Omits
Note 21 to Item 18, Report of Independent Registered Public Accounting Firms and
the discussion of the reconciliation of Mexican FRS to US GAAP in Item
5:  “Operating and Financial Review and Prospects”, A. “Operating
Results”.








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, 2008




OR




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




OR




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




Date
of event requiring this shell company report ____________




For
the transition period from ____________ to ___________




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
      registeredAmerican
      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  ̈Nox




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 xNo ̈





Note:  Checking
the box above will not relieve any registrant required to file reports pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934 from
their obligations under those Sections.




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 xNo ̈




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).




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
              OtherxStandards
      as issued by the InternationalAccounting
      Standards Board  ̈


We
are submitting to the SEC a form 12b-25 related to the Item 5 “Operating and
Financial Review and Prospects”, A. “Operating Results”, Reconciliation to U.S.
GAAP included in this document and in Note 21 of our Consolidated Financial
Statements.




If “Other
has been checked in response to the previous question, indicate by check mark
which financial statements item the registrant has elected to
follow:





Item 17   ̈Item 18x




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




PagePART
      I
                            
                            
                            3ITEM
      1.
                            
                            IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
                            3ITEM
      2.
                            
                            OFFER
      STATISTICS AND EXPECTED TIMETABLE
                            3ITEM
      3.
                            
                            KEY
      INFORMATION
                            3A.
                            
                            Selected
      Financial Data
                            3B.
                            
                            Capitalization
      and Indebtedness
                            6C.
                            
                            Reasons
      for the Offer and Use of Proceeds
                            6D.
                            
                            Risk
      Factors
                            6ITEM
      4.
                            
                            INFORMATION
      ON THE COMPANY
                            12A.
                            
                            History
      and Development of the Company
                            12B.
                            
                            Business
      Overview
                            16C.
                            
                            Organizational
      Structure
                            26D.
                            
                            Property,
      Plants and Equipment
                            26ITEM 4.A.
                            
                            UNRESOLVED
      STAFF COMMENTS
                            27ITEM
      5.
                            
                            OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
                            28A.
                            
                            Operating
      Results
                            32B.
                            
                            Liquidity
      and Capital Resources
                            40C.
                            
                            Research
      and Development, Patents and Licenses, etc.
                            41D.
                            
                            Trend
      Information
                            41E.
                            
                            Off-Balance
      Sheet Arrangements
                            41F.
                            
                            Tabular
      Disclosure of Contractual Obligations
                            41G.
                            
                            Safe
      Harbor
                            41ITEM
      6.
                            
                            DIRECTORS,
      SENIOR MANAGEMENT AND EMPLOYEES
                            42A.
                            
                            Directors
      and Senior Management
                            42B.
                            
                            Compensation
                            48C.
                            
                            Board
      Practices
                            48D.
                            
                            Employees
                            48E.
                            
                            Share
      Ownership
                            49


i





ITEM
      7.
                        
                        MAJOR
      STOCKHOLDERS AND RELATED PARTY TRANSACTIONS
                        49A.
                        
                        Major
      Shareholders
                        49B.
                        
                        Related
      Party Transactions
                        50C.
                        
                        Interests
      of Experts and Counsel
                        51ITEM
      8.
                        
                        FINANCIAL
      INFORMATION
                        51A.
                        
                        Consolidated
      Statements and Other Financial Information
                        51B.
                        
                        Significant
      Changes
                        52ITEM
      9.
                        
                        THE
      OFFER AND LISTING
                        53A.
                        
                        Offer
      and Listing Details
                        53B.
                        
                        Plan
      of Distribution
                        55C.
                        
                        Markets
                        55D.
                        
                        Selling
      Shareholders
                        57E.
                        
                        Dilution
                        57F.
                        
                        Expenses
      of the Issue
                        57ITEM
      10.
                        
                        ADDITIONAL
      INFORMATION
                        57A.
                        
                        Share
      Capital
                        57B.
                        
                        Memorandum
      and Articles of Association
                        57C.
                        
                        Material
      Contracts
                        66D.
                        
                        Exchange
      Controls
                        66E.
                        
                        Taxation
                        67F.
                        
                        Dividends
      and Paying Agents
                        72G.
                        
                        Statement
      by Experts
                        72H.
                        
                        Documents
      on Display
                        72I.
                        
                        Subsidiary
      Information
                        72ITEM
      11.
                        
                        QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                        73ITEM
      12.
                        
                        DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
                        74A.
                        
                        Debt
      Securities
                        74B.
                        
                        Warrants
      and Rights
                        74C.
                        
                        Other
      Securities
                        75D.
                        
                        American
      Depository Receipts
                        75


ii





PART
      II
                        
                        
                        75ITEM
      13.
                        
                        DEFAULT,
      DIVIDEND ARREARAGES AND DELINQUENCIES
                        75ITEM
      14.
                        
                        MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
                        75ITEM
      15.
                        
                        CONTROLS
      AND PROCEDURES
                        75ITEM
      16.
                        
                        [RESERVED]
                        77ITEM
      16.A.
                        
                        AUDIT
      COMMITTEE FINANCIAL EXPERT
                        77ITEM
      16.B.
                        
                        CODE
      OF ETHICS
                        77ITEM
      16.C.
                        
                        PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
                        77ITEM
      16.D.
                        
                        EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
                        78ITEM
      16.E.
                        
                        PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS
                        78ITEM
      16.F.
                        
                        CHANGES
      IN REGISTRANT’S CERTIFYING ACCOUNTANT
                        78ITEM
      16.G.
                        
                        CORPORATE
      GOVERNANCE
                        78PART
      III
                        
                        
                        82ITEM
      17.
                        
                        FINANCIAL
      STATEMENTS
                        82ITEM
      18.
                        
                        FINANCIAL
      STATEMENTS
                        82ITEM
      19.
                        
                        EXHIBITS
                        82INDEX
      OF EXHIBITS
                        82


iii


Industrias
Bachoco, S.A.B. de C.V. is a holding company with no operations other than
holding the stock of its subsidiaries.  During an extraordinary
stockholders’ meeting held on November 23, 2007, our shareholders approved
our name change from Industrias Bachoco S.A. de C.V. to Industrias Bachoco,
S.A.B. de C.V., by operation of law and amended article one of our
bylaws.  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 94.1% of consolidated total assets on
December 31, 2008.  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 +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”) in effect as of the balance sheet date and include the recognition of the
effects of inflation on the financial information through December 31, 2007,
based on the Mexican National Consumer Price Index (NCPI) published by Banco de
México (central bank).




Mexican
FRS B-10 supersedes Bulletin B-10 "Recognition of the effects of inflation on
the financial information" and its five amendment documents as well as the
related circulars and Interpretation of Financial Reporting Standards (IFRS) 2.
The principal considerations established by this FRS are:




(i)
Recognition of the effects of inflation – An entity operates in (a) an
inflationary economic environment when cumulative inflation over the immediately
preceding 3-year period is equal to or greater than 26%; and (b) a
non-inflationary economic environment, when inflation over the aforementioned
period is less than 26%. For more detail, see Note 2-x in our Consolidated
Financial Statements.




With
respect to (a) above, similarly to the now superseded Bulletin B-10, the
comprehensive recognition of the effects of inflation is required. For case b),
the effects of inflation are not recognized; however, at the effective date of
this FRS and when an entity ceases to operate in an inflationary economic
environment, the restatement effects determined through the last period in which
the entity operated in an inflationary economic environment (in this case 2008),
must be kept and shall be reclassified on the same date and using the same
procedure as that of the corresponding assets, liabilities and stockholders'
equity. Should the entity once more operate in an inflationary economic
environment, the cumulative effects of inflation not recognized in the periods
where the environment was deemed to be non-inflationary should be recognized
retrospectively.




Except as
otherwise indicated, all data in 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 presented in nominal
pesos for the year 2008 and in constant pesos as of December 31, 2007 for the
year 2007, 2006, 2005 and 2004.




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 apply to us,
together with a reconciliation of consolidated operating income, consolidated
net income and consolidated stockholders’ equity to U.S. GAAP, and a
consolidated statement of cash flows under U.S. GAAP, see Note 21 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 21 to the Consolidated Financial
Statements.




1


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.13.815 to U.S.$1.00, the exchange rate on December 31,
2008.




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.




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;




2


·
            raw
      material prices;




·
            competitive
      conditions; and




·
            demand
      for chicken, eggs, turkey, balanced feed and
  swine.




PART
I




ITEM
      1.
            Identity
      of Directors, Senior Management and
Advisers




Not
applicable.




ITEM
      2.
            Offer
      Statistics and Expected Timetable




Not
applicable.




ITEM
      3.
            Key
      Information




A.
            Selected
      Financial Data




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 21 to the
      Consolidated Financial Statements provides a description of the main
      differences between Mexican FRS and U.S. GAAP as they apply to us; a
      reconciliation from Mexican FRS to U.S. GAAP of total stockholders’
      equity, net income, and a condensed statement of cash flows under U.S.
      GAAP as of December 31, 2007 and 2008 and for the years ended
      December 31, 2006, 2007 and 2008.  Our financial statements
      were prepared pursuant to Bulletin B-10, as superseded by Mexican FRS
      B-10, as well as Bulletin B-12, as superseded by Mexican FRS B-2, both
      issued by the Mexican Institute of Public Accountants. See the summary on
      Mexican FRS B-10 in “Presentation of information”
  above.




Except as
otherwise indicated, all data in the consolidated financial statements included
below in Item 18 (collectively with the accompanying notes, the
“Consolidated Financial Statements”) and the selected financial information
included throughout this Form 20-F (this “Annual Report”) have been
presented in nominal pesos for the year 2008 and in constant pesos as of
December 31, 2007 for the years 2007, 2006, 2005 and 2004.  The
effects of this price-level restatement under Mexican FRS have not been reversed
in the reconciliation of Mexican FRS to U.S. GAAP.  See Note 21 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 financial reporting standard came 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 December 31, 2008, is stated in million
of nominal Mexican Pesos.




3




As of and for the year ended December 31,2004
                                  
                                  
                                  2005
                                  
                                  
                                  2006
                                  
                                  
                                  2007
                                  
                                  
                                  2008
                                  
                                  
                                  2008(2)Income Statement Data
                                  
                                  (in millions of constant pesos as of December 31, 2007 for years 2004 – 2007 and in
                                    millions of nominal pesos for year 2008)(1)
                                  
                                  
                                  (millions of U.S.
                                    dollars)(1)Mexican
      FRS:Net
      revenues
                                  
                                  Ps.
                                  14,836.7
                                  
                                  
                                  Ps.
                                  15,617.7
                                  
                                  
                                  Ps.
                                  15,551.0
                                  
                                  
                                  Ps.
                                  18,219.6
                                  
                                  
                                  Ps.
                                  20,125.3
                                  
                                  
                                  
                                  1,456.8Cost
      of sales
                                  
                                  
                                  12,032.4
                                  
                                  
                                  
                                  11,234.2
                                  
                                  
                                  
                                  12,053.0
                                  
                                  
                                  
                                  14,477.9
                                  
                                  
                                  
                                  17,482.5
                                  
                                  
                                  
                                  1,265.5Gross
      profit
                                  
                                  
                                  2,804.3
                                  
                                  
                                  
                                  4,383.5
                                  
                                  
                                  
                                  3,498.0
                                  
                                  
                                  
                                  3,741.8
                                  
                                  
                                  
                                  2,642.9
                                  
                                  
                                  
                                  191.3Operating
      income
                                  
                                  
                                  952.4
                                  
                                  
                                  
                                  2,378.1
                                  
                                  
                                  
                                  1,425.4
                                  
                                  
                                  
                                  1,496.3
                                  
                                  
                                  
                                  230.1
                                  
                                  
                                  
                                  16.7Comprehensive
      financing income (loss)
                                  
                                  
                                  (79.8
                                  )
                                  
                                  
                                  (74.0
                                  )
                                  
                                  
                                  61.4
                                  
                                  
                                  
                                  19.1
                                  
                                  
                                  
                                  (1,,369.2
                                  )
                                  
                                  
                                  (99.1
                                  )Majority
      net income (loss)
                                  
                                  
                                  788.3
                                  
                                  
                                  
                                  1,908.4
                                  
                                  
                                  
                                  906.2
                                  
                                  
                                  
                                  1,270.9
                                  
                                  
                                  
                                  (879.0
                                  )
                                  
                                  
                                  (63.6
                                  )Majority
      net income (loss) per Share(3)
                                  
                                  
                                  1.3
                                  
                                  
                                  
                                  3.2
                                  
                                  
                                  
                                  1.5
                                  
                                  
                                  
                                  2.1
                                  
                                  
                                  
                                  (1.5
                                  )
                                  
                                  
                                  (0.1
                                  )Majority
      net income (loss) per ADS(4)
                                  
                                  
                                  15.8
                                  
                                  
                                  
                                  38.2
                                  
                                  
                                  
                                  18.1
                                  
                                  
                                  
                                  25.4
                                  
                                  
                                  
                                  (17.5
                                  )
                                  
                                  
                                  (1.3
                                  )Dividends
      per Share(5)
                                  
                                  
                                  0.46
                                  
                                  
                                  
                                  0.44
                                  
                                  
                                  
                                  0.61
                                  
                                  
                                  
                                  0.59
                                  
                                  
                                  
                                  0.59
                                  
                                  
                                  
                                  0.05Weighted
      average Shares outstanding (thousands)
                                  
                                  
                                  599,260
                                  
                                  
                                  
                                  599,694
                                  
                                  
                                  
                                  599,571
                                  
                                  
                                  
                                  600,000
                                  
                                  
                                  
                                  600,000
                                  
                                  
                                  
                                  600,000Statement
      of Financial Position DataMexican
      FRS:Cash
      and cash equivalents
                                  
                                  Ps.
                                  2,608.4
                                  
                                  
                                  Ps.
                                  3,419.9
                                  
                                  
                                  Ps.
                                  3,583.9
                                  
                                  
                                  Ps.
                                  3,039.9
                                  
                                  
                                  Ps.
                                  1,998.2
                                  
                                  
                                  
                                  144.6Total
      assets
                                  
                                  
                                  15,008.6
                                  
                                  
                                  
                                  16,530.9
                                  
                                  
                                  
                                  17,559.2
                                  
                                  
                                  
                                  19,116.4
                                  
                                  
                                  
                                  19,455.0
                                  
                                  
                                  
                                  1,408.2Short-term
      debt(6)
                                  
                                  
                                  111.2
                                  
                                  
                                  
                                  100.0
                                  
                                  
                                  
                                  9.8
                                  
                                  
                                  
                                  58.8
                                  
                                  
                                  
                                  234.2
                                  
                                  
                                  
                                  17.0Long-term
      debt
                                  
                                  
                                  80.9
                                  
                                  
                                  
                                  56.0
                                  
                                  
                                  
                                  35.5
                                  
                                  
                                  
                                  50.8
                                  
                                  
                                  
                                  391.7
                                  
                                  
                                  
                                  28.3Total
      stockholders’ equity
                                  
                                  
                                  12,132.7
                                  
                                  
                                  
                                  13,502.7
                                  
                                  
                                  
                                  14,102.9
                                  
                                  
                                  
                                  15,127.2
                                  
                                  
                                  
                                  14,079.4
                                  
                                  
                                  
                                  1,019.1Capital
      Stock
                                  
                                  
                                  2,294.6
                                  
                                  
                                  
                                  2,294.6
                                  
                                  
                                  
                                  2,294.9
                                  
                                  
                                  
                                  2,294.9
                                  
                                  
                                  
                                  2,294.9
                                  
                                  
                                  
                                  166.1Selected
      Operating DataSales
      volume (thousands of tonnes):Chicken
                                  
                                  
                                  733.0
                                  
                                  
                                  
                                  773.0
                                  
                                  
                                  
                                  773.7
                                  
                                  
                                  
                                  837.2
                                  
                                  
                                  
                                  878.1Eggs
                                  
                                  
                                  138.1
                                  
                                  
                                  
                                  140.6
                                  
                                  
                                  
                                  143.4
                                  
                                  
                                  
                                  147.8
                                  
                                  
                                  
                                  143.6Swine
      and Others
                                  
                                  
                                  9.1
                                  
                                  
                                  
                                  9.6
                                  
                                  
                                  
                                  8.9
                                  
                                  
                                  
                                  16.1
                                  
                                  
                                  
                                  18.8Balanced
      Feed
                                  
                                  
                                  320.7
                                  
                                  
                                  
                                  389.6
                                  
                                  
                                  
                                  484.4
                                  
                                  
                                  
                                  438.8
                                  
                                  
                                  
                                  370.7MarginsGross
      margin (%)
                                  
                                  
                                  18.9
                                  %
                                  
                                  
                                  28.1
                                  %
                                  
                                  
                                  22.5
                                  %
                                  
                                  
                                  20.5
                                  %
                                  
                                  
                                  13.1
                                  %Operating
      margin (%)
                                  
                                  
                                  6.4
                                  %
                                  
                                  
                                  15.2
                                  %
                                  
                                  
                                  9.2
                                  %
                                  
                                  
                                  8.2
                                  %
                                  
                                  
                                  1.1
                                  %Consolidated
      net margin (%)
                                  
                                  
                                  5.3
                                  %
                                  
                                  
                                  12.2
                                  %
                                  
                                  
                                  5.8
                                  %
                                  
                                  
                                  7.0
                                  %
                                  
                                  
                                  (4.4
                                  )%Total
      employees
                                  
                                  
                                  18,896
                                  
                                  
                                  
                                  20,432
                                  
                                  
                                  
                                  21,035
                                  
                                  
                                  
                                  23,088
                                  
                                  
                                  
                                  23,248


(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.13.815 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 by the weighted average Shares
outstanding.


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


4


Exchange
Rates




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.




During
2008, the Mexican economy suffered a sharp slowdown and ended the year with an
inflation rate of 6.5%.  The exchange rate of the peso against the
U.S. dollar was highly volatile.  While during the first half of the
year, the Mexican peso strengthened its position with respect to the U.S.
dollar, the Mexican peso experienced a steep depreciation during the second half
of the year and the peso-dollar exchange rate at year-end had depreciated by
21.0% with respect to December 31, 2007.




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
                    End2004
                
                
                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
                
                
                
                10.922008
                
                
                13.94
                
                
                
                9.92
                
                
                
                11.14
                
                
                
                13.83


(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
                  
                  
                  LowDecember 2008
                  
                  
                  13.83
                  
                  
                  
                  13.09January 2009
                  
                  
                  13.33
                  
                  
                  
                  14.33February 2009
                  
                  
                  15.09
                  
                  
                  
                  14.13March 2009
                  
                  
                  15.41
                  
                  
                  
                  14.02April 2009
                  
                  
                  13.89
                  
                  
                  
                  13.05May 2009
                  
                  
                  13.82
                  
                  
                  
                  12.88


(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.


5


On
May 29, 2009, the exchange rate for cable transfers in pesos as certified
for customs purposes by the Federal Reserve Bank of New York was Ps.13.18 per
$1.00 U.S. dollar.





B.
            Capitalization
      and Indebtedness




Not
applicable




C.
            Reasons
      for the Offer and Use of Proceeds




Not
Applicable





D.
            Risk
      Factors




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




México
has experienced adverse economic conditions




·
            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%.




·
            In
      2008, GDP increased by 1.3% and the inflation rate was
    6.5%.




In
general, if the Mexican economy falls or remains in 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
      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.


6


·
            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.




·
            In
      2008, the Mexican peso was highly volatile during the year in its
      peso-dollar exchange rate with a final depreciation of 21.0%, compared to
      the end of 2007.  The average value of the Mexican peso was 1.9%
      lower than the average in 2007.




The
Company uses financial instruments to counter financial risks on the exchange
rate of the Mexican peso versus the U.S. dollar; a drastic change in the
exchange rate could have an adverse impact on the financial position of our
Company.




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; 5.2% in 2004, 3.3% in 2005, 4.1% in 2006,
3.8% in 2007 and 6.5% in 2008.  Inflation for the first four months of
2009 was 1.38% according to the Mexican Central Bank.




According
to Bank of México the average interest rates on 28-day Mexican treasury bills,
or Cetes, was 6.8%,
9.2%, 7.2% , 7.2%  and 7.6% during 2004, 2005, 2006, 2007 and 2008,
respectively.  On May 27, 2009, the 28-day Cetes rate was
5.09%.  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




Felipe
Calderón was elected as President of México in July of
2006.  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.


7


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




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




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
throughout most of 2008.  Prices of corn reached historically high
prices worldwide, as a result of strong demand and consequently, lower
inventories worldwide.  .  However, by the end of 2008, such
prices had begun to decline.  We can offer no assurance that corn and
soybean meal prices will not continue to experience strong volatility in the
future.  If such prices begin to increase again, our profits could be
adversely affected.


8


The
company uses these financial instruments to counter financial risks as
protection against adverse fluctuations in the prices of corn and
soybean.  A drastic change in the grain prices could have an adverse
impact on the financial position of the Company.




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




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




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.




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
last year we experienced a loss of chickens was in 2006 in our Norwest Complex
due to the effects of Hurricane Lane.




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.


9


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 competition
from other producers in all of the markets in which we sell our
products.  In 2008, we accounted for approximately 31% 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% of Mexican chicken production, with the balance distributed among
approximately two hundred small- and medium-sized integrated and non-integrated
producers.




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




We
face increased competition from U.S. producers




In
January 2003, import quotas and most tariffs on poultry, eggs and swine
were eliminated through the North America Free Trade Agreement or
“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.  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 0.0% 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 held
496,500,000Shares
outstanding on December 31, 2007.  In November of 2008, the
Robinson Bours family created a third trust with 102,000,000 Shares, which were
taken from one of the existing trusts.  The purpose of this new trust
is to serve as collateral for the Company’s loan indebtedness.  The
three trusts together accounted for 496,500,000 Shares outstanding on
December 31, 2008 and there has been no change in the position of each
holder.


10


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




The
prevailing market prices for the ADS’s 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.




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.


11


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




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




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




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




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




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




A.
            History
      and Development of the Company




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 investor relations agent in the U.S. is
Grayling, who is located in New York, New York.  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 2008,
we produced approximately 9.4 million chickens per week and accounted for
approximately 31% 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;


12


·
            breeding,
      hatching and growing chickens; and




·
            processing,
      packaging and distributing chicken
products.




Sales of
chicken products accounted for 76.9% of our net revenues in
2008.  Please also see the table under
Item 5.  “General—Results of Operations for the Years Ended
December 31, 2007 and 2008.”




We are
also a significant producer of commercial balanced feed.  We sell our
feed both through distributors and directly to small
producers.  During 2008, we sold approximately 370 thousand tons of
balanced feed to external customers, which amounted to 7.3% of our total
revenues for that year.




Currently,
Bachoco is the second largest producer of table eggs products.  In
2008, we sold approximately 143 thousand tons.  Table egg sales
accounted for 10.5% of our net revenues in 2008.




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 in 2007 we
entered into two new business lines:  turkey and beef value-added
products.  In 2008, sales of swine and these other lines accounted for
5.3% 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 31,2004
                    
                    
                    2005
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2008Chicken
                    
                    
                    733.0
                    
                    
                    
                    773.0
                    
                    
                    
                    773.7
                    
                    
                    
                    837.2
                    
                    
                    
                    878.1Eggs
                    
                    
                    138.1
                    
                    
                    
                    140.6
                    
                    
                    
                    143.4
                    
                    
                    
                    147.8
                    
                    
                    
                    143.6Swine(1)
                    
                    
                    9.1
                    
                    
                    
                    9.6
                    
                    
                    
                    8.9
                    
                    
                    
                    16.1
                    
                    
                    
                    18.8Balanced
      Feed
                    
                    
                    320.7
                    
                    
                    
                    389.6
                    
                    
                    
                    484.4
                    
                    
                    
                    438.8
                    
                    
                    
                    370.7


(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.


13


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.




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, 2008, 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 theMexican
Stock Exchange (Bolsa Mexicana
de Valores), in accordance with Mexican securities laws.  To
execute the Repurchase Plan, we created a reserve of Ps. 180.0 million (Ps.
$303.9 million in constant Mexican pesos as of December 31, 2007), which
reduced retained earnings on our balance sheet.  As of May 29,
2009, we had repurchased a total of 92,000 shares.




In
July 2004, we reached an agreement for renting the farms of the union
producers of UPAVAT & UPATEC, small union producers of table eggs in the
Techamachalco Valley of 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 inventories 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. See Item 5: “Operating and
Financial Review and Prospects - Acquisitions and Dispositions” in this Annual
Report for more details on this transaction.




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 inventories and long term rent agreement of their facilities to strengthen
our presence in that market. See Item 5: “Operating and Financial Review and
Prospects – Acquisitions and Dispositions” in this Annual Report for more
details on this transactions.


14


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
inventories.




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 the last
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
      successfully launched Bachoco’s new
image.


15


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
      2006, we made capital expenditures of Ps.856.2 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 processor at some of our processing plants;
      and




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




·
            In
      2008, we made capital expenditures of Ps. 1,098.8 million, with which
      we:




o
            Increased
      capacity and implemented new technology in the processing plants located
      in Celaya and Culiacán.




o
            Increased
      chicken capacity in farms located in Mérida and
  Veracruz.




o
            Finished
      the construction of new farms located in Ciudad Obregón and
      Hermosillo.




o
            Began
      the construction of new farms located in the state of
    Chiapas.




o
            Updated
      our transportation fleet.




