the net effect on the consolidated financial statements of recognizing
      the U.S.GAAP adjustments described throughout this Note, it is also necessary
      to
      recognize the effects of inflation on such adjustments as described in Note
      2.
      These effects are taken into consideration in the preparation of U.S. GAAP
      reconciliations of net income and stockholders’ equity.





***Goodwill***


Beginning
      January 1, 2005, due to the adoption of MexFRS B-7, goodwill is no longer
      amortized, but rather is subject to periodic impairment valuations.





For
      US
      GAAP purposes, the Company adopted SFAS No. 142, “Goodwill and Other Intangible
      Assets” in 2002. Up to December 31, 2004, the Company recognized and accumulated
      effect (increase in equity) of Ps. 58,716 for the non amortization of goodwill,
      under US GAAP.





In
      2005,
      2006 and 2007, the Company performed the required impairment tests of goodwill
      and the tests did not result in an impairment charge.





***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. Comprehensive income
      consists of current year net income plus the following items applied to
      stockholders’ equity: the result from holding non-monetary assets net of taxes,
      the cumulative effect of deferred taxes, the effect of adopting SFAS158 and
      the
      effective portion of changes in the fair value of financial instruments.





***Reclassification***


Certain
      amounts were reclassified to conform to the 2007 presentation.





***Disclosure
      about fair value of financial instruments:***


In
      accordance with Statement of Financial Accounting Standards No. 107 (“SFAS
      107”), *“Disclosures
      about fair value of financial instruments,”* under
      U.S. GAAP it is necessary to provide information about the fair value of certain
      financial instruments for which it is practicable to estimate that value. The
      carrying amounts of cash and short-term investments, accounts receivable,
      accounts payable , accrued liabilities and notes payable approximate fair values
      due to the short term maturity of these instruments.





***Accounting
      for uncertainty in income taxes:***


In
      July
      2006, the FASB issued the final interpretation No. 48 (FIN 48). The Company
      adopted the provisions of FIN 48 as of January 1, 2007. This statement requires
      a company to recognize the financial statement impact of a tax position when
      it
      is more likely than not that the position will be sustained upon
      examination.


F-42


If
      the
      tax position meets the more-likely-than-not recognition threshold, the tax
      effect is recognized at the largest amount of the benefit that is greater than
      50% (cumulative probability basis) likely of being realized upon ultimate
      settlement.





The
      Company applied the provisions of FIN No. 48 to all its tax positions under
      SFAS
      No. 109 upon initial adoption. The adoption of FIN 48 did not have a material
      impact on the Company’s consolidated financial position and did no result in a
      cumulative adjustment to retained earnings at adoption.





Recent
      Accounting Pronouncements:





***Fair
      value measurement (FASB Statement 157):***


In
      September 2006, the FASB issued SFAS No. 157, *“Fair
      Value Measurement”* .
      SFAS
      No. 157 defines fair value, establishes a framework for the measurement of
      fair
      value, and enhances disclosures about fair value measurements. The statement
      does not require any new fair value measures.





The
      statement is effective for fair value measures already required or permitted
      by
      other standards for fiscal years beginning after November 15, 2007. The Company
      is required to adopt SFAS No. 157 beginning on January 1, 2008. SFAS No. 157
      is
      required to be applied prospectively, except for certain financial instruments.
      Any transition adjustment will be recognized as an adjustment to opening
      retained earnings in the year of adoption. The Company is currently evaluating
      the effect of adopting this standard on its consolidated results of operations
      and financial position.