B.
            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.




The
value-added chicken products are a new market in Mexico; we participate
significantly in the market and try to lead the supply of these
products.  According to the UNA, value-added chicken products
currently account for approximately 4.0% of the chicken sold in México; this
represents a decrease from the 7.0% market share in 2007.




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.


16


According
to data obtained from the UNA, total Mexican chicken consumption per capita
increased by 14.6% from 2004 to 2008.  Chicken is the leading meat
consumed in México, and it accounted for approximately the 50.0% of all meat
produced in México in 2008.  The following table sets forth total
Mexican production of chicken, pork and beef for 2004 to 2008:




Mexican
Production of Chicken, Beef and Pork


(in
thousands of tonnes)*(1)




2004
                
                
                2005
                
                
                2006
                
                
                2007
                
                
                2008Chicken
                
                
                2,390
                
                
                
                2,498
                
                
                
                2,592
                
                
                
                2,683
                
                
                
                2,853Beef
                
                
                1,543
                
                
                
                1,559
                
                
                
                1,602
                
                
                
                1,628
                
                
                
                1,673Swine
                
                
                1,150
                
                
                
                1,088
                
                
                
                1,102
                
                
                
                1,116
                
                
                
                1,149





*(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 2004,
our 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,
our 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
our chicken 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, our chicken prices increased by 8.3% as compared with 2006, due to
increases in the price of the main feed ingredients and a strong demand for
chicken.




In 2008,
our chicken prices increased by 4.4% compared to prices in 2007, which was
primarily a result of increases in the prices of raw materials, partially offset
by (i) excess domestic supply, particularly during the second half of the year,
and (ii)a
decrease in the purchasing power of the average consumer.




We
believe that changes in Mexican chicken consumption correlate closely with
changing chicken prices and their effect on consumer purchasing
power.  Chicken per capita consumption increased 3.3% in 2004, 3.5% in
2005, 2.6% in 2006, 2.5% in 2007 and 5.3% in 2008.




Chicken
Products




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




Below is
a brief description of each chicken product line as well as its respective
percentage of the total Mexican chicken production in 2008:




“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 accounted
      for approximately 27% by volume of the chicken sold by producers in
      México.


17


“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 21% by volume of the chicken sold by producers in
      México.




“Rotisserie”chicken is
      a whole broiler presented eviscerated and ready to
      cook.  Rotisserie chicken is sold by wholesalers and directly by
      producers to small shops, stands (rosticerías orasaderos) 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 26% 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 information provided by the UNA, the
      supermarket broiler chicken accounted by the 12% 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 accounts for 10% of the chicken volume 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,
      these products account for 4% of the chicken volume sold by producers in
      2008.




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 31,2004
              
              
              2005
              
              
              2006
              
              
              2007
              
              
              2008Volume
              
              
              % of
                  Total
              
              
              Volume
              
              
              % of
                  Total
              
              
              Volume
              
              
              % of
                  Total
              
              
              Volume
              
              
              % of
                  Total
              
              
              Volume
              
              
              % of
                  Total(thousands
      of tonnes, except percentages)Public
      Market and Rotisserie
              
              
              319.1
              
              
              
              43.5
              
              
              
              349.6
              
              
              
              45.2
              
              
              
              344.3
              
              
              
              44.5
              
              
              
              371.0
              
              
              
              44.3
              
              
              
              402.1
              
              
              
              45.8Supermarket
      Broiler, Chicken Parts and Other(1)
              
              
              219.6
              
              
              
              30.0
              
              
              
              219.1
              
              
              
              28.4
              
              
              
              228.2
              
              
              
              29.5
              
              
              
              245.1
              
              
              
              29.3
              
              
              
              239.0
              
              
              
              27.2Live
              
              
              194.4
              
              
              
              26.5
              
              
              
              204.3
              
              
              
              26.4
              
              
              
              201.2
              
              
              
              26.0
              
              
              
              221.2
              
              
              
              26.4
              
              
              
              237.0
              
              
              
              27.0Total
              
              
              733.1
              
              
              
              100.0
              %
              
              
              773.0
              
              
              
              100.0
              %
              
              
              773.7
              
              
              
              100.0
              %
              
              
              837.2
              
              
              
              100.0
              %
              
              
              878.1
              
              
              
              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.




18


Chicken
Marketing, Sales and Distribution




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




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




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




·
            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
      2008, we finished several projects to expand our facilities in Mérida and
      continued increasing our production in Northern México, specifically in
      the city of Hermosillo and in the state of
  Chiapas.




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.




19


·
            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.




·
            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 rosticeríasand 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.




Even
though sales of value-added products have increased during recent years, fresh
chicken still dominates the industry.  The Company is constantly
developing new, convenient value-added products.




Table
Eggs




According
to the UNA, México has one of the largest per capita consumption of table eggs
in the world with 21.7 kilograms per capita a year, compared with approximately
21.6 kilograms per capita consumed in 2007.  This high level of
consumption is due in part to the fact that eggs are among the cheapest sources
of protein in México.




20


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 48.6% of the market.




Eggs in
México have traditionally been distributed in large 360-egg cases through
wholesalers to retailers.  The retailers, which are typically small
grocery shops, sell the eggs by weight to consumers.  At present,
approximately 20.0% of the eggs sold in México are sold in packaged form, 10.0%
are sold in processed form and approximately 70.0% are sold in bulk to
wholesalers.  The sales trendin recent years has
slowly 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.




According
to the UNA, Bachoco is the second largest producer of table eggs in México with
approximately 12.0% 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 U.S. states with products produced in the
U.S.  This test will allow us to see how our brand is received and
identify opportunities and strategies going forward.




In 2008,
our table egg production remained stable with a slight reduction in production
capacity due to some adjustments we made in production.




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.




21


Balanced
Feed




According
to Consejo Nacional de
Fabricantes de Alimento Balanceado y de la Nutrición Animal, A.C)
(”CONAFAB”), Mexican production of balanced feed has been in constant growth,
increasing from 23.9 million tons in 2004 to an estimated 26.2 million tons in
2008.  In 2008, México was ranked the third largest producer of feed
in the world and the second largest in Latin America.




Local
production is composed of commercial and integrated
manufacturers.  Commercial manufacturers produce for the market, while
integrated manufacturers mostly produce for themselves and occasionally for
other producers.  Integrated producers account for approximately 63.4%
of total production.  Imports of feed come almost entirely from the
United States and represent approximately 1.1% 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 3.9% of the
market share of the commercial (non-integrated) balanced feed business in
México, a reduction from the 4.8% market share in 2007.  The decrease
in our balanced feed sales volume is due to as high increases in the cost of
grains which particularly affects our markets.




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
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.  In 2008, our swine prices increase by
19.6% as a result of a better balance in the commercial
market.  Traditionally, Mexicans consume less swine products than
chicken and eggs products.




Turkey
and Prepared Beef Products




In 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. See Item 5: “Operating and Financial Review and Prospects -
Acquisitions & Dispositions” in this Annual Report for more details on the
“Del Mezquital” and “Grupo Libra” agreements.




In 2008,
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.




22


The
largest single component of our cost of sales is the cost of ingredients used in
the preparation of feed including, principally, sorghum, soy meal, corn, fish
meal, meat meal, and for certain chicken products, marigold
extract.  The price of these ingredients is subject to significant
volatility resulting from weather, the size of harvests, transportation and
storage costs, governmental agricultural policies, currency exchange rates and
other factors.  To reduce the potential adverse effect of grain price
fluctuations, we vary the composition of our feed to take advantage of current
market prices for the various types of ingredients used.




Under
NAFTA, the government eliminated the tariff on sorghum effective January 1,
1994, and eliminated tariffs on all other grains that we use, except corn, on
January 1, 2003.  Corn tariffs were eliminated on January 1,
2008.  This new condition has been positive for the Company, allowing
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 most of 2008, prices of corn and soybean
meal have experienced high volatility and have demonstrated historically high
prices world-wide.  However, by the end of 2008, prices of corn and
soybean meal started to decrease and have continued their downward trend into
the first quarter of 2009.




We take
advantage of lower-cost feed ingredients from Mexican sources, when
available.  In 2008, we obtained approximately 48.0% of our total
grain we bought 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.  The Company engages in hedging of its feed costs in
order to assure more stable cost of grains.




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 55.0% of total Mexican
poultry production; the balance is distributed among approximately one hundred
and ninety 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.




23


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 2008, imports of poultry products
increased 23.0% in volume over imports in 2007 and an increase of 6.2% over year
2006.  This increase was due to lower level of prices in the U.S. and
others foreign markets as well as the phase out at the beginning of 2008 of the
temporary tariff safeguard which has been put into place for the benefit of
domestic producers.




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.




Table
Eggs




We are
one of the largest producers of table eggs in México, with approximately 12.0%
of total Mexican egg production at the end of 2008.  The Mexican table
egg industry is very fragmented and the principal 10 companies only account for
48.6% of total table egg production in Mexico.




Balanced
Feed




According
to the Consejo Nacional de Fabricantes de Alimento Balanceado y de la Inustria
Animal, A.C. ( “CONAFAB”), the balanced feed
production in México recorded a cumulative increase of 9.6% from 2004 to 2008,
where the integrated firms produce approximately 63.4% of total production for
their internal use, and the remaining 36.6% is produced for sale to third
parties.  We estimate a market share of approximately 3.9% 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, 2008, 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.




24


·
            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.




·
            Starting
      on January 1, 2008, the safeguard was phased out.  This
      allows U.S. 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.




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.




25


C.
            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 94.1% of consolidated total assets as of December 31, 2008,
and 91.9% of our consolidated revenues for the year ended December 31,
2008.  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, 2006, 2007
and 2008:




Percentage Equity Interest2006
              
              
              2007
              
              
              2008Acuícola
      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
              
              
              -
              
              
              
              100
              
              
              
              100Campi
      Alimentos, S.A. de C.V.
              
              
              100
              
              
              
              100
              
              
              
              100Huevo
      y Derivados, S.A. de C.V.
              
              
              97
              
              
              
              97
              
              
              
              97Operadora
      de Servicios de Personal, S.A. de C.V.
              
              
              100
              
              
              
              100
              
              
              
              100Pecuarius
      Laboratorios, S.A. de C.V.
              
              
              64
              
              
              
              64
              
              
              
              64Secba,
      S.A. de C.V.
              
              
              100
              
              
              
              100
              
              
              
              100Sepetec,
      S. A. de C.V.
              
              
              100
              
              
              
              100
              
              
              
              100Servicios
      de Personal Administrativo, S.A. de C.V.
              
              
              100
              
              
              
              100
              
              
              
              100Induba
      Pavos, S.A. de C.V.
              
              
              100
              
              
              
              100
              
              
              
              100





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.




There
were no changes in our subsidiaries during 2008.




D.
            Property,
      Plant 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 and Saltillo, 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.




26


The
following table summarizes the types and number of each type of our production
facilities as of March 2009:




Bachoco
Production Facilities




Type
                  
                  NumberChicken
      breeding farms
                  
                  
                  168Broiler
      grow-out farms
                  
                  
                  466Broiler
      processing plants
                  
                  
                  9Egg
      incubation plants
                  
                  
                  21Egg
      production farms
                  
                  
                  101Swine
      breeding farms
                  
                  
                  1Swine
      grow-out farms
                  
                  
                  12Feed
      mills
                  
                  
                  17Further
      process plants
                  
                  
                  3





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.




On
April 13, 2008, the secondary processor at our processing plant in
Monterrey caught fire.  While the fire destroyed the entire secondary
processor, the primary processor, which is physically separate from the second,
did not suffer any damage and is operating under nearly normal
conditions.  The assets were properly covered by an insurance
policy.




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 390,000 tons 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.




We own
most of our facilities.  We also lease a limited number of farms and
sales centers, all of which we do not consider material.  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
      4.A.
            Unresolved
      Staff Comments





None.


27




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 21 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 consolidated
stockholders’ equity, net income, a consolidated statement of changes in
stockholders’ equity and a consolidated statement of cash flows under U.S. GAAP
as of December 31, 2007 and 2008 and for the years ended December 31,
2006, 2007 and 2008.




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 financial reporting standard came into effect on
January 1, 2008, which terminates 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 is
stated in millions of nominal Mexican Pesos. The effects of this price-level
restatement in accordance with Mexican FRS have not been reversed in the
reconciliation from Mexican FRS to U.S. GAAP.  See the Consolidated
Financial Statements for more detail.




General




In the
following discussion we describe various trends and how they affected our
results of operations for the years ended December 31, 2006, 2007 and
2008.




Mexican
Economic Conditions




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.




During
2008 the Mexican economy was very volatile.  In the first half of the
year, the Mexican economy showed little signs of volatility.  However,
as a result of the global economic slowdown and particularly the financial
crisis in the U.S., the Mexican economy experienced a drastic downturn in the
second half of the year.  In particular, the Mexican peso experienced
a sharp depreciation, the Mexican economy had a general slowdown and economic
forecasts deteriorated.




In 2008
the annual inflation rate for was 6.5% and the final dollar-peso depreciation
rate of the peso against the U.S. dollar was approximately 21.0%, as compared to
the end of 2007.  The rate on 28 day Cetes had an average of 7.6%
for the year.




The
global financial crisis which is currently negatively affecting Mexico could
extend for several years and thus could have a material adverse effect on our
future operating and financial results.




Effects
of Economic Conditions on the Industry and the Company




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.


28




Mexican
economic conditions have had an important impact on México’s chicken market,
especially in the feed costs and the exchange rate as we noted
above.  Balanced feed constitutes a substantial portion of our cost
and is priced mostly in U.S. dollars.




We use
financial instruments to mitigate the cost of goods sold in currencies other
than Mexican pesos.  See Note 2-q and Note 10 of the Consolidated
Financial Statements.




In 2006,
average Mexican 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 returned to more normalized levels as compared with the first
three quarters of 2005.




In 2007,
average Mexican 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.




During
2008, average Mexican producer prices increased by approximately 0.2% mainly due
to increases in the cost of raw materials, partially offset by oversupply
conditions primarily in the second part of the year.




Our
outstanding total indebtedness at the end of 2008 increased to Ps. 625.9 million
as compared to the Ps. 109.6 million in 2007, as we increased our debt in order
to ensure sufficient liquidity.




In
2008, we had foreign exchange gain of Ps. 160.2 million due to fluctuations in
the exchange rate of the peso against the U.S. dollar, as compared to a foreign
exchange loss of Ps.3.4 million in 2007 and a foreign exchange gain of Ps. 40.8
million in 2006.  Our valuation effects of financial instruments was a
loss of Ps. 1,666.8 million as compared to a loss of Ps. 44.1 millions in 2007,
as a result of the Mexican peso depreciation at the end of the year and the
volatility in the cost of grains which negatively affected our hedging
positions.  See note 10 in our Consolidated Financial
Statements.




Volume
of Chicken Sold




The
Company achieved an increase in its volume of chicken sold during the last years
by




The
slight increase in 2006 was 0.1%, due mainly to productivity improvements,
offset by the negative effects Hurricane Lane on our Northwest Complex during
the second half of the year, and a reduction in yield as the Company moves to
offering value-added products.




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




In 2008,
the Company reported an increase in volume of chicken sold of 4.9%, compared to
2007.  This increase is due mainly to new farms in the cities of
Hermosillo and an expansion in capacity at our Mérida and Coatzacoalcos
complexes.




Trends
in Product Prices




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


29




Chicken
Prices




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.




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.




In 2008,
our chicken prices increased 4.4% as a result of increases in our costs of
sales, partially offset by oversupply conditions, which were present throughout
the year.




Egg
Prices




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.




In 2008
our egg business was strong and egg prices increased by 23.9% as a result of a
better balance between the demand and supply in the market and improvements in
our mix of products sold.




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




Balanced
Feed Prices




In 2008
the Company was strongly affected by higher feed ingredient costs and oversupply
conditions which resulted principally from the global economic
slowdown.  Balanced feed prices tend to follow the trends in the
prices of feed ingredients, which we discuss in “Trends in Prices of Feed
Ingredients” below.





Swine
Prices




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.




During
2008, demand and supply were stable for most of the year and swine prices
increased by 19.6% as compared to 2007.




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.


30




At
present, Mexican feed prices tend to parallel U.S. and international
prices.  In 2006, the percentage of grain purchased from domestic
markets was 31.0%, in 2007 it was 36.4% and in 2008 it was approximately
48.0%.




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.




Beginning
in 2007 and throughout most of the 2008, international grain prices increased
drastically reaching new historically high prices worldwide and exceeding the
corn prices reached in 2004, due to strong demand and lower inventories
worldwide.  These price increases put strong pressure on our
production costs.




Restrictions
on importing grain under NAFTA phased out at the beginning of
2008.  We expect this condition to be beneficial to the Company and
result in a reduction of the costs associated with our imports of feed
ingredients.  However, while this change is generally positive to the
Company, the high cost of raw materials made it difficult to reflect the
positive impact of the purchases we made during 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:




·
            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 and December 2007, the Company reached a business
      agreement with “Grupo Libra” and “Grupo AGRA” respectively as described
      below:




a)
            Grupo
      Libra is 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
      inventories  and brands.


b)
            Grupo
      Agra is an eggs producing 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 inventories.




These two
transactions in 2007, represent less than 1.0% of our total sales.  We
analyzed both transactions to determine whether these agreements should be
considered as business acquisitions, under SFAS141 “Business
Combination”.  Per the terms of the agreements, we did not acquire any
employees, customer base or production techniques.  For these and
other reasons, we concluded that the transactions did not qualify as a business
in accordance with EITF 98-3 “Determining Whether a non-monetary transaction
Involves Receipt of Productive Assets or of a Business” (paragraph 6) and
therefore were not deemed to be business combinations, in accordance with FAS
141.


31





Both
transactions were accounted for as asset acquisitions.  The accounting
is the same for Mexican GAAP.  The FAS 141 disclosure requirements
described in paragraph 51-53 therefore do not apply to these
transactions.





Additionally,
we analyzed the appropriate accounting treatment related to leases as described
in FASB 13 “Accounting for Leases” and concluded that the transactions were
operating leases and did not qualify as capital leases because there is no
transfer of ownership of the property to Bachoco by the end of the lease term,
the lease does not contain an option to purchase the leased property at a
bargain price, the lease term is not equal or greater than 75% of the estimated
economic life of the leased property and the present value of rental and other
minimum lease payment is not equal to or exceed 90% of the fair value of the
leased property. We concluded that they were operating leases under both Mexican
Financial Reporting Standards and US GAAP.  The lease commitments were
appropriately included in footnote No. 11 to the Consolidated Financial
Statements.





On April
13, 2008, the second phase of our production process at our processing plant in
Monterrey caught fire. While the fire destroyed the entire second phase of our
production process, the first phase of our production process, which is
physically separate from the second, did not suffer any damage and is operating
under nearly normal conditions. All the assets were properly covered by an
insurance policy.





A.
            Operating
      Results




Summary




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 31,2006
                    
                    
                    2007
                    
                    
                    2008(percentage of net revenues)Net
      revenues
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Cost
      of sales
                    
                    
                    (77.5
                    )
                    
                    
                    (79.5
                    )
                    
                    
                    (86.9
                    )Gross
      profit
                    
                    
                    22.5
                    
                    
                    
                    20.5
                    
                    
                    
                    13.1Selling,
      general and administrative expenses
                    
                    
                    (13.3
                    )
                    
                    
                    (12.3
                    )
                    
                    
                    (12.0
                    )Operating
      income
                    
                    
                    9.2
                    
                    
                    
                    8.2
                    
                    
                    
                    1.1Comprehensive
      financing income (loss)
                    
                    
                    0.4
                    
                    
                    
                    0.1
                    
                    
                    
                    (6.8
                    )Taxes
                    
                    
                    (3.9
                    )
                    
                    
                    (1.7
                    )
                    
                    
                    1.4Net
      income (loss)
                    
                    
                    5.8
                    
                    
                    
                    7.0
                    
                    
                    
                    (4.4
                    )





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 31,2006
                      
                      
                      2007
                      
                      
                      2008(percentage of net revenues)Chicken
                      
                      
                      77.6
                      %
                      
                      
                      77.6
                      %
                      
                      
                      76.9
                      %Feed
                      
                      
                      9.0
                      %
                      
                      
                      8.0
                      %
                      
                      
                      7.3
                      %Eggs
                      
                      
                      9.2
                      %
                      
                      
                      9.6
                      %
                      
                      
                      10.5
                      %Swine
      and Others
                      
                      
                      4.2
                      %
                      
                      
                      4.8
                      %
                      
                      
                      5.3
                      %Total
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %
                      
                      
                      100.0
                      %


32





Results
of Operations for the Years Ended December 31, 2007 and 2008




General




The
global financial crisis had severe repercussions in the Mexican economy,
especially in the second half of the year.  In particular, there was a
slowdown in the Mexican economy and a reduction in economic growth
forecasts.  In addition, the exchange rate of the peso against the
U.S. dollar experienced a sharp depreciation of 21.0% when compared to the
year-end exchange rate for 2007.




The
Mexican economy had a growth rate of only 1.3% and the annual inflation rate
increased to 6.5%.




According
to the UNA, the production volume of the Mexican chicken industry grew by
approximately 6.4% in 2008 as a result of consumer preference for healthier meat
products, income increases per capita and chicken as a low-cost protein
alternative to other meat sources.




With
respect to the table egg industry, domestic production increased by 1.2% which
led to a better balance between supply and demand in the market.




Even
though we were able to increase sales in all our main product lines and sold our
entire production, the Mexican economic slowdown, the continued increases in the
cost of our main raw materials and oversupply conditions in the chicken markets
negatively affected our operating and financial
results.  Consequently, we achieved an operating margin of 1.1%, which
is lower than the 8.2% reached in 2007 and one of the weakest margins in the
Company’s history.




Net
revenues




Net sales
during 2008 were Ps. 20,125.3 million, 10.5% higher than the Ps. 18,219.6
million reported in 2007.  This was due to an increase in sales in all
of our business lines. For more detail see the table included in Item 5:
“Operating and Financial Review and Prospects - Summary” above.




Chicken
sales grew by 9.5% as compared to sales in 2007.  The increase was due
to an 4.4% price increase.  Even when there were oversupply issues
throughout the year, the Company was able to sell its entire chicken
production.  Chicken volume grew by 4.9% due to increases in capacity
driven by increases in capacity at several farms located in our Mérida and
Veracruz complexes and new farms located in Hermosillo.




Table egg
sales grew by 20.4% in 2008 as compared to sales in 2007 due to a 23.9% price
increase, partially offset by a 2.8% decrease in volume.  The sales
increase was due to stable supply in the Mexican table eggs industry and strong
demand for our table eggs products during most part of the year, of which more
than 50% are packaged under our brand name.




During
2008, balanced feed sales grew slightly by 0.9% and the volume of balanced feed
sold dropped 15.5% in comparison to 2007.  This business line was
strongly affected by high increases in the prices of raw
material.  The 19.4% increase in our balanced feed prices was not
enough to offset the increases in our production costs.




We
increased our pork sales by 35.3% in 2008 as compared to sales in 2007, due to a
13.1% increase in volume sold and a 19.6% increase in our pork prices which
resulted from stable demand in the Mexican market and a slight reduction in
imports of pork products.


33




In 2007
and 2008, we recognized Ps.10.9 million and Ps. 16.7 million, respectively, in
revenue as a result of the fair valuing part of the Company’s inventories, see
Note 2-g, and Note 6-b in our Consolidated Financial Statements for more
detail.




Cost
of sales




Our
consolidated cost of sales in 2008 was Ps. 17,482.5 million, an increase of
20.8% with respect to 2007, as a result of the substantial increases in the
prices of raw materials, particularly grains, which are the most important
components of our costs of sales.




Gross
profit




As a
percentage of net sales, gross profit was 13.1% in 2008, compared to 20.5%
reported in 2007.  The decrease was mainly due to a sharp increase in
the cost of sales.




Selling,
general and administrative expenses




The
operating expenses of the Company in 2008 amounted to Ps. 2,412.8 million, an
increase of 7.4% as compared to 2007, primarily due to increases in sales and
distribution expenses.  Total expenses accounted for 12.0% of the
Company’s total sales, representing a decrease of 0.3% when compared with the
12.3% reported for year 2007.




Operating
income




The
consolidated operating result for 2008 was a profit of Ps. 230.1 million, lower
than the Ps. 1,496.3 million profit reported in 2007.  The operating
margin was 1.1% in 2008, as compared to the 8.2% reported in 2007.




Other
income, net




Other
income, net represented a net cost of Ps.21.0 million in 2008 as compared to a
gain of Ps.69.6 million in 2007, mainly due to lower income for sales of waste
animals, raw materials and by products, lower tax incentives and higher employee
profit sharing contributions.  See Note 17 of the Consolidated
Financial Statements for more detail.




Comprehensive
financial results




The
Company had negative comprehensive financial results of Ps. 1,369.2 million in
2008, as compared to the comprehensive financing income of Ps. 19.1 million
achieved in 2007.  This reversal was primarily due to negative results
in our exchange rate derivative instruments and grain hedge
positions.  Our net interest position and the impact on the valuation
of our financial instruments was a loss of Ps.1,529.3 million in 2008, partially
offset by our foreign exchange gain of Ps.160.2 million.  See Note
10-a of our Consolidated Financial Statements for more detail.




Income
(loss) before income taxes, and minority interest




Loss
before income and asset taxes and minority interest was Ps. 1,160.1 million in
2008 as compared to income of Ps. 1,585.0 million in 2007.




At
December 31, 2008, the Company recognized an income tax benefit for an
amount of Ps. 274.0 million, compared to an income tax expense of Ps. 312.7
million reported in 2007.  See note 16-a of the Consolidated Financial
Statements for more details.


34




Net
(loss) income




The
Company reported a consolidated net loss of Ps. 886.0 million for 2008 ,
representing a loss per share of Ps.1.5 (equivalent to U.S.$1.3 per ADS), as
compared to a consolidated net profit in 2007 of Ps. 1,272.2 million or Ps. 2.1
per share (equivalent to U.S.$1.8 per ADS).  This decrease is due to
the lower operating income and the negative comprehensive financial results we
achieved in 2008.




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 particularly in the second
half of 2007.




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.


35




Cost
of sales




In 2007,
the consolidated cost of sales was Ps. 14,477.9 million, an increase of 20.1%
with respect to 2006, 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.




Selling,
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.




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.




Comprehensive
financial results




In 2007,
we had a net comprehensive financing result 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.




Income
before income tax, asset tax, and minority interest




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. 599.1 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.




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.




Income
Tax, Asset Tax and Flat Rate Business Tax, Year 2008




We, and
each of our subsidiaries file separate income tax returns.  Bachoco,
the main subsidiary is subject to the simplified regime, which rate was 16% in
2005 and 2006 and since 2007 it is 19%.  This regime is applicable to
agriculture, cattle-raising, and fishing among a few others.


36





In 2007,
a new law was approved which partially revoked the Asset Tax
Law.  Pursuant to the new law, as of 2007, the applicable asset tax
rate was 1.25% rate and liabilities were no longer deductible from the asset tax
base.  Through December 31, 2006, the applicable asset tax rate
had been 1.8% of the average value of most assets and net of certain
liabilities.  The asset tax in 2006 and 2007 amounted to Ps 28.3
million and Ps 27.2 million, respectively.  In each of the two years
we credited against these amounts the income tax paid.




During
2007, we recognized an additional liability of Ps. 288.6, in order to account
for the difference between deferred taxes as calculated under the asset and
liability method and deferred taxes as calculated under the stockholders’ equity
method.  Then, effective January 1, 2008, we adopted Mexican FRS
D-4, which supersedes Bulletin D-4 and establishes the assets and liability
method as the only approved method for calculating deferred
taxes.  Consequently, we proceeded to reverse the Ps. 288.6 of
additional liability which was recognized in 2007 against consolidated retained
earnings in 2008.  See Note 16-e and 16-e to the Consolidated
Financial Statements for more detail.




As of
December 31, 2008, we had Ps. 4.5 million in asset tax
credits.  See Note 16-c to the Consolidated Financial Statements for
more detail.




In 2008,
we recognized a total income, deferred and asset tax credit of Ps. 274.0 million
(an effective income tax rate of 24.1%).  This credit resulted mainly
from the Company’s net loss in 2008.  By comparison, the Company had a
total income tax and asset charge of Ps. 312.7 million in 2007 and Ps.599.1
million in 2006.




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 FRBT
rate is 16.5% for 2008, 17.0% for 2009 and 17.5 for 2010 and thereafter based on
cash flows and certain limited deductions.




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.




In 2008,
we recognized a total FRBT of Ps. 0.1 million.  We cannot assure a
similarly low FRBT in future years.




For a
more detailed discussion on this topic, please see Note 16 to our Consolidated
Financial Statements.  We and each of our subsidiaries file individual
tax returns and may be subject to different tax regimes.


37




Reconciliation
to U.S. GAAP




To be
filed no later than the fifteenth calendar day following the prescribed due date
of this Annual Report.




Use
of Estimates in Certain Accounting Policies




In
preparing our consolidated 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 2008 amounted to Ps.
7.2 billion.  As applied to our 2008 financial results, the
depreciation was Ps.616.4 million, or 3.1% of our net revenues.  For
further explanation, see Notes 2-h and 7 to the Consolidated Financial
Statements.




Allowance
for Productivity Declines




The
allowance for decline in productivity of our breeder chickens and swine is
estimated based on expected future life under straight line
method.  See Note 2g in our Consolidated Financial Statements for more
detail.




Inventory
Valuation




Inventories




At
December 31, 2008, our inventories are stated at the lower of historical cost
determined by the average cost method or market (replacement cost), provided
that replacement cost is not less than net realizable value.




Our
inventories at December 31, 2007 were stated using the specific-cost method. The
stated value of inventories is not in excess of net realizable
value




Agriculture




Our
Consolidated Financial Statements recognize the requirements of Mexican FRS E-1,
“Agriculture”, which establishes the rules for recognizing, measuring,
presenting and disclosing biological assets and agricultural
products.




Mexican
FRS 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.


38




The
allowance for decline in the productivity of breeder chickens and pigs is
estimated based on expected future life under the straight-line
method.




Agricultural
products are live chickens, processed chickens, commercial eggs and pigs
available for sale. The Company’s biological assets are comprised of poultry in
their different stages, incubatable eggs and breeder pigs.




Broiler
chicks less than six and a half 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 and a half weeks 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.




We are
exposed to financial risks due to changes in the price of chicken. We estimate
that the price of chicken will not fall significantly in the future;
consequently, we have not entered into any derivative agreement or any other
type of agreement to offset the risk of a drop in the price of
chicken.




For more
details, see “Inventories and biological assets” in Note 6 of the Consolidated
Financial Statements.




Allowance
for Doubtful Accounts




Our
policy is to record an allowance for doubtful accounts for balances which are
not likely to be recovered.  In establishing the required allowance,
management considers historical losses taking into account current market
conditions and our customer’s financial conditions, the amount of receivables in
dispute, the aging of our current receivable aging, and the collectibility of
our current receivables based on individual payment patterns. Accounts which are
more than 60 days overdue are reviewed individually for collectibles. See Note
2-f to our Consolidated Financial Statements for more detail.




Pension
Plan




We have a
retirement plan in which all non-union workers participate.  Pension benefits are based on thesalary of workers in their final three years of service, the number of
years worked and their age at retirement.  See Note 2-m and Note 14 to
our Consolidated Financial Statements.





This plan
includes:





§
            Defined
      contribution plan:  This fund consists of employee and Company
      contributions.  The employee contribution percentage ranges from
      1.0% to 5.0%.  The Company contribution ranges from 1.0% to 2.0%
      in the case of employees with less than 10 years’ seniority, and the same
      contribution percentage as the employee (up to 5.0%) when the employee has
      more than 10 years’ seniority.


39





§
            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.




B.
            Liquidity
      and Capital Resources




Our
working capital (current assets less current liabilities) decreased year over
year from Ps.6.5 billion on December 31, 2007 to Ps.4.6 billion on
December 31, 2008.  Said decrease was mainly due to a decrease in
the cash and investments current assets accounts, and increases in the accounts
payable and derivatives financial instruments current liabilities
accounts.  The ratio of current assets to current liabilities on
December 31, 2008 was 2.4.




Cash and
cash equivalents were Ps.2.0 billion on December 31, 2008, representing a
decrease of Ps.1.0 billion or 34.3% from the previous year.  The
decrease was primarily due to larger inventories, increase in our level of
capital expenditures and losses in our financial instrument
positions.




Inventories
were Ps.4.0 billion as of December 31, 2008, representing an increase of
Ps.644.3 million or 19.4% 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.625.9 million
as of December 31, 2008, much higher than the Ps. 109.6 million reported as
of December 31, 2007.  This increase is due to new debt
obligations we entered into in order to guarantee our liquidity under highly
volatile conditions.




Long term
debt on December 31, 2008 represented 2.7% of our capitalization, compared
to 0.3% reported on December 31, 2007.




Stockholders’
equity decreased to Ps.14.1 billion on December 31, 2008 from Ps.15.1
billion on December 31, 2007.




In 2008,
capital investments amounted to Ps. 1.1 billion, 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 improvements to keep facilities in good
operating conditions.




We are a
holding company with no significant operations of our own. We principally engage
in transactions with our subsidiaries.  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. See our Consolidated Statement of Cash Flow in our
Consolidated Financial Statements for more details.




We
consider our current level of working capital to be sufficient for our
operations.


40




We expect
to finance our capital expenditures, additional working capital, 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 Note 10 of our Consolidated Financial
Statements.




We
entered into operating leases for certain offices, production sites, computer
equipments, and automobiles.  These agreements have terms ranging
between one and five years period and some of them contain renewal
options.  Rental expenses under these leases for 2006, 2007 and 2008
were Ps. 124.0, Ps. 153.2 million and Ps. 167.9
million,  respectively.





C.
            Research
      and Development, Patents and Licenses,
etc.




None





D.
            Trend
      Information




For a description of trends in our
product lines see Item 3:  “General – Trend in Product Prices”
above.





E.
            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.




F.
            Tabular
      Disclosure of Contractual
Obligations




Our major
categories of indebtedness included the following:




•
            As
      of December 31, 2008 we have Ps. 234.2 million in notes payable to
      banks and current installments of long term
  debt.




•
            Long
      term debt to banks, as of December 31, 2008, was Ps.391.7 million
      outstanding (excluding current portion), which is higher than Ps. 50.8
      million in the same date of 2007.  The weighted average interest
      rates on long term debt for 2007 and 2008 were 7.8% and 12.9%
      respectively.  See Note 9 of the Consolidated Financial
      Statements for more detail.




The
following table summarizes long-tem debt as of December 31,
2008.  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, 2008)Contractual Obligations
                      
                      
                      Total
                      
                      2010
                      
                      
                      2011
                      
                      
                      2012
                      
                      
                      2013Long-term debt
                      
                      Ps.
                      391.6
                      
                      
                      360.9
                      
                      
                      
                      15.3
                      
                      
                      
                      11.5
                      
                      Ps.
                      3.9Operating
      leases
                      
                      Ps.
                      227.8
                      
                      
                      70.5
                      
                      
                      
                      69.0
                      
                      
                      
                      68.2
                      
                      Ps.
                      20.1





G.
            Safe
      Harbor




Not applicable.


41





ITEM
      6.
            Directors,
      Senior Management and Employees




A.
            Directors
      and Senior Management




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 2009, their positions
and their years of service:




Name
              
              Position
              
              Years asa
                Member of the
                Board of
                DirectorsEnrique
      Robinson Bours Almada
              
              Honorary
      Chairman of the board
              
              55Mario
      Javier Robinson Bours Almada
              
              Life
      Honorary Shareholder Director
              
              55Francisco
      Javier R. Bours Castelo
              
              Chairman
      of the Board and Proprietary Shareholder Director
              
              27Eduardo
      Rojas Crespo
              
              Secretary
      of the Board
              
              1Jose
      Gerardo Robinson Bours Castelo
              
              Proprietary
      Shareholder Director
              
              1Juan
      Bautista Salvador Robinson Bours
              
              Proprietary
      Shareholder Director
              
              55Jesús
      Enrique Robinson Bours Muñoz
              
              Proprietary
      Shareholder Director
              
              15Jesús
      Rodolfo Robinson Bours Muñoz
              
              Proprietary
      Shareholder Director
              
              7Arturo
      Bours Griffith
              
              Proprietary
      Shareholder Director
              
              15Octavio
      Robinson Bours
              
              Proprietary
      Shareholder Director
              
              12Ricardo
      Aguirre Borboa
              
              Proprietary
      Shareholder Director
              
              15José
      Eduardo Robinson Bours Castelo
              
              Alternate
      Director
              
              15Juan
      Salvador Robinson Bours Martínez
              
              Alternate
      Director
              
              15José
      Francisco Bours Griffith
              
              Alternate
      Director
              
              15Guillermo
      Pineda Cruz
              
              Alternate
      Director
              
              15Avelino
      Fernández Salido
              
              Independent
      Director
              
              6Humberto
      Schwarzbeck Noriega
              
              Independent
      Director
              
              6




·
            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.


42




·
            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.




Ourbylaws 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.




Mr. Enrique
Robinson Bours Almada, Chairman of the board and co-founder of the Company is
retired in April 2002.  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 27 years as a
member of the board and served as Vice-Chairman for nine years.




Mr. Mario
Javier Robinson Bours Almada, member of the Board of Directors retired in
April 2008, and was named as a Life Honorary Propriety Shareholder
Director.  On the same date, the Board named Mr. José Gerardo
Robinson Bours Castelo as a Proprietary Shareholder Director in the place of
Mr. Mario Javier Robinson Bours Almada.




In order
to fully comply with current Mexican Corporate and Securities Market Laws in
which Bachoco’s Shares are traded, we ratified our Board of Directors at our
stockholders’ meeting held on April 22, 2009.  As of
June 2009, our Board of Directors is composed of the following
members:




Proprietary Shareholder
Directors:


Francisco
Javier R. Bours Castelo (Chairman of the Board)


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


Ricardo
Aguirre Borboa





Alternate
Directors:


José
Eduardo Robinson Bours Castelo


Juan
Salvador Robinson Bours Martínez


José
Francisco Bours Griffith


Guillermo
Pineda Cruz





Independent
Directors:


Avelino
Fernández Salido


Humberto
Schwarzbeck Noriega





Life Honorary Chairman of
the Board:


Enrique
Robinson Bours Almada


43





Life Honorary Shareholder
Director:


Mario
Javier Robinson Bours Almada





Secretary of the Board of
Directors:


Eduardo
Rojas Crespo





Francisco
Javier R. Bours Castelo, Chairman of the Board of Directors, has been a member
of the board for 27 years, and has been Chairman since 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:  Megacable Holdings,
S.A.B. 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.




José
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
(ITESM).  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 del Valle del Yaqui and Instituto
Tecnológico y de Estudios Superiores de Monterrey Campus Obregón.




Juan
Bautista S. Robinson Bours Almada, Proprietary Shareholder Director, has been a
member of the board for 55 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 15 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 7 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., Chairman of the Board of Centro
Cultural Cocorit and Manager of the Museum of the Yaqui Indians.




Arturo
Bours Griffith, Proprietary Shareholder Director, has been a member of the board
for 15 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, Proprietary Shareholder Director, has been a member of the board
for 12 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 15 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.


44




José
Eduardo Robinson Bours Castelo, Alternate Director, has been a member of the
board for 15 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 15 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 Bours Griffith, Alternate Director, has been a member of the board for
15 years.  He holds a degree in Civil Engineering from the Universidad
Autónoma de Guadalajara.  Mr. Robinson Bours has worked at
Bachoco as Engineering Manager.  He is currently dedicated to
agricultural operations and has run an aquaculture farm for nine
years.




Guillermo
Pineda Cruz, Alternate Director, has been a member of the board for 15
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 de Sonora (ITSON).  He co‐founded
Edificadora Pi‐Bo, S.A. de C.V.
in 1983 and is its President and CEO.




Avelino
Fernández Salido, Independent Director, is member of the board since
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, is member of the board since
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.





Eduardo
Rojas Crespo, was named Secretary of the Board of Directors on April 23,
2008.  Mr. Rojas has worked for Bachoco since 2004 as our Chief
Legal Officer.  Before joining Bachoco, Mr. Rojas worked for 10
years as the Chief Legal Officer of Grupo Fimex.  He holds a law
degree from the Universidad Nacional Autónoma de México (UNAM) and a
post-graduate diploma in Environmental Law and Due Diligence and a master’s
degree in Corporate Laws, both from the Anáhuac University.


45





Executive
Officers




Our
executive officers as of June 2008 are set forth in the table
below:




Name
                          
                          Position
                          
                          AgeCristóbal
      Mondragón Fragoso
                          
                          Chief
      Executive Officer
                          
                          63Daniel
      Salazar Ferrer
                          
                          Chief
      Financial Officer
                          
                          44David
      Gastélum Cazares
                          
                          Director
      of Sales
                          
                          57José
      Luis López Lepe
                          
                          Director
      of Personnel
                          
                          63Rodolfo
      Ramos Arvizu
                          
                          Technical
      Director
                          
                          51Ernesto
      Salmón Castelo
                          
                          Director
      of Operations
                          
                          46Andres
      Morales Astiazaran
                          
                          Director
      of Marketing and
                            Value-added
      Products
                          
                          40Marco
      Antonio Esparza Serrano
                          
                          Comptroller
      Director
                          
                          53





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 Méxicoand a master’s degree in Business Administration fromInstituto 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.




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
fromInstituto 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 AdministrationfromInstituto Tecnológico de Estudios
Superiores de Monterrey (ITESM).


46




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).




Marco Antonio
Esparza Serrano,Comptroller Director since March 2009.
Before joining Bachoco, Mr. Esparza worked for more than 25 years in the
pharmaceutical industry for three multinational companies, two American
companies and one German company. During that time, Mr. Esparza managed and
directed every area within Finance and Administration as Accounting Manager, Tax
Manager Comptroller, Financial Planning Director and Finance Director. Mr.
Esparza holds a degree in public accounting and several post-graduate diplomas
in Business Administration, Economics and Direction of Enterprises from
universities such as Instituto Politecnico Nacional, University of California at
Berkeley,Instituto
Tecnológico de Estudios Superiores de Monterrey (ITESM), University of Almeria Spain and
IPADE.




Statutory
Auditor




According
with the Mexican Securities Market Law, the Statutory Auditor is no longer
required for public companies as of 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;


47




(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, we
named an audit committee on April, 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.




B.
            Compensation




For the
year ended December 31, 2008, we paid approximately Ps.38.5 million in
aggregate compensation to our directors and executive officers, for services
they rendered in their respective capacities.




C.
            Board
      Practices




In 2001,
we changed the composition of our board and appointed an audit
committee.  See “Directors” and “Audit Committee.”




We do not
have any special agreements or contracts with any member of our board. All of
our board members are subject to the specific expiration dates of their current
terms of office.




D.
            Employees




As of
December 31, 2006, 2007 and 2008, we had approximately 21,035, 23,088 and
23,248 employees, respectively.


48




In 2008,
approximately 64.6% of our employees were members of labor
unions.  Labor relations with our employees are governed by 49
separate collective labor agreements, each relating to a different group of
employees and negotiated on behalf of each such group by a different labor
union.  As is typical in México, wages are renegotiated every year
while other terms and conditions of employment are renegotiated every two
years.  We seek to attract dependable and responsible employees to
train at each of our plants and facilities.  We offer our employees
attractive salary and benefit packages, including a pension and savings
plan.




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




E.
            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.




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.




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.





A.
            Major
      Shareholders




Control
Trust




Initially
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”).  Prior to the Share conversion in September 2005
described above, the Control Trust and the Family Trust were composed
by:


49




Title of Class
              
              Identity of Group
              
              Amount Owned
              
              
              Percent of ClassSeries
      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.




After the
conversion of L Shares to B Shares, the Control Trust  and the Family
Trust own the same number of Shares (496,500,000 Shares or 82.75% of outstanding
Shares).  However, these Shares are all now Series B
Shares.




In
November 2008, the Robinson Bours family created a third trust with
102,000,000 Shares, which were taken from one of the existing
trusts.  The purpose of this new trust is to serve as collateral for
the Company’s loan indebtedness.  The three trusts together accounted
for 496,500,000 Shares outstanding on December 31, 2008 and there has been
no change in the position of each holder.




Apart
from the ownership set forth above, at the end of March 2009, Fidelity Low
Priced Stock Fund and Fidelity Management & Research Co. each owned 4.7% of
our Common Stock; equal to a total of 2,325,000 ADS’s for each
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 2008, the Company had
repurchased zero Shares.




During
our stockholders’ meeting of April 22, 2009, we capped the share repurchase
program for 2009 to a maximum amount of Ps.165.6 million.  As of
May 29, 2009, we had repurchased a total of 92,000 shares.




The
following table sets forth the estimated percentages of the Shares held in
México and other Countries as of December 31, 2008.




Year
                
                PercentageMéxico
                
                
                84.8
                %Other
      Countries
                
                
                15.2
                %




As of
March 31, 2009, from the 100% of the total shares of the Company, we
accounted for approximately 49 shareholders in the NYSE and 65 in the
BMV.




B.
            Related
      Party 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.


50




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 5 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. 63.5 million, Ps.95.8 million and Ps. 156.9 million
for the years ended December 31, 2006, 2007 and 2008,
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 Ps.4.2 million, Ps.3.2 million and Ps. 2.1 for the years ended
December 31, 2006, 2007 and 2008, respectively, for such
transportation.




We
purchased feed and packaging materials from enterprises owned by Robinson Bours
Stockholders, the family of Enrique Robinson Bours and the family of Juan
Bautista Robinson Bours.  The cost of such purchases was Ps.251.9
million, Ps.192.8 million and Ps.427.7 million for the years ended
December 31, 2006, 2007 and 2008, respectively.




Our
accounts payable to related parties totaled Ps.26.8 million and Ps. 50.3 million
as of ended December 31, 2007 and 2008, respectively.  These
transactions took place among companies owned by the same set of
stockholders.  See Note 5 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.




C.
            Interests
      of Experts and Counsel




Not applicable.




ITEM
      8.
            Financial
      Information




A.
            Consolidated
      Statements and Other Financial
Information





Our
Consolidated Financial Statements are included in Item 18.  The
financial statements were audited by independent registered public accounting
firms and are accompanied by their audit reports.




On
August 28, 2008, we announced that the Company’s Board of Directors, as per
the Audit Committee’s recommendation, approved the selection of KPMG Cárdenas
Dosal, S.C. as the Company’s independent auditor, effective as of
August 27, 2008.




The
financial statements include a consolidated balance sheet, consolidated
statements of operations, consolidated statements of changes in stockholders’
equity, consolidated statements of changes in financial position, and
consolidated statement of cash flows and notes relating to the consolidated
financial statements.


51




The
Consolidated Financial Statements have been prepared in accordance with Mexican
FRS, which differ in certain respects from U.S. GAAP.  Note 21 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 Consolidated stockholders’ equity, and
consolidated net income, a consolidated statement of changes in stockholders’
equity and a consolidated cash flow statement under U.S. GAAP as of
December 31, 2007 and 2008, and for the years ended December 31, 2006,
2007 and 2008.




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 the Company’s
consolidated financial positions and consolidated results of
operations.




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.




In 2006,
2007 and 2008, we declared and paid cash dividends at nominal values of
Ps.353.9, Ps. 353.9 and Ps. 353.9 respectively (Ps. 378.1 and Ps.363.7 in
constant Mexican pesos as at December 31 of 2006 and 2007
respectively).




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 of approximately the 20.0% 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 5.0% 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 20.0% 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.




B.
            Significant
      Changes




Significant
Changes in Accounting Practices




New
Accounting pronouncements




The most
important new accounting pronouncements that came into effect after
December 31, 2007 are:


52




Þ
            Mexican FRS B-10,
      (Effects of inflation).  As a result of the adoption of this
      FRS, at January 1, 2008, the stockholders' equity accounts were
      reclassified as shown on the consolidated statement of stockholders'
      equity.  We present the 2007 and 2006 consolidated financial
      statements in constant pesos at December 31, 2007, the last date on
      which the comprehensive method for recognizing the effects of inflation
      was used.




Þ
            Mexican FRS D-3,
      (Employee Benefits).  As a result of the adoption of this FRS,
      in 2008 the intangible asset of Ps. 28.3 million, previously recognized in
      the consolidated balance sheet as of December 31, 2007, and the labor
      obligation minimum liability adjustment of Ps. 2.5 million, previously
      recognized in the consolidated statement of stockholders equity as of
      December 31, 2007, were eliminated.  Furthermore,
      amortization of unamortized items resulted in an approximate gain of Ps.
      0.8 million during 2008.




Þ
            Mexican FRS D-4, (Taxes
      on income).  Effective January 1, 2008, the asset and
      liability method became the only approved method to calculate deferred
      taxes.  Therefore, we wrote off the Ps. 288.6 million of
      additional liability determined under the stockholders’ equity method in
      2007 against retained earnings.




Þ
            Mexican FRS B-2,
      (Statement of Cash Flow).  As a result of the adoption of this
      FRS in 2008, the indirect method was used for the calculation of
      consolidated cash flows in 2008 while the consolidated statements of
      change in the financial position in 2006 and 2007 are presented as
      issued.




The CINIF
has issued the following FRS, effective for fiscal years beginning after
December 31, 2008:




Þ
            FRS B-7 “Business
      acquisitions”, FRS B-8 “Consolidated and combined financial statements”,
      FRS C-7 “Investments in associates and other permanent investments” and
      FRS C-8 “Intangible assets”.




We
consider that the initial effects of these new FRS’s will not be
material.




For more
detail see Note 2-x and Note 20 to the Consolidated Financial
Statements.




ITEM
      9.
            The
      Offer and Listing




A.
            Offer
      and Listing Details





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 through 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.




As of
April 30, 2009, there were 7,574,991 ADSs outstanding, representing 15.1%
of the total Shares outstanding, which were held by approximately 50
holders.