***Amendment
      of FASB Interpretation No. 39 (FSP FIN 39-1)***


In
      April
      2007, the FASB issued FASB Staff Position (“FSP”) FIN 39-1, which amends certain
      aspects of FASB Interpretation No. 39, Offsetting of Amounts Related to Certain
      Contracts - an interpretation of APB Opinion No. 10 and FASB Statement No.
      105
      (“FSP FIN 39-1”). FSP FIN 39-1 amends paragraph 10 of FIN 39 to permit a
      reporting entity to offset fair value amounts recognized for the right to
      reclaim cash collateral (a receivable) or the obligation to return cash
      collateral (a payable) against fair value amounts, including amounts that
      approximate fair value, recognized for derivative instruments executed with
      the
      same counterparty under the same master netting arrangement. Derivative
      instruments permitted to be netted for the purposes of the FSP include those
      instruments that meet the definition of a derivative in FASB Statement No.
      133,
      Accounting for Derivative Financial Instruments and Hedging Activities,
      including those that are not included in the scope of Statement 133 (for
      example, a financial guarantee, weather derivatives, etc.). The decision to
      apply the guidance of the FSP FIN 39-1 is an accounting policy decision and
      should be consistently applied.





The
      FSP
      is effective for fiscal years beginning after November 15, 2007, with early
      application permitted. A reporting entity should recognize the effects of
      applying this FSP as a change in accounting principle through retrospective
      application for all financial statement presented. If it is impracticable to
      apply the guidance in this FSP retrospectively for all financial statements
      presented, the reporting entity should disclose why it is impracticable and
      apply the guidance in this FSP retrospectively for as many consecutive prior
      financial statements as practicable.


F-43


Upon
      adoption of this FSP, a reporting entity is permitted to change its accounting
      policy to offset or not offset fair value amounts recognized for derivative
      instruments under master netting arrangements. The Company has not determined
      the effect of this new pronouncement.





In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      ("FAS") No. 141 (revised 2007), *Business
      Combinations (“FAS 141(R)")* which
      replaces FAS No.141, Business Combination. FAS 141(R) retains the underlying
      concepts of FAS 141 in that all business combinations are still required to
      be
      accounted for at fair value under the acquisition method of accounting but
      FAS
      141(R) changed the method of applying the acquisition method in a number of
      significant aspects.





FAS
      141(R) is effective on a prospective basis for all business combinations for
      which the acquisition date is on or after the beginning of the first annual
      period subsequent to December 15, 2008, with the exception of the accounting
      for
      valuation allowances on deferred taxes and acquired tax contingencies. FAS
      141(R) amends FAS 109 such that adjustments made to valuation allowances on
      deferred taxes and acquired tax contingencies associated with acquisitions
      that
      closed prior to the effective date of FAS 141(R) would also apply the provisions
      of FAS 141(R). Early adoption is not allowed.  The
      Company is currently evaluating the impact of adopting this standard on its
      consolidated results of operations and financial position.




***“Noncontroling
      Interest in Consolidated Financial Statements” SFAS No.
      160***


In
      December 2007, the FASB issued Statement of Financial Accounting Standards
      ("FAS") No. 160, *Noncontrolling
      Interests in Consolidated Financial Statements, an Amendment of ARB 51 (“FAS
      160)")* .
      FAS 160
      amends ARB 51 to establish new standards that will govern the accounting for
      and
      reporting of (1) noncontrolling interest in partially owned consolidated
      subsidiaries and (2) the loss of control of subsidiaries. FAS 160 is effective
      on a prospective basis for all fiscal years, and interim periods within those
      fiscal years beginning, on or after December 15, 2008, except for the
      presentation and disclosure requirements, which will be applied retrospectively.
      Early adoption is not allowed. The Company is currently evaluating the impact
      of
      adopting this standard on its consolidated results of operations and financial
      position.





***“Disclosures
      about Derivative Instruments and Hedging Activities—an amendment of FASB
      Statement No. 133” or SFAS 161***


On
      March
      19, 2008, the FASB issued Statement No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities, an amendment of FASB
      Statement No. 133 (* *FAS
      161* *)* .
      This
      new standard requires enhanced disclosures for derivative instruments, including
      those used in hedging activities. It is effective for fiscal years and interim
      periods beginning after November 15, 2008, with early adoption encouraged.
      The
      Company is currently evaluating the impact of adopting this standard on its
      consolidated results of operations and financial position.





***Hierarchy
      if Generally Accepted Accounting Principles or SFAS No.
      162***


In
      May
      2008, the FASB issued Statement No. 162, *The
      Hierarchy of Generally Accepted Accounting Principles (FAS 162)* ,
      which
      identifies the sources of accounting principles and the framework for selecting
      principles to be used in the preparation of financial statements of
      nongovernmental entities that are presented in conformity with generally
      accepted accounting principles (GAAP) in the United States. The Company is
      currently evaluating the impact of adopting this standard on its consolidated
      results of operations and financial position.