53




The
following tables set forth for each year from 2004 to 2008, for each quarter
from 2007 and 2008 and for each complete month from December 2008 to
May 2009, 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
                  
                  
                  Close2004
                  
                  
                  13.35
                  
                  
                  
                  8.50
                  
                  
                  
                  13.102005
                  
                  
                  20.70
                  
                  
                  
                  12.22
                  
                  
                  
                  17.252006
                  
                  
                  23.70
                  
                  
                  
                  15.70
                  
                  
                  
                  23.662007
                  
                  
                  30.96
                  
                  
                  
                  20.00
                  
                  
                  
                  28.602008
                  
                  
                  30.15
                  
                  
                  
                  14.21
                  
                  
                  
                  15.99





New
York Stock Exchange


(U.S.$
per ADS)





Year
                  
                  High
                  
                  
                  Low
                  
                  
                  Close2004
                  
                  
                  14.19
                  
                  
                  
                  8.8
                  
                  
                  
                  14.192005
                  
                  
                  23.02
                  
                  
                  
                  12.87
                  
                  
                  
                  19.502006
                  
                  
                  29.00
                  
                  
                  
                  16.33
                  
                  
                  
                  29.002007
                  
                  
                  35.11
                  
                  
                  
                  24.10
                  
                  
                  
                  31.812008
                  
                  
                  33.34
                  
                  
                  
                  12.75
                  
                  
                  
                  14.50





Mexican
Stock Exchange


(Nominal
pesos per Share)





Period
                  
                  High
                  
                  
                  Low
                  
                  
                  CloseFirst
      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
                  
                  
                  
                  27.01First
      Quarter 2008
                  
                  
                  30.15
                  
                  
                  
                  25.00
                  
                  
                  
                  26.13Second
      Quarter 2008
                  
                  
                  26.50
                  
                  
                  
                  23.99
                  
                  
                  
                  24.99Third
      Quarter 2008
                  
                  
                  25.60
                  
                  
                  
                  22.76
                  
                  
                  
                  22.76Fourth
      Quarter 2008
                  
                  
                  22.00
                  
                  
                  
                  14.21
                  
                  
                  
                  15.99





New
York Stock Exchange


(U.S.$
per ADS)





Period
                  
                  High
                  
                  
                  Low
                  
                  
                  CloseFirst
      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
                  
                  
                  
                  30.77First
      Quarter 2008
                  
                  
                  33.34
                  
                  
                  
                  27.39
                  
                  
                  
                  29.12Second
      Quarter 2008
                  
                  
                  31.24
                  
                  
                  
                  27.56
                  
                  
                  
                  29.60Third
      Quarter 2008
                  
                  
                  31.00
                  
                  
                  
                  21.59
                  
                  
                  
                  24.38Fourth
      Quarter 2008
                  
                  
                  24.60
                  
                  
                  
                  12.75
                  
                  
                  
                  14.50


54





Mexican
Stock Exchange


(Nominal
pesos per Share)





Month
                  
                  High
                  
                  
                  Low
                  
                  
                  CloseDecember 2008
                  
                  
                  18.00
                  
                  
                  
                  14.21
                  
                  
                  
                  15.99January 2009
                  
                  
                  16.99
                  
                  
                  
                  14.01
                  
                  
                  
                  15.64February 2009
                  
                  
                  18.00
                  
                  
                  
                  13.03
                  
                  
                  
                  13.03March 2009
                  
                  
                  14.69
                  
                  
                  
                  11.85
                  
                  
                  
                  13.80April 2009
                  
                  
                  17.48
                  
                  
                  
                  13.00
                  
                  
                  
                  17.48May 2009
                  
                  
                  20.00
                  
                  
                  
                  16.00
                  
                  
                  
                  19.12





New
York Stock Exchange


(U.S.$
per ADS)





Period
                  
                  High
                  
                  
                  Low
                  
                  
                  CloseDecember 2008
                  
                  
                  16.50
                  
                  
                  
                  12.75
                  
                  
                  
                  14.50January 2009
                  
                  
                  15.30
                  
                  
                  
                  12.00
                  
                  
                  
                  13.50February 2009
                  
                  
                  15.29
                  
                  
                  
                  9.60
                  
                  
                  
                  11.70March 2009
                  
                  
                  12.70
                  
                  
                  
                  9.03
                  
                  
                  
                  11.35April 2009
                  
                  
                  15.00
                  
                  
                  
                  11.58
                  
                  
                  
                  15.00May 2009
                  
                  
                  18.50
                  
                  
                  
                  15.20
                  
                  
                  
                  17.89




B.
            Plan
      of Distribution




Not
applicable.




C.
            Markets




Trading
on the Mexican Stock Exchange




The
Mexican Stock Exchange, located in México City, is the only stock exchange in
México.  Founded in 1894.  Since 2008, the Mexican Stock
Exchange has been a public company, The brokerage houses are currently the only
entities authorized to trade on the floor of the Mexican Stock
Exchange.




Trading
on the Mexican Stock Exchange takes place principally through an automated
inter-dealer quotation system known as SENTRA, which is open for trading between
the hours of 8:30 a.m. and 3:00 p.m., México City time, each business day. Each
trading day is divided into six trading sessions with ten-minute periods
separating each session. Trades in securities listed on the Mexican Stock
Exchange can, subject to certain requirements, also be realized off the
Exchange. Due primarily to Mexican tax considerations, however, most
transactions in listed securities are effected through the Exchange. The Mexican
Stock Exchange operates a system of automatic suspension of trading in Shares of
a particular issuer as a means of controlling excessive price volatility, but
under current regulations this system does not apply to securities such as the
Units that are directly or indirectly (for example, through ADSs) quoted on a
stock exchange outside México.




Settlement
is effected two business days after a share transaction on the Mexican Stock
Exchange. Deferred settlement, even by mutual agreement, is not permitted
without the approval of the CNBV. Most securities traded on the Mexican Stock
Exchange are on deposit with S.D. Indeval Institución para el
Depósito de Valores, S.A. de C.V.,(Central Securities Depository for the
Mexican Securities Market, or “Indeval”), a privately owned central securities
depositary that acts as a clearing house, depositary, custodian and registrar
for Mexican Stock Exchange transactions, eliminating the need for physical
transfer of securities.


55




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, theComisión 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.




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.


56




Some of
the changes, among others, were:




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.




D.
            Selling
      Shareholders




Not applicable.




E.
            Dilution




Not applicable.




F.
            Expenses
      of the Issue




Not applicable.




ITEM
      10.
            Additional
      Information




A.
            Share
      Capital




Not
applicable.




B.
            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.


57




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” in this
Item.




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.


58




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.




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.


59


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.




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
bylawsrequire 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 bylawsto
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.




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.


60


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.




61




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.




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, 2008, 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 bylawsrequire that any
capital increase affected pursuant to a capital contribution be represented by
new Series B Shares.




The fixed
portion of our capital stock may only be increased or decreased by resolution of
a general extraordinary meeting and an amendment to the bylaws, whereas the
variable portion of our capital stock may be increased or decreased by
resolution of a general ordinary meeting.  See “Other Provisions—Fixed
and Variable Capital.”


62




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.




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.




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.




63




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 bylawsprovide 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 bylawsof all Mexican
corporations unless such bylawsprohibit ownership of
capital stock by foreign investors.




Exclusive
Jurisdiction.Our bylawsprovide 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.


64


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:




·
            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;


65




·
            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
Article 35 of the Mexican Securities Market Law for more
detail.




Related
Party Transactions





See
“Related Party Transactions” included in Item 7 to this Annual
Report.




C.
            Material
      Contracts




None.




D.
            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 Government 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.


66




E.
            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.




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.


67


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.




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.


68




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.




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.


69




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).


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”).


70




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.




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.




71


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.




F.
            Dividends
      and Paying Agents




Not
applicable.




G.
            Statement
      by Experts




Not applicable.




H.
            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.




I.
            Subsidiary
      Information




Not applicable.


72


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 cost and 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, most recently in the second half of 2008.




All of
our sales are priced in Mexican pesos but we have significant costs and expenses
in U.S. dollars.  A significant portion of our feed 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.




In 2006,
we experienced a total foreign gain of Ps.40.8 million, 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.




During
2008, our net interest position and the impact on the valuation of our financial
instruments was a loss of Ps. 1,529.3 million, mainly due to negative results in
our exchange rate derivative instruments and grain hedge positions, partially
offset by our foreign exchange gain of Ps.160.2 million.




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.  As part of our normal operations, we purchase financial
derivative instruments in order to ensure greater certainty in our purchases of
U.S. dollars.  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.




The main
risk that the Company faces with the use of these derivative instruments is the
volatility in the exchange rate of the peso against the U.S.
dollar.




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




Even
though we did not have debt denominated in U.S. dollars as of December 31,
2008, given our hedge positions, our comprehensive financial cost was strongly
affected by the abrupt depreciation of the Mexican peso against the US dollar,
especially during the second half of 2008.




At
December 31, 2008, we maintained positions in several financial instrument
derivatives.  For details, please see Note 10 to our Consolidated
Financial Statements.


73


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.  In
order to mitigate our foreign exchange risk, we have established a Risk
Committee which meets at least once a month and approves the guidelines and
policies for entering into these operations.  We also works with
independent consultants whom make evaluations of our positions and provides us
with consulting services.  Said companies do not sell any financial
instruments to us.




Based on
our position in March 2009, we estimate that a hypothetical 10.0%
devaluation of the Mexican peso against the U.S. dollar would result in losses
of Ps.514.1 million.




Interest
Rates




Our
earnings may also be affected by changes in interest rates due to the impact
those changes have on our variable rate debt instruments.  As of
March 2009, we had borrowings of approximately Ps.616.8 million pursuant to
variable rate debt instruments, representing approximately 3.3% of our total
assets.




Based on
our position on December 31, 2008, 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. 3.1 million per
annum.  Any such increase would likely be offset by an increase in
interest income due to our cash and cash equivalent position.




Feed
Ingredients




The
largest single component of our cost of sales is the cost of ingredients used to
prepare 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, 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, we
vary the composition of our feed to take advantage of current market prices for
the various types of ingredients used.




The
percentage of grain purchased from domestic markets was 35.0%, 30.1%, 31.3%, and
36.4% in 2004, 2005, 2006 and 2007 respectively.  In 2008 we purchased
approximately 48.0% of grain from local sources.




During
2008, grain reached new 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.  Towards the end of 2008, the situation began
to change as corn and soybean meal prices started to decline.




Based on
results for 2008, we estimate that a hypothetical variation of 10.0% in the cost
of our feed ingredients would have an impact of 6.6% on total cost of
sales.





ITEM
      12.
            Description
      of Securities Other Than Equity
Securities




A.
            Debt
      Securities




Not
applicable.




B.
            Warrants
      and Rights




Not
applicable.


74




C.
            Other
      Securities




Not applicable.





D.
            American
      Depository Receipts




Not
applicable.




PART
II




ITEM
      13.
            Default,
      Dividend Arrearages and
Delinquencies




None.




ITEM
      14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds




None.




ITEM
      15.
            Controls
      and Procedures




Disclosure
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, 2008.  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
Annual Report on Internal Control over Financial Reporting




The
Company’s management is responsible for establishing and maintaining 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 Mexican
FRS.




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, 2008.  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, 2008, the Company’s internal control over financial reporting
is effective based on those criteria.


75


The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2008, has been audited by KPMG Cádenas Dosal S.C., 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




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, 2008, 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
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.




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,
2008, based on the COSO criteria.


76


We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States of America), the consolidated balance sheet of
Industrias Bachoco, S.A.B. de C.V. and subsidiaries, as of December 31, 2008,
and the related consolidated statements of income, changes in stockholders’
equity, and cash flows for the year ended December 31, 2008 and our report dated
June 19, 2009 expressed an unqualified opinion thereon.




KPMG
      Cárdenas Dosal, S.C.June
      25, 2009
              Demetrio
      Villa Michel




ITEM 16.
            [Reserved]




ITEM
16.A.    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
16.B.    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, controllerand
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
16.C.    Principal Accountant Fees and Services




Audit
and Non-Audit Fees




The
following table sets forth the fees billed to us by our independent auditors,
Mancera, S.C., and KPMG Cárdenas Dosal, S.C. independent registered public
accounting firm.  The following amounts were paid in 2007 and 2008;
all the amounts are in nominal pesos, prior to taxes:




Mancera,
      S.C.
                
                
                KPMG,
      Cárdenas Dosal S.C.Thousands
      of Mexican pesos, year ended December 31,2007
                
                
                2008
                
                
                2007
                
                
                2008Audit
      fees
                
                Ps.   4,456.2
                
                
                Ps.   3,067.3
                
                
                
                —
                
                
                Ps.      2,573.5Tax
      fees
                
                
                953.5
                
                
                
                261.5
                
                
                
                —
                
                
                
                —Other
      fees
                
                
                —
                
                
                
                267.0
                
                
                
                —
                
                
                
                —Total
      fees
                
                Ps.   5,409.7
                
                
                Ps.   3,595.9
                
                
                
                —
                
                
                Ps.      2,573.5


77


Audit
fees in the above table are the aggregate fees billed by Mancera, S.C., and KPMG
Cárdenas Dosal, S.C. directly in connection with the audit of our annual
financial statements and statutory and regulatory audits for the years 2007 and
2008. The total 2008 audit fees to be paid to KPMG Cárdenas Dosal, S.C. amounts
Ps. 5,285.0 million.




Tax fees
for 2007, in the above table are fees billed by Mancera, S.C. for services
related to tax refund claims.




Other
fees in the table above are fees related to services such as reviewing Security
and Exchange Commission requirements and other services.




Audit
Committee Approval Policies and Procedures




Our audit
committee has not established pre-approval policies and procedures for the
engagement of our independent auditors for services.  Our audit
committee expressly approves on a case-by-case basis any engagement of our
independent auditors for audit and non-audit services provided to our
subsidiaries or to us.




ITEM
16.D.    Exemptions from the Listing Standards for Audit
Committees




Not applicable.





ITEM
16.E.     Purchases of Equity Securities by the Issuer
and Affiliated Purchasers




Not applicable.




ITEM
16.F.     Changes in Registrant’s Certifying
Accountant




Not applicable.





ITEM
16.G.    Corporate Governance




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 final corporate governance standards for
companies listed on he NYSE (“NYSE Corporate Governance
Standards”).  According to such standards, 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 NYSE Corporate Governance
Standards:




·
            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


78


·
            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.




Pursuant to Section 303A.11 of the NYSE
Corporate Governance Standards, we are required to disclose any significant ways
in which our corporate governance practices differ from those required to be
followed by domestic 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 the NYSE listing
standards is set forth below:





NYSE
      Corporate Governance Rules for
                            Domestic
      Issuers
                          
                          Our
      Corporate Governance PracticesDirector
      Independence.  Majority of board of directors must be
      independent.  “Controlled companies,” which would include our
      company if it were a U.S. issuer, are exempt from this
      requirement.
                          
                          Pursuant
      to the Mexican Securities Market Law and our bylaws, our stockholders are
      required to appoint a board of directors of between five and 20 members,
      25% of whom must be independent.  Our board of directors is not
      required to make a determination as to the independence of our
      directors.A
      director is not independent if such director is:
                          
                          Under
      Article 14 Bis of the Mexican Securities Market Law, a director is
      not independent if such director is:(i)   a
      person who the board determines has a material direct or indirect
      relationship with the company, its parent or a consolidated
      subsidiary;
                          
                          (i) an
      employee or officer of the company (one-year cooling off
      period);(ii)  an
      employee, or an immediate family member of an executive officer, of the
      company, its parent or a consolidated subsidiary, other than employment as
      interim chairman or CEO;
                          
                          (ii) a
      stockholder that, without being an employee or officer of the company, has
      influence or authority over the company’s officers;(iii) a
      person who receives, or whose immediate family member receives, more than
      $100,000 per year in direct compensation from the company, its parent or a
      consolidated subsidiary, other than director and committee fees or
      deferred compensation for prior services only (and other than compensation
      for service as interim chairman or CEO or received by an immediate family
      member for service as a non-executive employee);
                          
                          (iii) a
      consultant, or partner or employee of a consultant, to the company or its
      affiliates, where the income from the company represents 10% or more of
      the overall income of such consultant;(iv) a
      person who is affiliated with or employed, or whose immediate family
      member is affiliated with or employed in a professional capacity, by a
      present or former internal or external auditor of the company, its parent
      or a consolidated subsidiary;
                          
                          (iv) an
      important client, supplier, debtor or creditor (or a partner, director or
      employee thereof).  A client and supplier is considered
      important where its sales to or purchases from the company represent more
      than 10% of the client’s or supplier’s total sales or
      purchases.  A debtor or creditor is considered important
      whenever its sales to or purchases from to the company represent more than
      15% of the debtor’s or creditor’s total sales or
  purchases;


79





NYSE
      Corporate Governance Rules for
                          Domestic
      Issuers
                        
                        Our
      Corporate Governance Practices(v)  an
      executive officer, or an immediate family member of an executive officer,
      of another company whose compensation committee’s membership includes an
      executive officer of the listed company, its parent or a consolidated
      subsidiary; or
                        
                        (v)  an
      employee of a non-profit entity that receives contributions from the
      company that represent more than 15% of the total contributions
      received;(vi) an
      executive officer or employee of a company, or an immediate family member
      of an executive officer of a company, that makes payments to, or receives
      payments from, the listed company, its parent or a consolidated subsidiary
      for property or services in an amount which, in any single fiscal year,
      exceeds the greater of $1 million or 2% of such other company’s
      consolidated gross revenues (charities are not included, but any such
      payments must be disclosed in the company’s proxy (or, if no proxy is
      prepared, its Form 10-K / Annual Report)).
                        
                        (vi) a
      CEO or other high ranking officer of another company in which the issuer’s
      CEO or other high ranking officer is a member of the board of directors;
      or(vii) “Immediate
      family member” includes a person’s spouse, parents, children, siblings,
      mothers and fathers-in-law, sons and daughters-in-law and anyone (other
      than domestic employees) who shares the person’s
      home.  Individuals who are no longer immediate family members
      due to legal separation, divorce or death (or incapacity) are
      excluded.  §303A.02(b)
                        
                        (vii) a
      “family member” related to any of the persons mentioned above in (i)
      through (vi).  “Family member” includes a person’s spouse,
      concubine or other relative of up to three degrees of consanguinity and
      affinity, in the case of (i) and (ii) above, and a spouse, concubine or
      other relative of up to one degree of consanguinity or affinity in the
      case of (iii) through (vi) above.Executive
      Sessions.  Non-management directors must meet regularly
      in executive sessions without management.  Independent directors
      should meet alone in an executive session at least once a
      year.  §303A.03
                        
                        There
      is no similar requirement under our bylaws or applicable Mexican
      law.Audit
      committee.  Audit committee satisfying the independence
      and other requirements of Rule 10A-3 under the Exchange Act and the
      more stringent requirements under the NYSE standards is
      required.  §§303A.06, 303A.07
                        
                        The
      members of our audit committee are independent as independence is defined
      by Rule 10A-3.Our
      audit committee complies with the requirements of the Mexican Securities
      Market Law and has the following
attributes:


80




NYSE
      Corporate Governance Rules for
                Domestic
      Issuers
              
              Our
      Corporate Governance Practices·We have a three-member audit committee, which is composed of one
      proprietary director and two proprietary independent
      directors.
                
                ·The president of the audit committee and one additional member are
      independent.  Under the Mexican Securities Market Law, the
      president and the majority of the members of the audit committee must be
      independent.·Our audit committee operates pursuant to a written charter adopted
      by our board of directors.  See Item 6 for a detailed
      description of the duties of our audit committee.·Pursuant to our bylaws and Mexican law, our audit committee submits
      an annual report regarding its activities to our board of
      directors.Nominating/corporate governance
      committee.Nominating/corporate governance committee of
      independent directors is required.  The committee must have a
      charter specifying the purpose, duties and evaluation procedures of the
      committee.  “Controlled companies,” which would include our
      company if it were a U.S. issuer, are exempt from these
      requirements.  §303A.04
              
              We
      are not required to have a nominating/corporate governance committee, and
      it is not expressly recommended by the Mexican Code of Best Corporate
      Practices.Compensation
      committee.  Compensation committee of independent
      directors is required, which must approve executive officer
      compensation.  The committee must have a charter specifying the
      purpose, duties and evaluation procedures of the
      committee.  “Controlled companies,” which would include our
      company if it were a U.S. issuer, are exempt from this
      requirement.  §303A.05
              
              We
      are not required to have a compensation committee.  As
      recommended by the Mexican Code of Best Corporate Practices, we have an
      evaluation mechanism for assisting the board of directors in approving
      executive officer compensation.Equity compensation
      plans.  Equity compensation plans require stockholder
      approval, subject to limited
    exemptions.  §303A.08
              
              Stockholder
      approval is not expressly required under Mexican law or our bylaws for the
      adoption and amendment of an equity-compensation plan.  However,
      regulations of the Mexican Banking and Securities Commission require
      stockholder approval under certain circumstances.  We currently
      do not have any equity-compensation plans in
  place.


81





NYSE
      Corporate Governance Rules for
                  Domestic
      Issuers
                
                Our
      Corporate Governance PracticesCode of
      Ethics.Corporate governance guidelines and a code of
      business conduct and ethics is required, with disclosure of any waiver for
      directors or executive officers.  §303A.10
                
                We
      have adopted a code of ethics, which has been accepted by to our chief
      executive officer, chief financial officer, controller and persons
      performing similar functions, as well as to other officers and
      employees.  We are required by Item 16B of Form 20-F
      to disclose any waivers granted to our chief executive officer, chief
      financial officer, principal accounting officer and persons performing
      similar functions.  We have no such waivers in
      place.





PART
III




ITEM
      17.
            Financial
      Statements




Not
applicable.




ITEM
      18.
            Financial
      Statements




See the
Consolidated Audited Financial Statements including notes, incorporated herein
by reference.




ITEM
      19.
            Exhibits




Index
of Exhibits




Documents
filed as exhibits to this Annual Report:


Exhibit
                    No.
                  
                  Description1.1
                  
                  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)).


82





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 Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.12.2
              
              Certification
      of the Chief Financial 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.


83




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,
2009








INDUSTRIAS
      BACHOCO, S.A.B. DE C.V. AND
      SUBSIDIARIESConsolidated
      Financial StatementsAs
      of
              December 31,
      2007 and 2008
              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, 2006, 2007 and 2008





Content





Report of
Independent Registered Public Accounting Firm





Consolidated
Financial Statements:





Balance
      Sheets
              F-4Statements
      of Operations
              F-5Statements
      of Changes in Stockholders’ Equity
              F-6Statements
      of Changes in Financial Position
              F-7Statements
      of Changes in Cash Flows
              F-8Notes
      to the Consolidated Financial Statements
              F-9


F-2




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




To be
filed no later than the fifteenth calendar day following the prescribed due date
of this Annual Report.


F-3


INDUSTRIAS
BACHOCO, S.A.B. DE C. V. AND SUBSIDIARIES
 
 Consolidated
Balance Sheets
 
 December
31, 2007 and 2008
 
 (Thousands
of mexican pesos-note 2x)
 
 (Thousands of
                      U.S.dollars)
                      (note 2v)2007
                    
                    
                    2008
                    
                    
                    2008AssetsCurrent
      assets:Cash
      and investments (note 3)
                    
                    $
                    3,039,876
                    
                    
                    
                    1,998,247
                    
                    
                    
                    144,643Accounts
      receivable:Trade,
      net (note 4)
                    
                    
                    765,502
                    
                    
                    
                    892,207
                    
                    
                    
                    64,582Value
      added and other recoverable taxes
                    
                    
                    440,945
                    
                    
                    
                    456,732
                    
                    
                    
                    33,061Total
      accounts receivable
                    
                    
                    1,206,447
                    
                    
                    
                    1,348,939
                    
                    
                    
                    97,643Inventories,
      net (note 6a)
                    
                    
                    3,329,340
                    
                    
                    
                    3,973,615
                    
                    
                    
                    287,630Biological
      current assets (note 6b)
                    
                    
                    108,502
                    
                    
                    
                    139,844
                    
                    
                    
                    10,123Derivative
      financial instruments (note 10a)
                    
                    
                    123,503
                    
                    
                    
                    126,164
                    
                    
                    
                    9,132Prepaid
      expenses and other current assets
                    
                    
                    129,582
                    
                    
                    
                    154,285
                    
                    
                    
                    11,168Land
      and building available for sale
                    
                    
                    -
                    
                    
                    
                    22,771
                    
                    
                    
                    1,648Total
      currents assets
                    
                    
                    7,937,250
                    
                    
                    
                    7,763,865
                    
                    
                    
                    561,987Property,
      plant and equipment, net (note 7)
                    
                    
                    10,256,239
                    
                    
                    
                    10,689,235
                    
                    
                    
                    773,741Biological
      non-current assets (note 6b)
                    
                    
                    575,413
                    
                    
                    
                    681,577
                    
                    
                    
                    49,336Intangible
      assets from labor obligations (note 14)
                    
                    
                    28,341
                    
                    
                    
                    -
                    
                    
                    
                    -Goodwill,
      net (note 8)
                    
                    
                    300,848
                    
                    
                    
                    300,848
                    
                    
                    
                    21,777Other
      assets
                    
                    
                    18,333
                    
                    
                    
                    19,446
                    
                    
                    
                    1,408Total
      assets
                    
                    $
                    19,116,424
                    
                    
                    
                    19,454,971
                    
                    
                    
                    1,408,249
 Liabilities
      and stockholders' equityCurrent
      liabilities:Notes
      payable to banks (note 9a)
                              
                              $
                              40,000
                              
                              
                              
                              40,000
                              
                              
                              
                              2,895Current
      installmet of long-term debt (note 9b)
                              
                              
                              18,844
                              
                              
                              
                              194,235
                              
                              
                              
                              14,059Account
      payable
                              
                              
                              1,138,011
                              
                              
                              
                              1,651,930
                              
                              
                              
                              119,575Related
      parties (note 5)
                              
                              
                              26,819
                              
                              
                              
                              50,336
                              
                              
                              
                              3,644Other
      taxes payable and other accruals (note 12)
                              
                              
                              243,429
                              
                              
                              
                              328,602
                              
                              
                              
                              23,786Derivative
      financial instruments (note 10a)
                              
                              
                              -
                              
                              
                              
                              919,026
                              
                              
                              
                              66,524Total
      current liabilities
                              
                              
                              1,467,103
                              
                              
                              
                              3,184,129
                              
                              
                              
                              230,483Long-term
      liabilities:Long
      term debt, excluding current installmens (note 9b)
                              
                              
                              50,757
                              
                              
                              
                              391,657
                              
                              
                              
                              28,350Deferred
      income tax (note 16e)
                              
                              
                              2,375,025
                              
                              
                              
                              1,719,076
                              
                              
                              
                              124,435Labor
      obligations (note 14)
                              
                              
                              96,373
                              
                              
                              
                              80,690
                              
                              
                              
                              5,841Total
      liabilities
                              
                              
                              3,989,258
                              
                              
                              
                              5,375,552
                              
                              
                              
                              389,109Commitments
      and contingencies (note 11)Stockholders'
      equity (note 15):Majority
      interest:Capital
      stock
                              
                              
                              2,294,927
                              
                              
                              
                              2,294,927
                              
                              
                              
                              166,118Additional
      paid-in capital
                              
                              
                              743,674
                              
                              
                              
                              743,674
                              
                              
                              
                              53,831Reserve
      for repurchase of shares
                              
                              
                              159,455
                              
                              
                              
                              159,455
                              
                              
                              
                              11,542Retained
      earnings
                              
                              
                              14,250,225
                              
                              
                              
                              11,720,612
                              
                              
                              
                              848,398Net
      majority interest income (loss) of the year
                              
                              
                              1,270,941
                              
                              
                              
                              (879,048
                              )
                              
                              
                              (63,630
                              )Minimun
      liability adjustment of labor obligations (note 14)
                              
                              
                              (2,512
                              )
                              
                              
                              -
                              
                              
                              
                              -Deficit
      from restatement of stockholders' equity
                              
                              
                              (3,735,254
                              )
                              
                              
                              -
                              
                              
                              
                              -Derivative
      financial instruments (note 10c)
                              
                              
                              98,922
                              
                              
                              
                              -
                              
                              
                              
                              -Total
      majority interest
                              
                              
                              15,080,378
                              
                              
                              
                              14,039,620
                              
                              
                              
                              1,016,259Minority
      interest
                              
                              
                              46,788
                              
                              
                              
                              39,799
                              
                              
                              
                              2,881Total
      stockholders' equity
                              
                              
                              15,127,166
                              
                              
                              
                              14,079,419
                              
                              
                              
                              1,019,140Subsequent
      event (note 19)Total
      liabilities and stockholders' equity
                              
                              $
                              19,116,424
                              
                              
                              
                              19,454,971
                              
                              
                              
                              1,408,249
  See
accompanying notes to consolidated financial statements
  F-4
 
 INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
 
 Consolidated
Statements of Operations
 
 Years
ended December 31, 2006, 2007 and 2008
 
 (Thousands
of mexican pesos-note 2x, except per share amount)
 
 (Thousands
      of
                      U.S.
      dollars)
                      (note
      2v)2006
                    
                    
                    2007
                    
                    
                    2008
                    
                    
                    2008Net
      revenues
                    
                    $
                    15,550,965
                    
                    
                    
                    18,219,647
                    
                    
                    
                    20,125,321
                    
                    
                    
                    1,456,773Cost
      of sales (note 5)
                    
                    
                    (12,052,986
                    )
                    
                    
                    (14,477,861
                    )
                    
                    
                    (17,482,468
                    )
                    
                    
                    (1,265,470
                    )Gross
      profit
                    
                    
                    3,497,979
                    
                    
                    
                    3,741,786
                    
                    
                    
                    2,642,853
                    
                    
                    
                    191,303Selling,
      general and administrative expenses (note 5)
                    
                    
                    2,071,553
                    
                    
                    
                    2,245,522
                    
                    
                    
                    2,412,788
                    
                    
                    
                    174,650Operating
      income
                    
                    
                    1,426,426
                    
                    
                    
                    1,496,264
                    
                    
                    
                    230,065
                    
                    
                    
                    16,653Other
      income (expense), net (note 17)
                    
                    
                    18,427
                    
                    
                    
                    69,571
                    
                    
                    
                    (20,958
                    )
                    
                    
                    (1,517
                    )Comprehensive
      financial results:Interest
      income
                    
                    
                    302,910
                    
                    
                    
                    363,016
                    
                    
                    
                    173,694
                    
                    
                    
                    12,573Valuation
      effects of financial instruments (note 10)
                    
                    
                    -
                    
                    
                    
                    (44,137
                    )
                    
                    
                    (1,666,821
                    )
                    
                    
                    (120,653
                    )Interest
      and financial expenses
                    
                    
                    (131,852
                    )
                    
                    
                    (141,578
                    )
                    
                    
                    (36,202
                    )
                    
                    
                    (2,620
                    )Net
      interest income (expense) and valuation effects of financial
      instruments
                    
                    
                    171,058
                    
                    
                    
                    177,301
                    
                    
                    
                    (1,529,329
                    )
                    
                    
                    (110,700
                    )Foreign
      exchange gain (loss), net
                    
                    
                    40,782
                    
                    
                    
                    (3,351
                    )
                    
                    
                    160,166
                    
                    
                    
                    11,594Monetary
      position loss
                    
                    
                    (150,438
                    )
                    
                    
                    (154,814
                    )
                    
                    
                    -
                    
                    
                    
                    -Comprehensive
      financial results, net
                    
                    
                    61,402
                    
                    
                    
                    19,136
                    
                    
                    
                    (1,369,163
                    )
                    
                    
                    (99,106
                    )Income
      (loss) before income taxes and minority interest
                    
                    
                    1,506,255
                    
                    
                    
                    1,584,971
                    
                    
                    
                    (1,160,056
                    )
                    
                    
                    (83,970
                    )Income
      tax benefit (expense) (note 16d)
                    
                    
                    (599,126
                    )
                    
                    
                    (312,745
                    )
                    
                    
                    274,019
                    
                    
                    
                    19,835Net
      consolidated net income (loss)
                    
                    
                    907,129
                    
                    
                    
                    1,272,226
                    
                    
                    
                    (886,037
                    )
                    
                    
                    (64,135
                    )Net
      majority interest income (loss)
                    
                    
                    906,186
                    
                    
                    
                    1,270,941
                    
                    
                    
                    (879,048
                    )
                    
                    
                    (63,630
                    )Minority
      interest
                    
                    
                    943
                    
                    
                    
                    1,285
                    
                    
                    
                    (6,989
                    )
                    
                    
                    (505
                    )Consolidated
      net income (loss)
                    
                    $
                    907,129
                    
                    
                    
                    1,272,226
                    
                    
                    
                    (886,037
                    )
                    
                    
                    (64,135
                    )Weighted
      average outstanding (shares in thousands)
                    
                    
                    599,571
                    
                    
                    
                    600,000
                    
                    
                    
                    600,000
                    
                    
                    
                    600,000Net
      majority interest income (loss) per share
                    
                    $
                    1.51
                    
                    
                    
                    2.12
                    
                    
                    
                    (1.46
                    )
                    
                    
                    (0.11
                    )
 
 See
accompanying notes to consolidated financial statements.
 
  F-5
 
 INDUSTRIAS BACHOCO, S.A.B. DE C.V.
AND SUBSIDIARIES
  Consolidated
Statements of Stockholders' Equity
 
 Years
ended December 31, 2006, 2007 and 2008
 
 (Thousand
of mexican pesos-note 2x, except per share amount)
 
 Number
      of
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      Net
      majority
                      
                      
                      Minimun
                      
                      
                      Deficit
      fromshares
      of
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      interest
                      
                      
                      liability
                      
                      
                      restatementcapital
                      
                      
                      
                      
                      
                      
                      
                      
                      Reserve
      for
                      
                      
                      
                      
                      
                      income
                      
                      
                      adjustment
                      
                      
                      of
                      
                      
                      Derivative
                      
                      
                      
                      
                      
                      
                      
                      
                      Totalstock
                      
                      
                      Capital
                      
                      
                      Additional
                      
                      
                      repurchase
      of
                      
                      
                      Retained
                      
                      
                      (loss)
      of the
                      
                      
                      of
      labor
                      
                      
                      stockholders'
                      
                      
                      financial
      ins-
                      
                      
                      Total
      majority
                      
                      
                      Minority
                      
                      
                      stockholders'(thousands)
                      
                      
                      stock
                      
                      
                      paid
      in capital
                      
                      
                      shares
                      
                      
                      earnings
                      
                      
                      year
                      
                      
                      obligations
                      
                      
                      equity
                      
                      
                      truments
                      
                      
                      interest
                      
                      
                      interest
                      
                      
                      equityBalances
      as of 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 on
      April 2006
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,908,535
                      
                      
                      
                      (1,908,535
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Sales
      of repurchased shares
                      
                      
                      920
                      
                      
                      
                      245
                      
                      
                      
                      17,604
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      17,849
                      
                      
                      
                      -
                      
                      
                      
                      17,849Cash
      dividends paid (note 15b)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (378,075
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (378,075
                      )
                      
                      
                      -
                      
                      
                      
                      (378,075
                      )Comprehensive
      income, net of taxes (note 2o)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      906,186
                      
                      
                      
                      2,420
                      
                      
                      
                      (40,288
                      )
                      
                      
                      92,744
                      
                      
                      
                      961,062
                      
                      
                      
                      (940
                      )
                      
                      
                      960,122Balances
      as of 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 on
      April 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      906,186
                      
                      
                      
                      (906,186
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Cash
      dividends paid (note 15b)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (363,708
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (363,708
                      )
                      
                      
                      -
                      
                      
                      
                      (363,708
                      )Comprehensive
      income, net of taxes (note 2o)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,270,941
                      
                      
                      
                      (1,596
                      )
                      
                      
                      18,661
                      
                      
                      
                      98,552
                      
                      
                      
                      1,386,558
                      
                      
                      
                      1,362
                      
                      
                      
                      1,387,920Balances
      as of December 31, 2007
                      
                      
                      600,000
                      
                      
                      
                      2,294,927
                      
                      
                      
                      743,674
                      
                      
                      
                      159,455
                      
                      
                      
                      14,250,225
                      
                      
                      
                      1,270,941
                      
                      
                      
                      (2,512
                      )
                      
                      
                      (3,735,254
                      )
                      
                      
                      98,922
                      
                      
                      
                      15,080,378
                      
                      
                      
                      46,788
                      
                      
                      
                      15,127,166Transfer
      of prior year's net income based on stockholders' meeting held on
      April 2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,270,941
                      
                      
                      
                      (1,270,941
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Cash
      dividends paid (note 15b)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (353,880
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (353,880
                      )
                      
                      
                      -
                      
                      
                      
                      (353,880
                      )Write-off
      of additional deferred tax liability (note 16)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      288,580
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      288,580
                      
                      
                      
                      -
                      
                      
                      
                      288,580Reclasification
      of deficit from restatement  of stockholders' equity (note
      2x)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (3,735,254
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,735,254
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Comprehensive
      loss, net of taxes (note 2o)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (879,048
                      )
                      
                      
                      2,512
                      
                      
                      
                      -
                      
                      
                      
                      (98,922
                      )
                      
                      
                      (975,458
                      )
                      
                      
                      (6,989
                      )
                      
                      
                      (982,447
                      )Balances
      as of December 31, 2008
                      
                      
                      600,000
                      
                      
                      $
                      2,294,927
                      
                      
                      
                      743,674
                      
                      
                      
                      159,455
                      
                      
                      
                      11,720,612
                      
                      
                      
                      (879,048
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      14,039,620
                      
                      
                      
                      39,799
                      
                      
                      
                      14,079,419
  See
accompanying notes to consolidated financial statements.
  F-6
 
 INDUSTRIAS
BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES
 
 Consolidated
Statements of Changes in Financial Position
 
 (Thousands
of mexican pesos-note 2x)
 
 Years
ended December 31, 2006 and 2007
 
 2006
                              
                              
                              2007Operating
      activities:Net
      income
                              
                              $
                              907,129
                              
                              
                              
                              1,272,226Add
      charges to operations not requiring funds:Depreciation
                              
                              
                              537,383
                              
                              
                              
                              571,393Deferred
      income tax
                              
                              
                              346,110
                              
                              
                              
                              169,716Labor
      obligations, net period cost
                              
                              
                              37,464
                              
                              
                              
                              42,112Funds
      provided by operations
                              
                              
                              1,828,086
                              
                              
                              
                              2,055,447Changes
      in operating assets and liabilities:Accounts
      receivable
                              
                              
                              (51,435
                              )
                              
                              
                              (336,083
                              )Inventories
      and biological assets
                              
                              
                              (535,933
                              )
                              
                              
                              (1,140,124
                              )Prepaid
      expenses and others current assets
                              
                              
                              (11,081
                              )
                              
                              
                              (31,463
                              )Accounts
      payable
                              
                              
                              364,813
                              
                              
                              
                              300,566Related
      parties
                              
                              
                              6,002
                              
                              
                              
                              14,169Taxes
      payable and other accruals
                              
                              
                              (73,193
                              )
                              
                              
                              (45,534
                              )Labor
      obligations, plan contributions
                              
                              
                              (27,576
                              )
                              
                              
                              (32,617
                              )Derivative
      financial instruments
                              
                              
                              (6,407
                              )
                              
                              
                              (35,769
                              )Funds
      provided by operating activities
                              
                              
                              1,493,276
                              
                              
                              
                              748,592Financing
      activities:Proceeds
      from of long-term debt
                              
                              
                              -
                              
                              
                              
                              40,000Proceeds
      from notes payable to bank
                              
                              
                              -
                              
                              
                              
                              40,000Payment
      of long-term debt and notes payable to bank
                              
                              
                              (104,836
                              )
                              
                              
                              (13,963
                              )Constant
      pesos effect on notes payable to banks and long-term
    debt
                              
                              
                              (6,081
                              )
                              
                              
                              (1,638
                              )Cash
      dividends paid
                              
                              
                              (378,075
                              )
                              
                              
                              (363,708
                              )Sales
      of Company's own shares, net
                              
                              
                              17,849
                              
                              
                              
                              -Funds
      used in financing activities
                              
                              
                              (471,143
                              )
                              
                              
                              (299,309
                              )Investing
      activities:Acquisition
      of property, plan and equipment, net
                              
                              
                              (856,227
                              )
                              
                              
                              (991,737
                              )Other
      assets
                              
                              
                              (2,060
                              )
                              
                              
                              (1,561
                              )Funds
      used in investing activities
                              
                              
                              (858,287
                              )
                              
                              
                              (993,298
                              )Net
      increase (decrease) in cash and investments
                              
                              
                              163,846
                              
                              
                              
                              (544,015
                              )Cash
      and investments at beginning of year
                              
                              
                              3,420,045
                              
                              
                              
                              3,583,891Cash
      and investments at end of year
                              
                              $
                              3,583,891
                              
                              
                              
                              3,039,876
 
 See
accompanying notes to consolidated financial statements.
  F-7
 
 INDUSTRIAS
BACHOCO, S.A.B DE C.V. AND SUBSIDIARIES
 
 Consolidated
Statement of Cash Flows
 
 Year
ended December 31, 2008
 
 (Thousand
mexican pesos)
 
 Thousands
      ofU.S.
      dollars(note 2v)2008
                        
                        
                        2008Cash
      flows from operating activities:Loss
      before income taxes and minority interest
                        
                        $
                        (1,160,056
                        )
                        
                        
                        (83,970
                        )Items
      relating to investing activities:Valuation
      effects of financial instruments
                        
                        
                        1,666,821
                        
                        
                        
                        120,653Depreciation
      and amortization
                        
                        
                        616,358
                        
                        
                        
                        44,615Loss
      on sale of plant and equipment
                        
                        
                        49,485
                        
                        
                        
                        3,582Interest
      income
                        
                        
                        (173,694
                        )
                        
                        
                        (12,573
                        )Item
      relating to financing activities:Interest
      expense
                        
                        
                        36,202
                        
                        
                        
                        2,620Subtotal
                        
                        
                        1,035,116
                        
                        
                        
                        74,927Derivative
      financial instruments
                        
                        
                        (747,795
                        )
                        
                        
                        (54,129
                        )Accounts
      receivable, net
                        
                        
                        (151,635
                        )
                        
                        
                        (10,976
                        )Recoverable
      taxes and other assets
                        
                        
                        52,972
                        
                        
                        
                        3,834Inventories
      and biological assets
                        
                        
                        (784,442
                        )
                        
                        
                        (56,781
                        )Prepaid
      expenses and other current assets
                        
                        
                        (24,703
                        )
                        
                        
                        (1,788
                        )Trade
      accounts payable, taxes payable and other accruals
                        
                        
                        596,229
                        
                        
                        
                        43,158Income
      taxes paid
                        
                        
                        (147,426
                        )
                        
                        
                        (10,671
                        )Accounts
      payable to related parties
                        
                        
                        23,517
                        
                        
                        
                        1,702Labor
      obligations
                        
                        
                        15,170
                        
                        
                        
                        1,098Deferred
      tax related to derivative financial instruments in stockholders'
      equity
                        
                        
                        (23,204
                        )
                        
                        
                        (1,679
                        )Assets
      available for sale
                        
                        
                        2,159
                        
                        
                        
                        156Net
      cash used in operating activities
                        
                        
                        (154,042
                        )
                        
                        
                        (11,149
                        )Cash
      flows from investing activities:Acquisition
      of property, plant and equipment
                        
                        
                        (1,156,168
                        )
                        
                        
                        (83,690
                        )Proceeds
      from sale of plant and equipment
                        
                        
                        57,329
                        
                        
                        
                        4,150Increase
      in other non-current assets
                        
                        
                        (1,113
                        )
                        
                        
                        (80
                        )Interest
      collected
                        
                        
                        173,694
                        
                        
                        
                        12,573Net
      cash used in investing activities
                        
                        
                        (926,258
                        )
                        
                        
                        (67,047
                        )Cash
      flows from financing activities:Equity
      component of derivative financial instruments
                        
                        
                        (98,922
                        )
                        
                        
                        (7,160
                        )Dividends
      paid
                        
                        
                        (353,880
                        )
                        
                        
                        (25,615
                        )Proceeds
      from loans
                        
                        
                        535,100
                        
                        
                        
                        38,733Interest
      paid
                        
                        
                        (33,339
                        )
                        
                        
                        (2,414
                        )Asset
      tax recovery
                        
                        
                        8,521
                        
                        
                        
                        616Principal
      payments on loans
                        
                        
                        (18,809
                        )
                        
                        
                        (1,361
                        )Net
      cash provided by financing activities
                        
                        
                        38,671
                        
                        
                        
                        2,799Net
      decrease in cash and investments
                        
                        
                        (1,041,629
                        )
                        
                        
                        (75,397
                        )Cash
      and investments:At
      beginning of year
                        
                        
                        3,039,876
                        
                        
                        
                        220,040At
      end of year
                        
                        $
                        1,998,247
                        
                        
                        
                        144,643
 
 See
accompanying notes to consolidated financial statements.
  F-8
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 
 Notes
to the Consolidated Financial Statements
 
 Years
ended December 31, 2006, 2007 and 2008
 
 (Thousands
of Mexican pesos note 2x,
 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). 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 June
25, 2009, the accompanying financial statements and related notes were
authorized by the Company’s Finance Director, Daniel Salazar Ferrer, for the
Audit Committee, Board of Directors and Stockholders’ meeting
approval.
 
 (2)
              Accounting
      Policies and Practices-
 
 The
preparation of financial statements requires management to make a number of
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Significant items subject to such
estimates and assumptions include, but are no limited to, the carrying amount of
property, plant and equipment, and goodwill; valuation allowances for
receivables, inventories and deferred income tax assets; valuation of financial
instruments; and assets and obligations related to employee benefits. Actual
results could differ from those estimates and assumptions.
 
 For
disclosure purposes, “thousands pesos” or “$” means thousands of Mexican pesos,
and “thousands dollars” or “US dollars” means thousands of U.S. dollars, except
per share amounts.
  F-9
 
 INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 The
Company’s consolidated financial statements are prepared in accordance with
Mexican Financial Reporting Standards (Mexican FRS) in effect as of the balance
sheet date (see note 2x). The significant accounting policies and practices
observed by the Company in the preparation of the accompanying financial
statements are described below:
 
 a)
              Consolidation-
 
 The
consolidated financial statements include the financial statements of the
Company and all of its majority-owned and controlled subsidiaries.
 
 The
ownership interests of other stockholders in such subsidiaries are shown as
minority interest.
 
 Intercompany
balances, investments and transactions between consolidated entities have been
eliminated in consolidation.
 
 The
results of operations of the subsidiaries were included in the Company’s
consolidated financial statements at the acquisition or inception
month.
 
 The
consolidation was based on the audited financial statements of the issuing
companies, which have been prepared in accordance with Mexican FRS.
 
 The
accompanying consolidated financial statements include the following
consolidated subsidiaries as of December 31, 2006, 2007 and 2008:
  Percentage equity interest2006
                    
                    
                    2007
                    
                    
                    2008Acuícola
      Bachoco, S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Aviser,
      S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Bachoco,
      S.A. de C.V. (“BSACV”) (Consolidated)
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Bachoco
      Comercial, S.A. de C.V.
                    
                    
                    -
                    
                    
                    
                    100
                    
                    
                    
                    100Campi
      Alimentos, S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Huevo
      y Derivados, S.A. de C.V.
                    
                    
                    97
                    
                    
                    
                    97
                    
                    
                    
                    97Operadora
      de Servicios de Personal, S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Pecuarius
      Laboratorios, S.A. de C.V.
                    
                    
                    64
                    
                    
                    
                    64
                    
                    
                    
                    64Secba,
      S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Sepetec,
      S.A de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Servicios
      de Personal Administrativo, S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100Induba
      Pavos, S.A. de C.V.
                    
                    
                    100
                    
                    
                    
                    100
                    
                    
                    
                    100
 
 The main
subsidiaries of the group are as follows:
 
 -
Bachoco, S.A. de C.V. (“BSACV”) (Consolidated)
  F-10
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 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, respectively. Both entities
have 100% ownership from their holding company, Industrias Bachoco, S.A.B. de
C.V. These entities are engaged in the import and trading of
turkey.
 
 b)
              Revenue
      recognition-
 
 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.
 
 Based on
management analysis and estimates, the Company provides for doubtful receivables
(reported under selling expenses).
 
 c)
              Recognition
      of the effects of inflation on financial
  information-
 
 The
accompanying consolidated financial statements have been prepared in accordance
with Mexican FRS in effect as of the balance sheet date and include the
recognition of the effects of inflation on financial information through
December 31, 2007, based on the Mexican National Consumer Price Index (NCPI)
published by Banco de México (central bank) (see note 2x).
  F-11
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Cumulative
inflation percentages of the current and three preceding years and the indexes
used in recognizing inflation through such year are as follows:
 
 December 31
                      
                      NCPI
                      
                      
                      InflationYearly
                      
                      
                      Cumulative2008
                      
                      
                      133.761
                      
                      
                      
                      6.53
                      %
                      
                      
                      18.84
                      %2007
                      
                      
                      125.564
                      
                      
                      
                      3.76
                      %
                      
                      
                      11.56
                      %2006
                      
                      
                      121.015
                      
                      
                      
                      4.05
                      %
                      
                      
                      7.51
                      %2005
                      
                      
                      116.301
                      
                      
                      
                      3.33
                      %
                      
                      
                      3.33
                      %
 
 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 acquisitions since January 1, 1997 until December 31, 2007 are carried
at cost adjusted by the NCPI.
 
 - Stockholders’
equity
 
 Until
December 31, 2007, date in which the economic environment moved to a
non-inflationary environment in conformity with FRS B-10 “Effects of Inflation”,
capital stock, additional paid-in capital, reserve for stock repurchase of
Company’s own shares, retained earnings and other capital accounts were restated
using adjustment factors obtained from the NCPI. The amounts obtained in this
manner represented the constant value of the stockholders’
investment.
 
 - Net monetary position gain
(loss)
 
 Until
December 31, 2007, the net monetary position gain (loss) represented the impact
of inflation on monetary assets and liabilities at the beginning of each month
updated by inflation factors through year-end. The monetary position gain (loss)
of each year is included in the statements of operations as a part of the
comprehensive financial result (See note 2x).
  F-12
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 - Deficit from restatement
of stockholders’ equity
 
 Until
December 31, 2007, 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, mainly 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 (see note
2x).
 
 d)
              Cash
      and investments-
 
 Cash and
investments consist primarily of bank deposits and checking accounts in foreign
currencies. At the date of the consolidated financial statements, interest
income and foreign exchange gains and losses are included in the statements of
operations, under comprehensive financial results.
 
 e)
              Primary
      investment securities-
 
 All
rights and obligations arising from primary investment securities are recognized
on the balance sheet and the company classifies its investment securities
depending on the purpose for which the securities were acquired: (i)
held-to-maturity, or (ii) trading. Investments in these instruments are
reflected on the line-item “current primary investment securities within cash
and investments” (see note 3).
 