F-44




***The
      Fair Value Option for Financial Assets and Financial Liabilities, Including
      an***




***amendment
      of FASB Statement No. 115 (FASB Statement No. 159)***


In
      February 2007 the FASB published SFAS No. 159, *“The
      Fair Value Option for Financial Assets and Financial
      liabilities.”* This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value that are not currently required to be measured
      at fair value. The objective is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. This Statement also establishes
      presentation and disclosure requirements designed to facilitate comparisons
      between entities that choose different measurement attributes for similar types
      of assets and liabilities.





This
      statement does not affect any existing accounting literature that requires
      certain assets and liabilities to be carried at fair value. This Statement does
      not establish requirements for recognizing and measuring dividend income,
      interest income, or interest expense. This statement does not eliminate
      disclosure requirements included in other accounting standards, including
      requirements for disclosures about fair value measurements included in SFAS
      No.
      157, Fair Value Measurements, and SFAS No. 107, Disclosures about Fair Value
      of
      Financial Instruments. SFAS No. 159 will be effective for all fiscal years
      beginning after November 15, 2007. The Company is currently evaluating the
      impact this statement will have on its financial position, results of operations
      and disclosures, should the Company elect to measure certain financial
      instruments at fair value.





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





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





**Years
                ended December 31,**2005
            
            2006
            
            **2007**Net
                income as reported under Mexican FRS
            
            Ps
            1,910,319
            
            Ps
            907,129
            
            **Ps**
            **1,272,226**Adjustments
                to reconcile net income to U.S. GAAP:Biological
                assets and agricultural products valuation at fair value
            
            
            (28,072
            )
            
            (10,879
            )
            
            **(****10,882**
            **)**Interest
                cost capitalized
            
            
            12,293
            
            
            8,692
            
            
            **6,885**Depreciation
                of capitalized interest
            
            
            (2,865
            )
            
            (3,479
            )
            
            **(****3,913**
            **)**Net
                period cost due SFAS 112
            
            
            -
            
            
            (20,691
            )
            
            **(****2,507**
            **)**Deferred
                income tax on US GAAP adjustments
            
            
            3,194
            
            
            15,128
            
            
            **1,310**Effect
                of inflation accounting on U.S. GAAP adjustments
            
            
            310
            
            
            613
            
            
            **49**Minority
                interest
            
            
            (1,784
            )
            
            (943
            )
            
            **(****1,285**
            **)**Net
                income under U.S. GAAP
            
            Ps
            1,893,395
            
            Ps
            895,570
            
            **Ps**
            **1,261,883**Weighted
                average number of shares outstanding (thousands)
            
            
            599,694
            
            
            599,571
            
            
            600,000Net
                income per share
            
            Ps
            3.16
            
            Ps
            1.49
            
            Ps
            2.10




F-45





***Classification
      differences:***


There
      are
      certain other classification differences between MexFRS and US GAAP, as follows:





-Employee
      profit sharing expenses are presented as other expenses for MexFRS and as
      selling, general and administrative expenses for US GAAP.


-Tax
      incentives are presented as other income for MexFRS and as income taxes for
      US
      GAAP.





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





**Years
                ended December 31**2006
            
            **2007**Majority
                stockholders' equity as reported under Mexican FRS
            
            Ps
            14,057,528
            
            **Ps**
            **15,080,378**Adjustments
                to reconcile majority stockholders’ equity to U.S. GAAP:Biological
                assets and agricultural products valuation at fair value
            
            
            (84,502
            )
            
            **(****95,384**
            **)**Accumulated
                differences between the financing cost capitalized for MexFRS and
                U.S.
                GAAP purposes
            
            
            87,596
            
            
            **94,481**Accumulated
                depreciation on the above items
            
            
            (16,682
            )
            
            **(****20,595**
            **)**Net
                period cost due SFAS 112
            
            
            (20,691
            )
            