 Trading
securities, except held-to-maturity, are recorded at fair value, determined by
using quoted market prices. Held-to-maturity securities are reported at
amortized cost. Changes in the carrying amounts of trading securities, including
the related costs and yields are included in earnings under comprehensive
financial results. Furthermore, where evidence exists that a financial asset
held-to-maturity shall not be recovered in full, the expected loss is recognized
in the statement of operations.
  F-13
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 f)
              Allowance
      for doubtful accounts-
 
 The
Company policy is to record an allowance for doubtful accounts for balances
which are not likely to be recovered. In establishing the required allowance,
management considers historical losses to take into account current market
condition and our customers’ financial condition, the amount of receivables in
dispute and the current receivable aging and current payment patterns. Past due
balances over 60 days are reviewed individually for collectibility.
 
 g)
              Inventories,
      agricultural products and biological
assets-
 
 -
Inventories
 
 At
December 31, 2008, inventories are stated at the lower of historical cost
determined by the average cost method or market (replacement cost), provided
that replacement cost is not less than net realizable value.
 
 Inventories
at December 31, 2007, are valued using the average cost method and restated
based on the NCPI. The stated value of inventories is not in excess of net
realizable value.
 
 -Agriculture
 
 The
financial statements recognize the requirements of Mexican FRS E-1, “Agriculture”, which
establishes the rules for recognizing, measuring, presenting and disclosing
biological assets and agricultural products.
 
 Mexican
FRS 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
allowance for decline in the productivity of breeder chickens and pigs is
estimated based on expected future life under the straight-line
method.
 
 Agricultural
products are live chickens, processed chickens, commercial eggs and pigs
available for sale. The Company’s biological assets are comprised of poultry in
their different stages, incubatable eggs and breeder pigs.
 
 Broiler
chicks less than six and a half 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.
  F-14
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Broilers
more than six and a half weeks old through their date of sale are valued at fair
value net of estimated point-of-sale costs, considering the price per kilogram
of processed chicken at the valuation date.
 
 Processed
chicken and commercial eggs are valued at fair value net of estimated
point-of-sale costs, considering the price per kilogram of processed chicken and
commercial eggs at the time such items are considered as agricultural products.
From such date through the date of sale, the fair value is considered to be the
cost of processed chicken or commercial eggs, not in excess of net realizable
value.
 
 The
Company is exposed to financial risks due to changes in the price of chicken.
The Company estimates that the price of chicken will not fall significantly in
the future; consequently, the Company has not entered into any derivative
agreement or any other type of agreement to offset the risk of a drop in the
price of chicken.
 
 The
Company reviews periodically the price of chicken so as to evaluate the need for
a financial instrument to offset such risk.
 
 In
conformity with Mexican FRS 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.
 
 Cost of
sales represents the replacement cost of inventories at the time of sale,
increased, as applicable, for reductions in the replacement cost or net
realizable value of inventories during the year and, through 2007, is expressed
in thousands of constant pesos as of December 31, 2007.
 
 The
Company records the necessary allowances for inventory impairment arising from
damaged, obsolete or slow-moving inventories.
 
 h)
              Property,
      plant and equipment-
 
 Property,
plant and equipment are initially recorded at acquisition cost and through
December 31, 2007, adjusted for inflation by using factors derived from the NCPI
(see note 2c).
 
 As of
January 1, 2007, as a result of the adoption of MexFRS D-6 “Capitalization of the Comprehensive
Cost of Financing”, in which is defined 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. During 2007 the Company did not capitalize any amount due to its
immateriality; and during 2008, no comprehensive financial results have been
capitalized, as the criteria mentioned above were not met.
  F-15
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Depreciation
of property, plant and equipment is calculated on the straight-line method over
the estimated useful lives of the assets, determined by management (see note
7).
 
 Minor
repairs and maintenance costs are expensed as incurred.
 
 i)
              Impairment
      of property, plant and equipment and
goodwill-
 
 The
Company periodically evaluates the values of long-lived assets of property,
plant and equipment and goodwill, to determine whether there is an indication of
potential impairment. Recoverability of assets to be held and used is measured
by comparison of the carrying amount of an asset against future cash flow
expected to be generated by the asset.  If the carrying amount of an
asset exceeds its estimated net revenues, an impairment charge is recognized in
the amount by which the carrying amount of the asset exceeds the fair value of
the asset.
 
 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 asset remain mostly
with the lessor, such leases are classified as operating leases and accrued
lease expense is charged to results of operations as incurred.
 
 The
Company classified its leases as operating leases at December 31, 2007 and
2008.
 
 k)
              Goodwill-
 
 Goodwill
represents the difference between the purchase price and the fair value of the
net assets acquired in a business combination at the purchase date.
 
 Goodwill
is recorded initially at acquisition cost and until December 31, 2007, restated
using adjustment factors derived from the NCPI. Goodwill is subject to annual
impairment testing.
  F-16
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 At
December 31, 2007 and 2008, there was no impairment loss in the value of
goodwill shown in the consolidated balance sheet.
 
 l)
              Liabilities,
      provisions, contingent liabilities and
  commitments-
 
 Liability
provisions are recognized when the following three conditions are met: (i) the
Company has current obligations (legal or assumed) derived from past events,
(ii) it is probable that the liability will give rise to a future cash
disbursement for its settlement and (iii) the liability can be reasonably
estimated. Liabilities for loss contingencies are recorded when is probable that
a liability has been incurred and the amount thereof can be reasonably
estimated. When a reasonable estimation cannot be made, qualitative disclosure
is provided in the notes to the consolidated financial statements. Contingent
revenues, earnings or assets are not recognized until realization is
assured.
 
 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.
 
 m)
                Employee
      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 in the Company 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 (up to 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-17
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Termination
benefits for reasons other than restructuring and retirement to which employees
are entitled are charged to operations for each year, based on actuarial
computations using the projected unit credit method and projected salaries. At
December 31, 2008 and for purposes of recognizing benefits upon retirement, the
remaining average service life of employees entitled to plan benefits
approximates 19.66 years (note 14).
 
 n)
              Comprehensive
      financial results (CFR)-
 
 The CFR
includes interest income and expense, foreign exchange gains and losses and
valuation of financial instruments and, through 2007, monetary position gains
and losses.
 
 Transactions
in foreign currency are recorded at the exchange rate prevailing on the date of
execution or settlement.  Foreign currency assets and liabilities are
translated at the exchange rate in force at the balance sheet
date.  Exchange differences arising from assets and liabilities
denominated in foreign currencies are reported in operations for the
year.
 
 o)
              Comprehensive
      income (loss)-
 
 Comprehensive
income (loss) 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 of labor
obligations and the minority interest as required by Mexican FRS B-4,
Comprehensive Income.
 
 p)
              Derivative
      financial instruments-
 
 Irrespective
of their use and either issuance or holding purpose, the Company recognizes all
derivative instruments as either assets or liabilities on the balance sheet at
their respective fair values. Fair values are determined based on known market
prices such as Chicago Board of Trade (CBOT) and, when not listed in a market
(OTC), based on valuation techniques and inputs usually accepted in the
financial sector.
 
 Changes
in the fair value of financial instruments not designated and/or not qualifying
under strict hedge accounting criteria are recognized within earnings for
the year in which such changes occur, as derivatives effects under
comprehensive financial results.
  F-18
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 In the
case of operations with options on futures not designated and/or do not qualify
under strict hedge accounting criteria, premiums paid or received in connection
with options are initially recognized as assets or liabilities within derivative
instruments; with subsequent changes in their fair value, recognized within
income of the year in which such changes occur, as derivatives effects under
comprehensive financial results.
 
 q)
              Derivative
      Financial Instruments, and  Risk Hedging
    activities-
 
 As of
December 31, 2008
 
 The
Company uses selected financial derivative instruments to protect itself against
adverse price fluctuations in agriculture commodities, such as corn and sorghum.
Said agriculture commodities derivative instruments include futures and options
on futures which are listed on the CBOT, as well as options on futures accessed
through ASERCA (Farming Marketing Support and Services, a dependent entity
ascribed to Mexico’s Secretary of Farming and Agriculture) a dependent entity of
the Mexican Government’s unit that belongs to the Secretary of Farming,
Livestock, Rural Development, Fishing and Food (SAGARPA, Secretaria de
Agricultura, Ganaderia y Desarrollo Rural, Pesca y Alimentación), through which,
a commodities-related price hedging program (the “Farming by Contract”) scheme
is offered to both farmers and agro-business entities such as the Company. The
ASERCA program has two participating modalities: (i) 0% of the payment of the
option’s premium and 100% of the benefit with a 60% discount on the amount of
the initial premium, or (ii) a 50% of the payment of the option’s premium, and
100% of the benefit.
 
 Designation
of the derivates offered through ASERCA is documented every time derivatives are
contracted to hedge price risk and when these hedging
relationships  meet all of the hedge accounting requirements. Said
documentation includes a description of the objective or hedge strategy, the
nature of the hedged item position, the risk(s) to be hedged, the designated
derivatives and how the initial effectiveness testing assessment will be
performed, as well as the subsequent measurement of its retrospective
effectiveness, which applies to each established hedge
relationship.
  F-19
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Formal
hedge designated derivatives that follow special hedge accounting recognition,
with fair value changes based on each corresponding hedgeaccounting model: (1)
Fluctuations in fair value type hedges, require that both  the
derivative and the hedged item are to be valued at fair value and recognized in
the statement of operations; (2) in the case of a cash flow hedge, only the
effective portion of the derivative is temporarily recognized in comprehensive
income (equity) and recycled to operations when the hedged item affects
operations as cost of good sold, interest, etc., while the ineffective portion
is immediately recognized within operations.
 
 The
Company needs to revoke hedge accounting in the following cases: when the
derivative has expired, has been sold, is cancelled or exercised, or when the
derivative does not achieve the required level of effectiveness to compensate
for the changes in the fair value or cash flows of the hedged item, or when at
the Company’s discretion, the entity decides to cancel the hedge
relationship.
 
 Certain
financial derivative instruments are entered into from an economic perspective
and are neither designated nor qualify for hedge accounting purposes, hence are
treated accounting wise, as trading derivatives, with fluctuations in the fair
value of these derivatives recognized within comprehensive financing
operations.
 
 In the
case of hedges with options or combinations of options, which are designated and
qualifying under hedge accounting models, the premiums paid and received through
these derivative financial instruments are initially recognized as assets or
liabilities within derivative financial instruments, with subsequent changes in
their fair values recognized in the comprehensive financial results in the case
of fair value hedges, while under cash flow hedge are recognized within the
other comprehensive income (OCI) account of stockholders’ equity, in the case of
cash flow hedges.
 
 The
Company has established an Investments and Risk Committee which sets the
guidelines and strategies to be followed in terms of the use of investments and
derivatives use.
  F-20
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 At December 31,
2007
 
 Derivative
Financial hedging instruments
 
 The
Company uses derivative financial instruments to hedge certain risks and reduce
its financial risks exposure.
 
 The
Company is exposed to exchange rate (Mexican Peso-U.S. dollars) fluctuations and
fluctuations in the price of grains (corn and sorghum) within its normal course
of business. The Company manages these risks through a program that includes the
use of derivative financial instruments (FDI).
 
 Company’s
policy is to establish a 25 to 30% range of protection on the total amount of
its annual needs for U.S. dollars. It also uses OTC (non-listed) options and
futures agreements exchange rate variability in its short-tern U.S. dollar cash
out flow needs, considering these as a forecasted transaction under the cash
flow hedge model. Basically, the Company generally uses FDIs for hedging
intention, unless they are not designated or do not meet accounting requirements
for hedging purposes. These instruments are signed with well-positioned
financial institutions.
 
 The FDIs
are factored in and documented according to the accounting compliance
established in FRS Financial Reporting Standard (FRS) C-10 “Financial instruments, derivates and
hedging operations” (Mexican GAAP) which is very similar to US GAAP
equivalent (SFAS-133 “Accounting for Derivative
Instruments and Hedging Activities”.
  F-21
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 The
Company has entered into agreements on the following types of FDI:
 
 Options
 
 When
options are acquired through a premium payment, these FDI grant the buyer the
right, albeit not the obligation to buy (purchased Call) or sell (purchased Put)
a price of a commodity or an exchange rate (U.S. dollars parity level against
the Mexican Peso in this case) at a fixed price or exchange rate known as the
Option’s strike price or level of exercise, at a certain date on which the
option contract matures or expires. In the case of entering as the issuer or
seller of the same options, the Company is obligated to sell (sold Put) or to
buy (sold Call) if the buyer exercises the sold option. More than 90% of the
cases in which Bachoco contracts combinations of bought and sold options do not
involve the payment of a net premium and these instruments were neither
designated nor qualify for being designated as hedges under one of the
permissible hedge accounting models.
 
 During
2007, the Company entered into bought options under the program offered by
ASERCA in order to hedge the risk of lower prices on certain grains prices such
as corn, sorghum and wheat it contracts associated to the Farming Contract
program. Under this program, the Company agrees the terms to buy certain amount
of physical grain volumes and abide by the price established in U.S. dollars for
each Metric Ton that must be paid against delivery of future productions that
domestic farmers will supply on certain crop dates. ASERCA provides the Company
with Put-type of options upon presenting said agreements that allows it to hedge
if CBOT prices fall below those agreed upon prices with the local farms. By
participating in this government sponsored program, the Company receives 50% of
subsidy on the option’s market premium from ASERCA (if the price goes up) or a
loan that will be recovered by ASERCA (if the price goes down). The results of
using these financial derivative instruments ensures that the Company obtains
protection from falling prices in regard to the price it contractually agreed to
pay binding farmers as firm commitments to them.
  F-22
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Futures
 
 Futures
are contracts that bind two entities to exchange a commodity good, and index,
exchange rate or a value (grain prices, in this specific case) at a future date,
at an established amount, quality and price. Different from options, this type
of contracts do not consider premium payments or receptions and can simply exist
symmetrically as a corporate profit or loss when taken long futures positions in
the event that the price of the grain in the market happens to be higher than
the agreed price (profit) or the market price is lower than the amount
established in the agreement (loss). The Company contracted futures through New
Age (FIMAT) in fiscal year 2007. FIMAT is a broker that specializes in Futures
and Options on Futures listed in organized markets such as CBOT. The Company is
required to keep a deposit or margin requirement that guarantees its open
position on futures contracts, which generates market interests and represents a
safeguard that ensures the honoring of the signed agreement. This margin account
is debited or credited on a daily basis by New Age, based on market settlement
prices as of the closing time, impacting with respective losses or gains. When
the market moves against the Company’s open position, the margin account is
consumed and additional margin requirements (intraday margin calls) are needed
to be established otherwise, the position is closed with a realized
loss.
 
 Effectiveness
testing
 
 In order
to access special hedge accounting requirements, both prospective assessment and
retrospective effectiveness testing of the hedging relationship (hedge item and
designated hedge instrument) is needed. Said effectiveness is measured on a
periodic basis. In the case of cash flow hedges, an instrument in which the
variability in the present value changes in the contractual or expected cash
flows of the hedged item attributable to the hedged risk are satisfactorically
offset by the hedge instrument (FDI), it is then considered that the hedge
relationship is highly effective (a either period by period or cumulative dollar
offset in the range of 80% to 125% is to be considered as to meet hedge
effectiveness goals).
 
 FRS C-10
establishes that the effective portion of a profit or loss obtained from a cash
flow hedging derivative is recognized in the comprehensive profit (OCI, within
stockholders equity), net of deferred taxes, while the ineffective portion is
recognized directly in the earnings.
 
 r)
                Income
      taxes (Income Tax (IT), Asset Tax (AT), Flat Rate Business Tax (IETU)),
      and employee statutory profit sharing
(ESPS)-
 
 IT, IETU
and ESPS payable for the year are determined in conformity with the tax
provisions in effect.
 
 Deferred
IT, IETU and, from January 1, 2008 deferred ESPS, are accounted for under the
asset and liability method. Deferred tax and ESPS assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases, and in the case of IT and IETU, for tax loss, credit
carryforward and tax credits. Deferred tax and ESPS assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax and ESPS assets and liabilities of a change
in tax rates is recognized in income during the period covering the enactment
date.
  F-23
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 At
December 31, 2007, a deferred income tax liability determined by treating the
stockholders’ equity as a single temporary item greater than the amount
determined by using the asset and liability method, and thus, the Company
recognized an additional deferred tax liability of $288,580 in 2007 to account
for this difference.
 
 Effective
January 1, 2008, Mexican FRS D-4 “Tax on earnings” supersedes Bulletin D-4 and
Circular 54. Mexican FRS D-4 establishes the asset and liability method as the
only method in determining deferred taxes. Therefore, the Company wrote-off
$288,580 against retained earnings, which relates to the additional deferred tax
liability previously determined as at December 31, 2007 under the stockholders’
equity method.
 
 Until
December 31, 2007, deferred ESPS was recognized only for timing differences
arising from the reconciliation of book income to income for profit sharing
purposes, for which it was reasonably estimated that a future liability or
benefit would arise and there was no indication that the liabilities or benefits
would not materialize.
 
 s)
              Statement
      of operations-
 
 The
Mexican FRS B-3 “Statement of Operations”, that came into effect in 2007, states
that costs and expenses in the Company’s statement of operations are presented
based on their function, since such classification allows for an accurate
evaluation of both operating income and gross profit margins.
 
 Although
Mexican FRS B-3 “Statement of
Operations”, 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 revenues as
well as operating costs and expenses and thus excludes other income
(expenses).
  F-24
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 The
presentation of the statement of operations for the year ended December 31,
2006, is in accordance with the presentation used in 2007 and 2008.
 
 t)
              Net
      majority interest income (loss) per
share-
 
 Net
majority interest income (loss) per share has been computed based on majority
interest net income (loss) and on the weighted average number of shares
outstanding, as established in Mexican FRS B-14 “Profit per Share”.
 
 u)
              Financial
      information by segments-
 
 Mexican
FRS B-5, “Financial
Information by Segments”, establishes the rules for disclosing financial
information by segment.
 
 Financial
information by segment is prepared based on a management’s approach, in
conformity with Mexican FRS 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 18.
 
 v)
              Convenience
      translation-
 
 United
States dollar amounts as shown in the accompanying consolidated balance sheet as
of December 31, 2008, as well as in the consolidated statements of operations
and cash flows for the year ended December 31, 2008, 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
$13.815 to one U.S. dollar, which was the exchange rate at December 31, 2008.
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
rate.
 
 w)
              Reclassifications-
 
 Certain
captions shown in the 2007 financial statements as originally issued have been
reclassified for uniformity of presentation with the 2008 financial statements.
The changes in these reclassifications were recognized retrospectively in the
accompanying statement of operations at December 31, 2007, in conformity with
Mexican FRS B-1, “Accounting
Changes and Error Corrections”.
  F-25
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 At
December 31, 2007, according with Mexican FRS C-2 “Financial Securities”, the
valuation effect of financial securities is disclosed in a specific line-item in
the consolidated statement of operations.
 
 2007Interest
      income
                    
                    $
                    318,879Reclassified
                    
                    
                    363,016
  F-26
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 x)
              New
      accounting pronouncements-
 
 The
Mexican Board for Research and Development of Financial Reporting Standards
(Consejo Mexicano para la
Investigación y Desarrollo de Normas de Información Financiera or CINIF)
has issued the following Mexican FRS effective for years beginning after
December 31, 2007. Early application is not permitted.
 
 (a)
                Mexican FRS
      B-10 “Effects of inflation" – Mexican FRS B-10 supersedes Bulletin
      B-10 "Recognition of the
      effects of inflation on the financial information" and its five
      amendment documents, as well as the related circulars and Interpretation
      of Financial Reporting Standards (IFRS) 2. The principal considerations
      established by this FRS are:
 
 (i)
              Recognition
      of the effects of inflation – An entity operates in a)
      an   inflationary economic environment when cumulative
      inflation over the immediately preceding 3-year period is equal to or
      greater than 26%; and b) non-inflationary economic environment, when
      inflation over the aforementioned period is less than
  26%.
 
 For case
a), the comprehensive recognition of the effects of inflation is required,
(similarly to Bulletin B-10 being superseded). For case b), the effects of
inflation are not recognized; however, at the effective date of this FRS and
when an entity ceases to operate in an inflationary economic environment, the
restatement effects determined through the last period in which the entity
operated in an inflationary economic environment (in this case 2008), must be
kept  and shall be reclassified on the same date and using the same
procedure as that of the corresponding assets, liabilities and stockholders'
equity.  Should the entity once more operate in an inflationary
economic environment, the cumulative effects of inflation not recognized in the
periods where the environment was deemed as non-inflationary should be
recognized retrospectively.
 
 (ii)
              Price
      index – the use of the National Consumer Price Index (NCPI) or the change
      in the value of the Investment Unit (UDI) may be used for determining the
      inflation for a given period.
 
 (iii)
              Valuation
      of inventories and of foreign machinery and equipment – The possibility of
      using replacement costs for inventories and specific indexation for
      foreign machinery and equipment is no longer
  allowed.
 
 (iv)
              Equity
      adjustment for non-monetary Assets – On the effective date of this FRS,
      the unrealized portion of the equity adjustment for non monetary assets,
      which is maintained in stockholders' equity, should be identified to be
      reclassified to earnings of the year when the originating item is
      realized. The realized portion or when is not practical to identify the
      unrealized portion, the realized and unrealized portions should be
      reclassified to retained
earnings.
  F-27
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 (v)
              Monetary
      Position Gains or Losses (included in Deficit/Excess in Equity
      Restatement) will be reclassified to retained earnings on the effective
      date of this FRS.
 
 As a
result of the adoption of this FRS, at January 1, 2008 the stockholders' equity
accounts were reclassified as shown on the consolidated statement of
stockholders' equity.
 
 The 2007
consolidated financial statements are presented expressed in constant pesos at
December 31, 2007, the date on which the comprehensive method for recognizing
the effects of inflation was last used.
 
 (b)
              Mexican FRS
      D-3 “Employee benefits”- Mexican FRS D-3 supersedes Bulletin D-3
      "Labor
      Obligations", the sections applicable to Employee Statutory Profit
      Sharing (ESPS) of Bulletin D-4 and IFRS 4.  The principal
      considerations established by this FRS
are:
 
 (i)
              Elimination
      of the recognition of an additional liability and the related intangible
      asset or any comprehensive item as a separate element of stockholders'
      equity.
 
 (ii)
              Employee
      benefits are classified in four principal categories; direct short-term
      and long term, termination and post-employment
      benefits.  Mexican FRS D-3 establishes a maximum five-year
      period for amortizing unrecognized/unamortized items while actuarial gains
      or losses may be recognized as earned or incurred. Unlike termination
      benefits, post-employment benefits actuarial gains or losses may be
      immediately recognized in results of operations or amortized over the
      expected service life of the
employees.
 
 (iii)
              The
      use of nominal rates and the incorporation of the term salary increases
      due to promotions.
 
 (iv)
              ESPS,
      including deferred ESPS, shall be presented in the statement of operations
      as ordinary operations, preferably within "other income and expenses".
      Furthermore, Mexican FRS D-3 establishes that the asset and liability
      method should be used for determining deferred ESPS; any effects arising
      from the change in method shall be recognized in retained earnings,
      without restatement of prior years’ financial
  statements.
  F-28
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 In 2008,
as a result of the adoption of this Mexican FRS, the intangible asset of $28,341
reflected in the consolidated balance sheet and the labor obligation minimum
liability adjustment of $2,512 reflected in consolidated statements of
stockholders equity as of December 31, 2007, were eliminated. Furthermore, for
2008, amortization of unamortized items resulted in an approximate gain of
$845.
 
 (c)
              MexicanFRS
      D-4“Taxes on
      income”- Mexican FRS D-4 supersedes Bulletin D-4 "Accounting
      for income and asset taxes and employee statutory profit sharing"
      and Circulars 53 and 54. The principal considerations established by this
      Mexican FRS are:
 
 (i)
              the
      accounting treatment of ESPS (current and deferred) is transferred to
      Mexican FRS D-3, as mentioned in paragraph (a)
  above.
 
 (ii)
                Deferred
      income tax liabilities at December 31, 2007 were determined by considering
      the stockholders’ equity as a temporary liability, which resulted in an
      amount that surpassed the amount determined by the assets and liabilities
      method. Consequently, the Company recognized an additional liability in
      the amount of $288,580 in 2007, to recognize the greater amount of the
      deferred taxes determined by the assets and liabilities method and the
      amount determined by considering the stockholders’ equity as the only
      temporary item.
 
 Effective
January 1, 2008, the asset and liability method is the only acceptable method to
determine deferred taxes. Therefore, the Company write-off $288,580 that relates
to the additional deferred tax liability determined under the stockholders’
equity method in 2007.
  F-29
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 (d)
              MexicanFRS B-2
      “Statement
      of cash flows”- Mexican FRS B-2 supersedes Bulletin B-12 "Statement
      of changes in financialposition"and paragraph
      33 of Bulletin B-16. The principal considerations established by this
      Mexican FRS are shown below:
 
 (i)
              Instead
      of the statement of changes in financial position, the financial
      statements shall include the statements of cash flows for all the periods
      presented comparatively with those of the current year, except for
      financial statements of periods prior to
2008;
 
 (ii)
              Cash
      inflows and cash outflows are reported in nominal currency units, thus not
      including the effects of inflation;
 
 (iii)
              Two
      alternative preparation methods (direct and indirect) are established,
      without stating preference for either method. Furthermore, cash flows from
      operating activities are to be reported first, followed by cash flows from
      investing activities and lastly by cash flows from financing
      activities;
 
 (iv)
              Captions
      of principal items are to be reported gross, with certain exceptions and
      require disclosure of the composition of items considered cash
      equivalents.
 