            **(****23,198**
            **)**Deferred
                income taxes on U.S. GAAP adjustments
            
            
            7,727
            
            
            **9,086**Accumulated
                amortization of goodwill
            
            
            58,716
            
            
            **58,716**SFAS
                158 effect
            
            
            (36,453
            )
            
            **-(****31,735**
            **)**Majority
                stockholders’ equity as reported under U.S. GAAP
            
            Ps
            14,053,239
            
            **Ps**
            **15,071,749**





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


F-46





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, 2004
            
            Ps
            2,294,711
            
            Ps
            723,116
            
            Ps
            170,917
            
            Ps
            12,498,927
            
            Ps
            (3,542,601
            )
            
            
            
            Ps
            12,145,070Repurchase
                of stock
            
            
            (251
            )
            
            -
            
            
            (11,462
            )
            
            -
            
            
            -
            
            
            -
            
            
            (11,713
            )Sales
                of repurchased stock
            
            
            222
            
            
            2,954
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,176Cash
                dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            (263,719
            )
            
            -
            
            
            -
            
            
            (263,719
            )Comprehensive
                income:Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            1,893,395
            
            
            -
            
            
            1,893,395
            
            
            1,893,395Components
                of other comprehensive income:Deficit
                from holding of non monetary assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (172,155
            )
            
            (172,155
            )
            
            (172,155
            )Derivative
                financial instruments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (92,374
            )
            
            (92,374
            )
            
            (92,374
            )Minimum
                labor obligations liability adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,207
            )
            
            (2,207
            )
            
            (2,207
            )Other
                comprehensive income, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (266,736
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Ps
            1,626,659Balance
                at December 31, 2005
            
            
            2,294,682
            
            
            726,070
            
            
            159,455
            
            
            14,128,603
            
            
            (3,809,337
            )
            
            
            
            
            13,499,473Sales
                of repurchased stock
            
            
            245
            
            
            17,604
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            17,849Cash
                dividends paid
            
            
            -
            
            
            -
            
            
            -
            
            
            (378,075
            )
            
            -
            
            
            -
            
            
            (378,075
            )Comprehensive
                income:Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            895,570
            
            
            -
            
            
            895,570
            
            
            895,570Components
                of other comprehensive income:Deficit
                from holding of non monetary assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (40,288
            )
            
            (40,288
            )
            
            (40,288
            )Derivative
                financial instruments
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            92,744
            
            
            92,744
            
            
            92,744Minimum
                labor obligations liability adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,420
            
            
            2,420
            
            
            2,420Other
                comprehensive income, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            54,876Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            Ps
            950,446Other
                comprehensive income SFAS 158 adoption
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            (36,454
            )
            
            -
            
            
            (36,454
            )Balance
                at December 31, 2006
            
            
            2,294,927
            
            
            743,674
            
            
            159,455
            
            
            14,646,098
            
            
            (3,790,915
            )
            
            
            
            
            14,053,239Sales
                of repurchased stock
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Cash
                dividends paid
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **(****363,708**
            **)**
            
            **-**
            
            
            **-**
            
            
            **(****363,708**
            **)**Comprehensive
                income:Net
                income for the year
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **1,261,883**
            
            
            **-**
            
            
            **1,261,883**
            
            
            **1,261,883**Components
                of other comprehensive income:Deficit
                from holding of non monetary assets
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **18,661**
            
            
            **18,661**
            
            
            **18,661**Derivative
                financial instruments
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **98,552**
            
            
            **98,552**
            
            
            **98,552**Other
                comprehensive income SFAS 158 effect
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **3,122**
            
            
            **3,122**
            
            
            **3,122**Other
                comprehensive income, net of taxes
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **120,335**Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            **Ps**
            **1,382,218****Balance
                at December 31, 2007**
            
            **Ps**
            **2,294,927**
            
            **Ps**
            **743,674**
            
            **Ps**
            **159,455**
            
            **Ps**
            **15,544,273**
            
            **Ps**
            **(****3,670,580**
            **)**
            
            
            
            **Ps**
            **15,071,749**




F-47