 Accordingly,
the Company presents its consolidated statement of changes in financial position
for 2007 and 2006 as issued and the consolidated statement of cash flows for
2008 under the indirect method.
 
 (3)
                Cash
      and investments-
 
 Consolidated
cash and investments as of December 31, 2007 and 2008 consist of:
 
 2007
                    
                    
                    2008Cash
      and bank accounts
                    
                    $
                    221,539
                    
                    
                    
                    228,589Current
      primary investment securities (note 10 b)
                    
                    
                    2,818,337
                    
                    
                    
                    1,545,737Restricted
      investments
                    
                    
                    -
                    
                    
                    
                    223,921$
                    3,039,876
                    
                    
                    
                    1,998,247
 
 Restricted
investments correspond to margin calls to cover future derivative
commitments.
  F-30
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 (4)
                Trade
      receivable net-
 
 Trade
receivables at December 31, 2007 and 2008, are shown net of an allowance for
doubtful accounts for $36,154 and $28,320, respectively.
 
 (5)
              Related
      parties-
 
 The
companies mentioned below are considered affiliates, since 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
                      
                      2007
                      
                      
                      2008Vimifos,
      S.A. de C.V.
                      
                      Affiliate
                      
                      $
                      21,311
                      
                      
                      $
                      39,496Maquinaria
      Agrícola, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      3,382
                      
                      
                      
                      4,858Llantas
      y Accesorios, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      1,688
                      
                      
                      
                      3,953Pulmex
      2000, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      905Frescopack,
      S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      715Camiones
      y Tractocamiones de Sonora, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      149Autos
      y Tractores de Culiacán, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      106Autos
      y Accesorios, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      438
                      
                      
                      
                      76Alfonso
      R Bours, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      48Distribuidora
      Automotriz de los Mochis, S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      28Qualyplast,
      S.A. de C.V.
                      
                      Affiliate
                      
                      
                      -
                      
                      
                      
                      2$
                      26,819
                      
                      
                      $
                      50,336
 
 At
December 31, 2007 and 2008, balances due to related parties correspond to
unsecured current accounts denominated in thousands of pesos that bear no
interest and are payable within 30 days.
 
 b)
                For
      the years ended December 31, 2006, 2007 and 2008, the Company had the
      following transactions with related
parties:
 
 Purchases of feed, raw materials and packing
      supplies
                                
                                2006
                                
                                
                                2007
                                
                                
                                2008Vimifos,
      S.A. de C.V.
                                
                                $
                                251,931
                                
                                
                                
                                192,188
                                
                                
                                
                                283,912Frescopack,
      S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                128,176Pulmex
      2000, S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                15,619Qualiplast,
      S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                634
                                
                                
                                
                                22Purchases of vehicles, tires and spare
      partsMaquinaria
      Agrícola, S.A. de C.V.
                                
                                
                                17,585
                                
                                
                                
                                47,155
                                
                                
                                
                                54,502Autos
      y Tractores de Culiacán, S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                26,665Llantas
      y Accesorios, S.A. de C.V.
                                
                                
                                12,289
                                
                                
                                
                                23,349
                                
                                
                                
                                22,426Autos
      y Accesorios, S.A. de C.V.
                                
                                
                                33,585
                                
                                
                                
                                14,985
                                
                                
                                
                                21,729Camiones
      y Tractocamiones de Sonora, S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                14,501Distribuidora
      Automotriz de los Mochis, S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                8,095
                                
                                
                                
                                13,687Alfonso
      R. Bours, S.A. de C.V.
                                
                                
                                -
                                
                                
                                
                                2,171
                                
                                
                                
                                3,356Airplane leasing expensesTaxis
      Aéreos del Noroeste, S.A. de C.V.
                                
                                
                                4,196
                                
                                
                                
                                3,153
                                
                                
                                
                                2,106
  F-31
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 Purchases
transactions with related parties are made at market prices, which are similar
to those that would be used in arms-length transactions.
 
 (6)
                Inventories
      and biological assets-
 
 a)
              Inventories
      consist of the following:
  2007
                    
                    
                    2008Raw
      materials and byproducts
                    
                    $
                    2,004,691
                    
                    
                    $
                    2,232,409Medicine,
      materials and spare parts
                    
                    
                    369,337
                    
                    
                    
                    457,106Finished
      feed
                    
                    
                    56,608
                    
                    
                    
                    71,8412,430,636
                    
                    
                    
                    2,761,356Agricultural
      products:Live
      chicken
                    
                    
                    667,022
                    
                    
                    
                    921,061Processed
      chicken
                    
                    
                    177,719
                    
                    
                    
                    228,619Commercial
      egg
                    
                    
                    22,551
                    
                    
                    
                    24,383Turkey
                    
                    
                    28,339
                    
                    
                    
                    35,113Beef
                    
                    
                    2,708
                    
                    
                    
                    2,445Others
                    
                    
                    365
                    
                    
                    
                    638898,704
                    
                    
                    
                    1,212,259Total
                    
                    $
                    3,329,340
                    
                    
                    $
                    3,973,615
  F-32
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 b)
                Biological
      assets at December 31, 2007 and 2008 consist of the
    following:
 
 2007
                    
                    
                    2008Current
      biological assets:Breeder
      pigs
                    
                    $
                    32,464
                    
                    
                    $
                    40,709Incubatable
      eggs for fattening
                    
                    
                    76,038
                    
                    
                    
                    99,135Total
      current biological assets
                    
                    $
                    108,502
                    
                    
                    
                    139,844Non-current
      biological assets:Laying
      and breeder hens
                    
                    $
                    202,214
                    
                    
                    $
                    248,877Breeder
      pigs
                    
                    
                    27,280
                    
                    
                    
                    28,040Laying
      hens
                    
                    
                    577,043
                    
                    
                    
                    681,114Allowance
      for productivity declines
                    
                    
                    (231,124
                    )
                    
                    
                    (276,454
                    )Total
      non-current biological assets
                    
                    $
                    575,413
                    
                    
                    $
                    681,577
 
 The
change in the historical value of biological assets and agricultural products to
be measured at their fair value presented increases of $10,879 in 2006; $10,882
in 2007; and $16,358 in 2008. Such effects were included in the results of
operations each year.
 
 (7)
                Property,
      plant and equipment-
 
 a)
                Property,
      plant and equipment at December 31consists of the
    following:
 
 Useful lives
                      (years)
                    
                    
                    2007
                    
                    
                    2008Buildings,
      farm structures and   equipment
                    
                    
                    7-27
                    
                    
                    $
                    13,987,063
                    
                    
                    $
                    14,914,390Office,
      furniture and equipment
                    
                    
                    3
                    
                    
                    
                    227,183
                    
                    
                    
                    237,727Transportation
      equipment
                    
                    
                    6
                    
                    
                    
                    1,162,747
                    
                    
                    
                    1,207,22915,376,993
                    
                    
                    
                    16,359,346Accumulated
      depreciation
                    
                    
                    
                    
                    
                    
                    (6,702,709
                    )
                    
                    
                    (7,164,781
                    )Net
                    
                    
                    
                    
                    
                    
                    8,674,284
                    
                    
                    
                    9,194,565Land
                    
                    
                    
                    
                    
                    
                    856,486
                    
                    
                    
                    897,273Construction
      in progress  and advance payments
                    
                    
                    
                    
                    
                    
                    725,469
                    
                    
                    
                    597,397Total
                    
                    
                    
                    
                    
                    $
                    10,256,239
                    
                    
                    $
                    10,689,235
  F-33
  INDUSTRIAS BACHOCO, S.A.B. DE
C.V. AND
SUBSIDIARIES
 Notes
to the Consolidated Financial Statements
 Years
ended December 31, 2006, 2007 and 2008
 (Thousands
of Mexican pesos note 2x, except per share amounts)
 
 b)
                Depreciation
      expense for the years ended December 31, 2006, 2007 and 2008, amounted to
      $537,383, $571,393 and $616,358,
respectively.
 c)
                Certain
      property, plant and equipment guarantee part of the loans mentioned in
      note 9.
 
 (8)
                Goodwill-
 
 In 1999,
goodwill was derived from the purchase of the shares of Campi Alimentos, S.A. de
C.V. in the amount of $367,135. At December 31, 2005 (the last year of
amortization), accumulated amortization aggregates to $66,287. In 2006, 2007 and
2008, goodwill was not amortized as a result of the adoption of Mexican FRS B-7
“Business
Acquisitions”.
 
 (9)
                Notes
      payable to banks and long-term
debt-
 
 a)
              Short-term
      notes payable to banks, consist of the
  following:
 
 2007
                      
                      
                      2008Unsecured notes payable to
      banks:Denominated
      in pesos, interest rate: TIIE(1) FIRA(2)  rate less 3.00
      points
                      
                      $
                      40,000
                      
                      
                      $
                      40,000
 
 The
weighted average interest rate on short-term notes payable at December 31, 2007
and 2008 was 4.93% and 5.73%, respectively. Average interest rates on short-term
notes for the years ended December 31, 2007 and 2008 were 4.68% and 5.28%,
respectively.
 
 b)
              Long-term
      notes payable to banks, as of December 31, consist of the
      following:
 
 2007
                          
                          
                          2008Secured by equipment:Denominated
      in pesos, payable in monthly installments through December 2010, at
      CETES(3) rate plus 2 points.
                          
                          $
                          30,400
                          
                          
                          $
                          20,500Secured by shares of the Company, and the
      subsidiaries as collaterals (note 11f):Determined
      in pesos, payable in six quarterly installments beginning in August
      2009 and maturing in November 2010 at a rate of TIIE (1) plus 5
      points.
                          
                          
                          -
                          
                          
                          
                          500,000Unsecured:Denominated
      in Mexican pesos, at TIIE(1) FIRA(2) rate less 3.30 points, with
      minimum rate of 2.90%, through December, 2010
                          
                          
                          5,541
                          
                          
                          
                          4,112Denominated
      in Mexican pesos, at TIIE(1) FIRA(2) rate less 1.10 points, with minimum
      rate of 0.875 points, through December, 2012 and June
2013.
                          
                          
                          33,660
                          
                          
                          
                          61,280Total
                          
                          
                          69,601
                          
                          
                          
                          585,892Less
      current installments
                          
                          
                          (18,844
                          )
                          
                          
                          (194,235
                          )Total
      long-term debt, excluding current installments
                          
                          $
                          50,757
                          
                          
                          $
                          391,657
  F-34


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(1) TIIE
= Interbank Equilibrium Rate


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


(3) CETE
= Treasury Bills





Weighted
average interest rates on long-term debt at December 31, 2007 and 2008 were
7.80% and 12.92%, respectively. The weighted average interest rate on the
Company’s total long-term debt for the years ended December 31, 2007 and 2008
was 7.92%, and 8.45%, respectively.





The
weighted average interest rate of the Company’s total debt at December 31, 2007
and 2008 was 6.75% and 12.46%, respectively.





c)
              At
      December 31, 2007 and 2008, unused lines of credit amounted $956,050 and
      $1,182,574, respectively. In 2007 and 2008, the Company did not pay any
      fee for unused lines of
credit.





d)
              The
      book value of assets collateralizing long-term debt was $137,857 at
      December 31, 2007 and $129,350 at December 31,
  2008.





e)
              Maturities
      of long-term debt as of December 31, 2008, are as
  follows:





Year
                    
                    Amount2010
                    
                    $
                    360,9022011
                    
                    
                    15,2802012
                    
                    
                    11,5402013
                    
                    
                    3,935$
                    391,657





Interest
expense on loans for the years ended December 31, 2007 and 2008, aggregated to
$6,885 and $16,040, respectively.





Bank
loans establish certain affirmative and negative covenants. As of June 25, 2009,
the Company was in compliance with all these covenants.


F-35


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(10-a)
              Financial
      Instruments and hedging activities as at December 31,
  2008-





Derivatives
for trading purposes (neither designated or qualified as hedges)





The
Company maintains a portfolio of explicit FDI, which are neither designated or
qualified as hedges under C-10 and, therefore, their related changes in fair
value were recognized as valuation effects of financial instruments within
Comprehensive Financial Results, in the results of operations.The related
amount for 2008 was $(919,026), and arose from the following derivative
instruments, shown
on the following pages.


F-36


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)




OTC1foreign currency option
structures – finance counter-party in private
agreements:





Effects on the
                                                                                                                                results of
                                                                                                                                operationsCounter-party
                                                                                                                              
                                                                                                                              Instrument
                                                                                                                              
                                                                                                                              Underlying6
                                                                                                                              
                                                                                                                              Notional
                                                                                                                              
                                                                                                                              Maturity
                                                                                                                              
                                                                                                                              RIFMerril
      Lynch5
                                                                                                                              
                                                                                                                              TARNs2
                                                                                                                              
                                                                                                                              Exchange
      rate
                                                                                                                              
                                                                                                                              5,500
                                                                                                                              
                                                                                                                              April
      through JulyCapital
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              MXP/USD
                                                                                                                              
                                                                                                                              US$
                                                                                                                              
                                                                                                                              2009
                                                                                                                              
                                                                                                                              $
                                                                                                                              753,705Services
      Inc(OTC)
                                                                                                                              
                                                                                                                              KO
      FWD3
                                                                                                                              
                                                                                                                              Exchange
      rate
                                                                                                                              
                                                                                                                              2,000
                                                                                                                              
                                                                                                                              January
      and MayMXP/USD
                                                                                                                              
                                                                                                                              US$
                                                                                                                              
                                                                                                                              2009
                                                                                                                              
                                                                                                                              
                                                                                                                              (19,478
                                                                                                                              )Call
      Spread
                                                                                                                              
                                                                                                                              Exchange
      rate
                                                                                                                              
                                                                                                                              84,000
                                                                                                                              
                                                                                                                              JanuaryMXP/USD
                                                                                                                              
                                                                                                                              US$
                                                                                                                              
                                                                                                                              2009
                                                                                                                              
                                                                                                                              
                                                                                                                              (30,639
                                                                                                                              )European
      Call
                                                                                                                              
                                                                                                                              Exchange
      rate
                                                                                                                              
                                                                                                                              1,500
                                                                                                                              
                                                                                                                              MarchMXP/USD
                                                                                                                              
                                                                                                                              US$
                                                                                                                              
                                                                                                                              2009
                                                                                                                              
                                                                                                                              
                                                                                                                              (34
                                                                                                                              )Banamex(OTC)
                                                                                                                              
                                                                                                                              European
      Call
                                                                                                                              
                                                                                                                              Exchange
      rate MXP/USD
                                                                                                                              
                                                                                                                              3,000
                                                                                                                                US$
                                                                                                                              
                                                                                                                              January
      through
                                                                                                                                March2009
                                                                                                                              
                                                                                                                              
                                                                                                                              (586
                                                                                                                              )European
      Put
                                                                                                                              
                                                                                                                              Exchange
      rate MXP/USD
                                                                                                                              
                                                                                                                              2,000
                                                                                                                                US$
                                                                                                                              
                                                                                                                              February
      through
                                                                                                                                March2009
                                                                                                                              
                                                                                                                              
                                                                                                                              17Call
      Digital
                                                                                                                              
                                                                                                                              Exchange
      rate MXP/USD
                                                                                                                              
                                                                                                                              600
                                                                                                                                US$
                                                                                                                              
                                                                                                                              January
      though
                                                                                                                                March2009
                                                                                                                              
                                                                                                                              
                                                                                                                              584TARNs
                                                                                                                              
                                                                                                                              Exchange
      rate
                                                                                                                              
                                                                                                                              21,000
                                                                                                                              
                                                                                                                              January
      and AprilMXP/USD
                                                                                                                              
                                                                                                                              US$
                                                                                                                              
                                                                                                                              2009
                                                                                                                              
                                                                                                                              
                                                                                                                              59,480Barclays
                                                                                                                              
                                                                                                                              TARFs4
                                                                                                                              
                                                                                                                              Exchange
      rate
                                                                                                                              
                                                                                                                              2,000
                                                                                                                              
                                                                                                                              NovemberCapital
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              MXP/USD
                                                                                                                              
                                                                                                                              US$
                                                                                                                              
                                                                                                                              2009
                                                                                                                              
                                                                                                                              
                                                                                                                              96,235(OTC)$
                                                                                                                              859,284





1Over the Counter (OTC):
refers to privately agreed operations (outside of the standardized or organized
futures & options exchange markets such as CBOT) with other financial or
non-financial parties.


2 Target Redemption Notes:
Options structure on MXP/USD exchange rates that provide the Company with
limited earnings when the Mexican peso appreciates, and an unlimited loss when
the U.S. dollar appreciates before the Mexican peso.


3 Knock out Forward: this
refers to an exchange rate Forward which eliminates or
extinguishes both party's rights and obligations when it reaches an exchange
rate or barrier level, which was established in the terms of the agreement on
the instrument.


4Target Redemption Forward:
this is an option structure on MXP/USD exchange rates that provide the Company
with limited earnings when the Mexican peso appreciates, and unlimited losses
when the U.S. dollar appreciates before the Mexican peso.


5See note
3, collaterals established by Bachoco’s broker.


6MXP means
Thousands of Mexican Peso and USD means Thousands of U.S.
dollars.


F-37


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Derivatives
on prices of farming goods (commodities):





Effects on
                                                        the result of
                                                        operationsCounter-party
                                                      
                                                      Instrument
                                                      
                                                      Underlying
                                                      
                                                      Maturity
                                                      
                                                      RIFCargill
                                                      
                                                      Swap
                                                      
                                                      Corn
                                                      
                                                      January
      2009
                                                      
                                                      $
                                                      16,862(OTC)Swap
                                                      
                                                      Soy
      bean
                                                      
                                                      January
      2009
                                                      
                                                      
                                                      3,285New
      Edge7
                                                      
                                                      Futures
                                                      
                                                      Corn
                                                      
                                                      March
      2009
                                                      
                                                      
                                                      12,001Futures
                                                      
                                                      Soy
      bean
                                                      
                                                      March
      2009
                                                      
                                                      
                                                      (13,151
                                                      )Call
                                                      
                                                      Corn
                                                      
                                                      March
      2009
                                                      
                                                      
                                                      (727
                                                      )Puts
                                                      
                                                      Corn
                                                      
                                                      March
      2009
                                                      
                                                      
                                                      41,472$
                                                      59,742


____________________


7New Edge
is the broker or the commission agents for the futures or options on the
futures, that the Company used to enter into these operation in this listed CBOT
market on corn and soybeans forwards. See note 3, collaterals established by the
broker for Bachoco.





Derivatives
that are designated and qualify for hedging purposes attributable to (i) one or
more risks included in identified hedged items which are already recognized on
the balance sheet or (ii) associated to risk exposures not yet recognized on the
balance sheet.





In regard
to the positions on FDI that the Company enters into and that are designated and
qualify for hedge accounting purposes on one or more financial risks, its fair
value amounted to a total of $126,164 at December 31, 2008. Following are the
details on the derivative instruments found accessing special hedge accounting
models, their notional dimension, risks and effects, either on the balance
sheets or in the statements of operations. The derivatives mentioned below
fundamentally offset the effects of the hedged items within the statement of
operations, as long as they continue to qualify and be designated for hedge
purposes:


F-38


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Fair value
hedges: The Company entered into several firm commitments that are
contractual agreements with domestic farmers, to purchase expected volumes of
grain crops at a USD-denominated fixed price including basis locks. These
agreements were carried as to access hedging instruments under the “farming by
contract” program sponsored by ASERCA. These firm commitments create off-balance
sheet grain price and foreign exchange risk exposures as well. The ASERCA Put
options offering, only hedge the fair value risk of the grain fixed price, hence
are designated as fair value hedges under the Fair Value Hedge accounting model,
as to hedge against a downside risk, where both effective effects from the
derivate (based on intrinsic value changes only, excluding extrinsic value) and
from the hedge item for such hedged risk are taken to earnings, where both
compensate. The effective changes in the fair value of these firm commitments
attributable to price risk, are allocated within the balance sheet as current
assets (losses) or liabilities (gains) until contractual volumes of grain are
recognized as inventory, then the same ASERCA put options in their correspondent
volume, are re-designated as to hedge the fair value of commodity inventories in
accordance with the fair value hedge accounting model, that is, adjusting the
book value of such inventory against earnings, up to when these inventories of
grain (corn and sorghum) impact earnings as cost of goods sold, then all pending
derivate effects allocated as current assets or liabilities coming from the firm
commitment period, are then recycled to cost of good sold, as to adjust this for
fair value hedging effects.





Options
listed on corn future, effective at December 31, 2008:





Counter-party
                
                Instrument
                
                Underlying
                
                Term
                
                Effective offsetting
                  effects on
                  cost of salesASERCA
                
                Puts
                
                Corn
                
                March
                  And
      May2009
                
                $
                (126,164
                )





Option
type of derivatives entered under the ASERCA program are under the 0% modality
for payment of the premium and a 100% benefit with a 60% discount over the
initial premium amount.





Hedging
effects on the price of grain associated with firm commitments and grain
inventories denominated in the Company’s non-functional currency (USD), that are
recognized at their fair value due to the price risk only, under the fair value
hedge accounting model.


F-39


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





As the
worldwide recession worsened during 2008, international grain prices also
experienced a deep downside, hence turned effective the ASERCA Put options held,
designated to hedge fixed grain firm commitments, with fair value changes
effects on the corn & sorghum8 prices,
while both were under firm commitments and/or inventory, were taken to the
consolidated balance sheet as inventory fair value hedge adjustment (lowering
this) or fair value adjustments recognized as current liabilities on the balance
sheet with correspondent offsetting effects against the option’s intrinsic only
value changes within consolidated statement of operations.


8
                  The
      sorghum maintains a high correlation with the futures price of corn,
      however, unlike said corn, it is not traded or listed in commodity
      organized/listed futures
market.


Grain
purchase firm commitments, subject to fair value hedge relationships9:





Description of
                              the contract
                            
                            Designated derivative
                              and hedged risk
                            
                            Changes in the fair value
                              recognized within the financial
                              statements as short term
                              liabilitySorghum
      purchaseagreements
                            
                            ASERCA
      Puts that hedge the fair value of
                              these
      firm commitments, due to falling grain prices.
                            
                            $
                            (87,586
                            )





Grain inventories adjusted
to fair value hedge:





Description
                                
                                Re-designated
      derivatives and
                                  hedged
      items
                                
                                Changes
      in the fair value,
                                  recognized
      as fair value
                                  adjustment
      to the book value of
                                  grain
      inventory within current
                                  assets.Sorghum
      and corninventories
                                
                                ASERCA
      Puts that were re-designated as to hedge the fair value of commodity grain
      inventories from losing fair value, attributable to lower grain
      prices.
                                
                                $
                                (38,578
                                )





________________________


9
                    These
      represent contracts the Company enters into with an unrelated party that
      can been executed through legal means and specify the amount the Company
      expects to exchange, the fixed price, the currency and the transaction
      schedule, among other important
aspects.


F-40





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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(10-b)
              Investment
      in primary financial securities at December 31, 2007 and
    2008-





The
Company keeps investments in primary financial debt instruments at December 31,
2007 and 2008, both in U.S. dollars and Mexican pesos, as follows:





2007
                    
                    
                    2008For trading
                      purposes
                    
                    Book
                      value
                    
                    
                    Fair
                      value
                    
                    
                    Average
                      interest
                      rates
                    
                    
                    Book
                      value
                    
                    
                    Fair
                      value
                    
                    
                    Interest10
                      rateMexican
      peso denominated debt securities:Government
      issued
                    
                    
                    1,097,304
                    
                    
                    
                    1,097,304
                    
                    
                    
                    
                    
                    
                    564,055
                    
                    
                    
                    564,055
                    
                    
                    
                    8.30
                    %Bank
      issued
                    
                    
                    1,276,109
                    
                    
                    
                    1,276,109
                    
                    
                    
                    
                    
                    
                    669,884
                    
                    
                    
                    669,884
                    
                    
                    
                    8.95
                    %Commercial
      paper
                    
                    
                    436,491
                    
                    
                    
                    436,491
                    
                    
                    
                    
                    
                    
                    109,330
                    
                    
                    
                    109,330
                    
                    
                    
                    9.28
                    %$
                    2,809,904
                    
                    
                    
                    2,809,904
                    
                    
                    
                    6.99
                    %
                    
                    $
                    1,343,269
                    
                    
                    
                    1,343,269U.S
      dollars denominated debt securities:Bank
      issued
                    
                    
                    8,433
                    
                    
                    
                    8,433
                    
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Commercial
      paper
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    167,169
                    
                    
                    
                    167,169
                    
                    
                    
                    5.31
                    %$
                    8,433
                    
                    
                    
                    8,433
                    
                    
                    
                    0.69
                    %
                    
                    $
                    167,169
                    
                    
                    
                    167,169





2008Held to maturity
                    
                    Paid price
                      when
                      bought
                    
                    
                    Impairment
                    
                    
                    Expected
                      recovery
                      amount
                    
                    
                    Interest
                      rateMexican
      peso denominated debt securities:Commercial
      paper
                    
                    $
                    48,415
                    
                    
                    $
                    13,116
                    
                    
                    
                    35,299
                    
                    
                    
                    8.2
                    %


_____________________________________


10Average
interest rate in the company


Due to
the financial crisis experienced in most economies around the World, several
securities were no longer traded actively in the financial markets, hence the
Company decided to access INIF 16 “Transfer of accounting category of
financial instruments carried for trading purposes”, hence Commercial
Paper was transferred to the Held To Maturity category starting October 1, 2008.
An impairment effect of $13,116 was immediately recognized considering that
these non guaranteed debt securities will not recover their initial
paid-in-value. Impairment was recognized in the Comprehensive Results within
earnings.


F-41


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(10-c)
              Financial
      instruments and hedging operations at December 31,
  2007-





The
Company has entered into contracts with Merrill Lynch, JP Morgan and FIMAT USA,
LLC, to hedge U.S. dollar exchange rates, corn and sorghum for the Company’s
projected cash expenditures for the period from January through December
2007.





Following
is a summary of these instruments at December 31, 2007:





Instruments
                        Type
                          (future)
                          Call or
                          Put)
                        
                        Position
                          Profile
                          assumed
                        
                        Notional
                          amount
                        
                        
                        Fair
                          value
                        
                        
                        Other
                          compre
                          hensive
                          income
                          (equity)
                        
                        
                        Ineffectiveness
                          effects
                          (earnings)Futures
      on Soybean
                        
                        
                        Short
                        
                        $
                        2,469
                        
                        
                        $
                        (3,442
                        )
                        
                        $
                        (3,442
                        )
                        
                        $
                        -Futures
      on Soybean
                        
                        
                        Long
                        
                        
                        2,379
                        
                        
                        
                        4,424
                        
                        
                        
                        4,424
                        
                        
                        
                        -Future
      on Corn
                        
                        
                        Short
                        
                        
                        167
                        
                        
                        
                        (420
                        )
                        
                        
                        (420
                        )
                        
                        
                        -Future
      on Corn
                        
                        
                        Long
                        
                        
                        553
                        
                        
                        
                        1,424
                        
                        
                        
                        1,424
                        
                        
                        
                        -Options
      on Soybean
                        Call
                        
                        Long
                        
                        
                        1,890
                        
                        
                        
                        1,947
                        
                        
                        
                        1,947
                        
                        
                        
                        -Options
      on Soybean
                        Put
                        
                        Long
                        
                        
                        3,480
                        
                        
                        
                        (255
                        )
                        
                        
                        (255
                        )
                        
                        
                        -Options
      on Corn
                        Call
                        
                        Long
                        
                        
                        2,870
                        
                        
                        
                        3,815
                        
                        
                        
                        3,815
                        
                        
                        
                        -Options
      on Corn
                        Put
                        
                        Short
                        
                        
                        5,380
                        
                        
                        
                        (226
                        )
                        
                        
                        (226
                        )
                        
                        
                        -Options
      on Corn futures under ASERCA program
                        Put
                        
                        Long
                        
                        
                        48,438
                        
                        
                        
                        99,310
                        
                        
                        
                        99,310
                        
                        
                        
                        -Embedded
      derivatives on the price of corn
                        
                        
                        Long
                        
                        
                        16,356
                        
                        
                        
                        15,549
                        
                        
                        
                        15,549
                        
                        
                        
                        -Exchange
      rate options
                        Call
                        
                        Long
                        
                        
                        49,500
                        
                        
                        
                        9,424
                        
                        
                        
                        -
                        
                        
                        
                        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
                        )123,503
                        
                        
                        
                        122,126
                        
                        
                        
                        1,377Deferred
      tax effects
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (23,466
                        )
                        
                        
                        (23,204
                        )
                        
                        
                        -Net
      total after deferred tax effects
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        100,037
                        
                        
                        
                        98,922
                        
                        
                        
                        1,377





As part
of the exchange hedge strategy, the Company, includes the use of financial
derivative instruments to reduce exchange rate fluctuations associated with
forecasted  grain purchase operations. The Company has short-tem call
and put options whose fair value amount as of 2007 ascending to 277,000 U.S.
dollars and liabilities in the amount of 225,000 U.S. dollars. The Company
recognized a net payment in the amount of $8,097 in 2007 in its comprehensive
financial results.





(11)
              Commitments
      and contingencies-





(a)
              The
      Company has entered into operating leases for certain offices, production
      sites, and automotive and computer equipment. Most leases contain renewal
      options. These agreements have terms between one and five years. Rental
      expense under these leases was as
follows:


F-42


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Year ended
                    December 31,
                  
                  Amount2006
                  
                  $
                  124,0282007
                  
                  
                  153,1652008
                  
                  $
                  167,871





(b)
              There
      is a contingent liability arising from the labor obligations mentioned in
      note 2m.





(c)
              The
      Company is involved in a number of lawsuits and claims arising in the
      normal course of business. It is expected that the final outcome of these
      matters will not have significant adverse effects on the Company’s
      financial position and results of
operations.





(d)
            In
      accordance with Mexican tax law, the tax authorities are entitled to
      examine transactions carried out during the five years prior to the most
      recent income tax return filed.





(e)
            In
      accordance with the Income Tax Law, companies carrying out transactions
      with related parties are subject to certain requirements as to the
      determination of prices, which should be similar to those that would be
      used in arms-length transactions.





(f)
            One
      of the bank loans mentioned in note 9 is guaranteed by third parties
      through their shares in the Company, which shares are held in a trust. In
      the event of a reduction in the value of the qualified shares, Bachoco or
      the shareholders will directly or indirectly, through its subsidiaries or
      affiliates, assume the obligation to make additional contributions, or
      make cash deposits to cover the
difference.





(12)
              Other
      taxes payable and other
accruals-





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





2007
                  
                  
                  2008Expenses
      payable
                  
                  $
                  91,981
                  
                  
                  
                  76,787IMSS
      (1)
                  
                  
                  29,408
                  
                  
                  
                  30,234SAR
      (2)
                  
                  
                  5,303
                  
                  
                  
                  6,721INFONAVIT
      (3)
                  
                  
                  21,765
                  
                  
                  
                  22,786Other
      accounts payable
                  
                  
                  39,005
                  
                  
                  
                  99,037Trade
      advances
                  
                  
                  38,204
                  
                  
                  
                  33,422Employee
      statutory profit sharing
                  
                  
                  5,756
                  
                  
                  
                  34,355Salaries
      payable
                  
                  
                  4,514
                  
                  
                  
                  10,804Tax
      payable
                  
                  
                  4,128
                  
                  
                  
                  5,485Payroll
      taxes
                  
                  
                  2,637
                  
                  
                  
                  6,107Interest
      payable
                  
                  
                  728
                  
                  
                  
                  2,864Total
                  
                  $
                  243,429
                  
                  
                  
                  328,602


F-43


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(1) IMSS
(a Government health care institution): contributions are made by the Company
and by its employees in accordance with applicable regulations. The Company is
required to pay this contribution on a monthly basis, along with the Company’s
own contribution to the social security fund.





(2) SAR
(a Government institution for employee retirement savings): Contributions are
made by the Company based on applicable regulations as a percentage of the
employees’ salary. The Company has a duty to pay these contributions to the
government every two months.





(3)
INFONAVIT (a Government institution that provides mortgages to employees): The
Company is required to make contributions to this entity based on approximately
5% of the employees’ salaries, subject to certain limits. The Company has a duty
to pay these contributions every two months.





(13)
              Foreign
      currency position-





a)
              A
      summary of the Company’s monetary assets and liabilities denominated in
      U.S. dollars (the only foreign currency) translated into reporting
      currency, as of December 31, 2007 and 2008 were as
  follows:





2007
                      
                      
                      2008Assets:Cash
      and investments
                      
                      $
                      380,344
                      
                      
                      $
                      451,957Other
      accounts
                      
                      
                      -
                      
                      
                      
                      3,958Advances
      to suppliers (included in inventories and property, plant and
      equipment)
                      
                      
                      404,936
                      
                      
                      
                      433,333785,280
                      
                      
                      
                      889,248Liabilities:Accounts
      payable
                      
                      
                      (154,358
                      )
                      
                      
                      (342,993
                      )Net
      assets
                      
                      $
                      630,922
                      
                      
                      $
                      546,255


F-44


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)


b)
              As
      of December 31, 2007 and 2008, the exchange rate was $ 10.91 and $ 13.815
      per US dollar, respectively. At March 27, 2009, date of the statutory
      audit report, the exchange rate was $14.21 per US
  dollar.





(14)
            Labor
      obligations-





a)
              Labor
      obligations at December 31,
2008





The
Company has a defined benefit pension plan covering the non unionized personnel.
The benefits are based on years of service and the employee’s compensation. The
Company makes annual contributions to the plan equal to the maximum amount that
can be deducted for income tax purposes based on the projected unit credit
method.





Cash
flows-





Plan
contributions and benefits paid were as follows:





Benefits 2008Termination
                  
                  
                  Retirement
                  
                  
                  TotalPlan
      contributions
                  
                  $
                  -
                  
                  
                  
                  17,450
                  
                  
                  
                  17,450Benefits
      paid
                  
                  
                  21,489
                  
                  
                  
                  2,865
                  
                  
                  
                  24,354





The cost,
obligations and other elements of the pension, seniority premium and severance
compensation plans for reasons other than restructuring, mentioned in note 2m,
have been determined based on computations prepared by independent actuaries at
December 31, 2008. The components of the net periodic cost for the year ended
December 31, 2008 were as follows:


F-45


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Benefits 2008Termination
                  
                  
                  Retirement
                  
                  
                  TotalNet
      periodic cost:Service
      cost
                  
                  $
                  13,122
                  
                  
                  
                  18,539
                  
                  
                  
                  31,661Interest
      cost
                  
                  
                  5,324
                  
                  
                  
                  19,880
                  
                  
                  
                  25,204Return
      on plan assets
                  
                  
                  -
                  
                  
                  
                  (18,683
                  )
                  
                  
                  (18,683
                  )Net
      actuarial loss (gain)
                  
                  
                  7,012
                  
                  
                  
                  (380
                  )
                  
                  
                  6,632Prior
      service cost (2007unamortized
      items):Amortization
      of prior service cost and plan modifications
                  
                  
                  -
                  
                  
                  
                  1,885
                  
                  
                  
                  1,885Amortization
      of transition liability
                  
                  
                  4,828
                  
                  
                  
                  5,448
                  
                  
                  
                  10,276Net
      periodic cost
                  
                  $
                  30,286
                  
                  
                  
                  26,689
                  
                  
                  
                  56,975





The
present value of benefit obligations of the plans at December 31, 2008, is as
follows:





Benefits 2008Termination
                  
                  
                  Retirement
                  
                  
                  TotalAccumulated
      benefit obligation (ABO)
                  
                  $
                  52,131
                  
                  
                  
                  138,077
                  
                  
                  
                  190,208Projected
      benefit obligation (PBO)
                  
                  
                  70,915
                  
                  
                  
                  210,319
                  
                  
                  
                  281,234Plan
      assets at fair value
                  
                  
                  -
                  
                  
                  
                  (188,815
                  )
                  
                  
                  (188,815
                  )Projected
      benefit obligation  over plan assets
                  
                  
                  70,915
                  
                  
                  
                  21,504
                  
                  
                  
                  92,419Unrecognized
      items:Transition
      liability
                  
                  
                  (18,370
                  )
                  
                  
                  (21,793
                  )
                  
                  
                  (40,163
                  )Plan
      modifications
                  
                  
                  -
                  
                  
                  
                  (25,437
                  )
                  
                  
                  (25,437
                  )Actuarial
      gains
                  
                  
                  -
                  
                  
                  
                  53,871
                  
                  
                  
                  53,871Projected
      liability, net
                  
                  $
                  52,545
                  
                  
                  
                  28,145
                  
                  
                  
                  80,690





F-46


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)








Retirement benefitsSeniority
                    premium
                  
                  
                  Pension
                    plan
                  
                  
                  TotalDefined
      benefits obligations:Obligation
      because of defined benefits at the beginning of year
                  
                  $
                  32,095
                  
                  
                  
                  199,333
                  
                  
                  
                  231,428Current
      labor cost
                  
                  
                  2,658
                  
                  
                  
                  15,880
                  
                  
                  
                  18,538Interest
      cost
                  
                  
                  2,743
                  
                  
                  
                  17,137
                  
                  
                  
                  19,880Actuarial
      gains and losses
                  
                  
                  (3,187
                  )
                  
                  
                  (51,298
                  )
                  
                  
                  (54,485
                  )Benefits
      paid
                  
                  
                  (1,329
                  )
                  
                  
                  (3,713
                  )
                  
                  
                  (5,042
                  )Defined
      benefits obligations at end of year
                  
                  
                  32,980
                  
                  
                  
                  177,339
                  
                  
                  
                  210,319





Following
is an itemized analysis of the determination regarding the plan’s assets at
December 31, 2008:





Retirement benefitsSeniority
                    premium
                  
                  
                  Pension
                    plan
                  
                  
                  TotalPlan
      assets:Plan
      asset at the beginning of year
                  
                  $
                  -
                  
                  
                  
                  182,017
                  
                  
                  
                  182,017Yield
      expected
                  
                  
                  -
                  
                  
                  
                  (8,475
                  )
                  
                  
                  (8,475
                  )Company
      contributions
                  
                  
                  -
                  
                  
                  
                  17,450
                  
                  
                  
                  17,450Benefits
                  
                  
                  -
                  
                  
                  
                  (2,177
                  )
                  
                  
                  (2,177
                  )Plan
      assets at end of year
                  
                  
                  -
                  
                  
                  
                  188,815
                  
                  
                  
                  188,815





Following
is a detailed description of the current amounts and the amounts for the
previous four annual periods derived from the defined benefit obligations, the
reasonable value of the plan’s assets and the adjustments on the plan assets and
liabilities, based on experience:





Seniority premium*2004
                      
                      
                      2005
                      
                      
                      2006
                      
                      
                      2007
                      
                      
                      2008Defined
      benefits obligations
                      
                      $
                      36,238
                      
                      
                      
                      46,546
                      
                      
                      
                      49,097
                      
                      
                      
                      56,601
                      
                      
                      
                      59,086Plan
      assets
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Plan
      situation
                      
                      $
                      36,238
                      
                      
                      
                      46,546
                      
                      
                      
                      49,097
                      
                      
                      
                      56,601
                      
                      
                      
                      59,086


F-47


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Pension plan2004
                  
                  
                  2005
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2008Defined
      benefitsobligations
                  
                  $
                  130,860
                  
                  
                  
                  152,360
                  
                  
                  
                  189,355
                  
                  
                  
                  199,333
                  
                  
                  
                  177,339Plan
      assets
                  
                  
                  (96,085
                  )
                  
                  
                  (130,747
                  )
                  
                  
                  (160,421
                  )
                  
                  
                  (182,017
                  )
                  
                  
                  (188,815
                  )Plan
      status
                  
                  $
                  34,775
                  
                  
                  
                  21,613
                  
                  
                  
                  28,934
                  
                  
                  
                  17,316
                  
                  
                  
                  (11,476
                  )





*
              The
      results of Seniority Premium include retirement and termination, due to
      the fact that this division did not exist in prior years in accordance
      with the Bulletin D-3.





Benefits2007
                  
                  
                  2008Discount
      rate (net of inflation)
                  
                  
                  5.25
                  %
                  
                  
                  9.75
                  %Rate
      of compensation increase
                  
                  
                  1.00
                  %
                  
                  
                  4.50
                  %Expected
      return on plan assets
                  
                  
                  6.25
                  %
                  
                  
                  9.75
                  %Amortization
      period of unrecognized items (applicable to retirement
      benefit)
                  
                  19.2 years
                  
                  
                  19.66 years





The
distribution of assets listed by category and the related budget at the end of
2006, 2007 and 2008, are analyzed as follows:





Assets
      to ended year2006
                    
                    
                    2007
                    
                    
                    2008Fixed
      rate investment
                    
                    
                    74
                    %
                    
                    
                    77
                    %
                    
                    
                    77
                    %Variable
      rate investment
                    
                    
                    26
                    %
                    
                    
                    23
                    %
                    
                    
                    23
                    %Total
                    
                    
                    100
                    %
                    
                    
                    100
                    %
                    
                    
                    100
                    %





The
distribution of the assets reflects the strategy that was used to optimize the
return rate on the plan and the fund's results, within the framework of an
appropriate risk level.


F-48


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





b)
              Labor
      obligations at December 31,
2007





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, 2007 is as follows:




Pension plan
                    
                    
                    Seniority
                      premium
                    
                    
                    Severance2006
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2007Net
      periodic cost:Labor
      cost
                    
                    $
                    11,791
                    
                    
                    
                    15,429
                    
                    
                    
                    3,781
                    
                    
                    
                    4,361
                    
                    
                    
                    9,475
                    
                    
                    
                    9,191Return
      on plan assets
                    
                    
                    (8,395
                    )
                    
                    
                    (10,090
                    )
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Amortization
      of unrecognized prior past service costs
                    
                    
                    2,429
                    
                    
                    
                    2,239
                    
                    
                    
                    3,757
                    
                    
                    
                    1,215
                    
                    
                    
                    1,530
                    
                    
                    
                    4,250Interest
      cost
                    
                    
                    7,864
                    
                    
                    
                    8,890
                    
                    
                    
                    2,298
                    
                    
                    
                    2,348
                    
                    
                    
                    1,993
                    
                    
                    
                    1,765Net
      periodic cost
                    
                    
                    13,689
                    
                    
                    
                    16,468
                    
                    
                    
                    9,836
                    
                    
                    
                    7,924
                    
                    
                    
                    12,998
                    
                    
                    
                    15,206Loss
      from early extinguishment of obligations
                    
                    $
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    941
                    
                    
                    
                    2,514


F-49


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Pension plan
                  
                  
                  Seniority premium
                  
                  
                  Severance2006
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2007Labor
      obligations:Accumulated
      benefit obligation
                  
                  $
                  160,280
                  
                  
                  
                  186,865
                  
                  
                  
                  33,063
                  
                  
                  
                  36,306
                  
                  
                  
                  31,936
                  
                  
                  
                  38,567Current
      benefit obligation
                  
                  
                  99,220
                  
                  
                  
                  124,592
                  
                  
                  
                  28,202
                  
                  
                  
                  30,821
                  
                  
                  
                  31,036
                  
                  
                  
                  38,567Projected
      benefit obligation
                  
                  
                  189,355
                  
                  
                  
                  199,333
                  
                  
                  
                  49,098
                  
                  
                  
                  56,601
                  
                  
                  
                  36,053
                  
                  
                  
                  42,895Plan
      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
                  
                  
                  
                  19,242Unfunded
      accumulated benefit obligation
                  
                  
                  4,624
                  
                  
                  
                  15,960
                  
                  
                  
                  33,063
                  
                  
                  
                  36,307
                  
                  
                  
                  31,936
                  
                  
                  
                  38,567Current
      net liability over net projected liability in some
      subsidiaries
                  
                  
                  -
                  
                  
                  
                  4,049
                  
                  
                  
                  6,575
                  
                  
                  
                  7,479
                  
                  
                  
                  16,573
                  
                  
                  
                  19,325Additional
      liability
                  
                  
                  -
                  
                  
                  
                  (4,049
                  )
                  
                  
                  (6,575
                  )
                  
                  
                  (7,479
                  )
                  
                  
                  (16,573
                  )
                  
                  
                  (19,325
                  )Intangible
      assets
                  
                  
                  -
                  
                  
                  
                  4,049
                  
                  
                  
                  5,659
                  
                  
                  
                  5,967
                  
                  
                  
                  16,573
                  
                  
                  
                  18,325Minimum
      labor obligation liability adjustment
                  
                  $
                  -
                  
                  
                  
                  -
                  
                  
                  
                  916
                  
                  
                  
                  1,512
                  
                  
                  
                  -
                  
                  
                  
                  1,000





Pension plan
                  
                  
                  Seniority Premium
                  
                  
                  Severance2006
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2007
                  
                  
                  2006
                  
                  
                  2007Change
      in benefit obligation:Benefit
      obligation at beginning of year
                  
                  $
                  152,360
                  
                  
                  
                  189,355
                  
                  
                  
                  46,546
                  
                  
                  
                  49,097
                  
                  
                  
                  42,671
                  
                  
                  
                  36,053Service
      cost
                  
                  
                  11,791
                  
                  
                  
                  15,429
                  
                  
                  
                  3,781
                  
                  
                  
                  4,361
                  
                  
                  
                  9,475
                  
                  
                  
                  9,191Interest
      cost
                  
                  
                  7,864
                  
                  
                  
                  8,890
                  
                  
                  
                  2,298
                  
                  
                  
                  2,348
                  
                  
                  
                  1,992
                  
                  
                  
                  1,765Actuarial
      differences
                  
                  
                  8,518
                  
                  
                  
                  (12,587
                  )
                  
                  
                  2,339
                  
                  
                  
                  6,379
                  
                  
                  
                  (6,077
                  )
                  
                  
                  9,726Benefits
      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
                  
                  $
                  189,355
                  
                  
                  
                  199,333
                  
                  
                  
                  49,097
                  
                  
                  
                  56,601
                  
                  
                  
                  36,053
                  
                  
                  
                  42,895


F-50


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





Pension plan2006
                  
                  
                  2007Changes
      in plan assets:Plan
      assets at beginning of the year
                  
                  $
                  130,742
                  
                  
                  
                  160,421Actual
      return on plan assets
                  
                  
                  8,395
                  
                  
                  
                  10,090Employer
      contribution
                  
                  
                  14,039
                  
                  
                  
                  13,193Actuarial
      differences
                  
                  
                  8,799
                  
                  
                  
                  67Benefit
      paid
                  
                  
                  (1,554
                  )
                  
                  
                  (1,754
                  )Fair
      value of plan assets at end of year
                  
                  
                  160,421
                  
                  
                  
                  182,017Funded
      status
                  
                  
                  (28,934
                  )
                  
                  
                  (17,316
                  )Unrecognized
      net actuarial loss (gain)
                  
                  
                  (36,758
                  )
                  
                  
                  (48,415
                  )Unrecognized
      prior service cost (benefit)
                  
                  
                  22,971
                  
                  
                  
                  20,959Net
      amount recognized
                  
                  $
                  (42,721
                  )
                  
                  
                  (44,772
                  )





The
Company used December, 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).





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





Pension
                      plan
                    
                    
                    Seniority
                      premium
                    
                    
                    SeveranceExpected
      benefit payment2008
                    
                    $
                    6,972
                    
                    
                    
                    6,395
                    
                    
                    
                    8,2152009
                    
                    
                    8,222
                    
                    
                    
                    6,857
                    
                    
                    
                    7,4312010
                    
                    
                    9,482
                    
                    
                    
                    7,145
                    
                    
                    
                    7,0022011
                    
                    
                    10,859
                    
                    
                    
                    7,282
                    
                    
                    
                    6,6512012
                    
                    
                    11,957
                    
                    
                    
                    7,369
                    
                    
                    
                    6,3032013-2017
                    
                    
                    76,959
                    
                    
                    
                    37,704
                    
                    
                    
                    27,856Total$
                    124,451
                    
                    
                    
                    72,752
                    
                    
                    
                    63,458





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


F-51


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(15)
            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 split 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 have voting
rights.





b)
            In
      2006, 2007 and 2008, the Company declared and paid cash dividends at
      nominal values of $353,880, $353,880 and $353,880, respectively ($378,075
      and $363,708     in constant pesos as at December
      31, 2006 and 2007) or $0.59, $0.59 and $0.59, respectively, per share in
      nominal pesos, respectively.





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, 2007 and 2008, included in retained
      earnings, was $ 209,399.





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 $180,000 ($303,861 expressed in constant Mexican pesos at
      December 31, 2007) through the appropriation of retained earnings in 1998.
      During 2005, the Company repurchased 920 thousand shares for an amount of
      $11,462. During 2006, 2007 and 2008, no shares were repurchased. In 2005
      and 2006, the Company sold 800 thousand and 920 thousand of shares,
      respectively, previously repurchased; the sales value was for $2,954 and
      $17,849, respectively. In 2007 and 2008, no shares were
      sold.


F-52


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





e)
              The
      Company is required to pay taxes on dividends distributed to stockholders
      only to the extent that 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.





f)
            The
      Company obtains the majority of its revenues and net profit from Bachoco,
      S.A. de C.V. (“BSACV”). For the years 2007 and 2008, pretax income (loss)
      of BSACV, represented between 90% and 94% of Bachoco’s consolidated pretax
      income (loss).





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.





g)
            From
      1999 through 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.





h)
            Stockholders
      contribution restated as provided for by the tax law, aggregating
      $1,999,574, may be refunded to stockholders tax-free, to the extent that
      such contribution equals or exceeds stockholders’
      equity.





(16)
            Income
      Tax (IT), Asset Tax (AT), and Flat Rate Business Tax
    (IETU)-





a)
              Income
      tax (IT)-





The
Company and each of its subsidiaries file separate income tax returns. BSACV,
the Company’s principal operating subsidiary, is subject to 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 such regime is
exclusive for companies that obtain no more than 10% of their total revenues
from the production of processed products, with which rule BSACV has
complied.


F-53


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





The
simplified regime establishes that the taxable base for income tax is determined
on revenues collected net of deductions paid (cash basis). The tax rate for this
regime was 16% in 2005 and 2006, and 19% from 2007.





The
income tax reforms passed in December 2004 include the elimination, as from
January 2005, of the purchase deduction so as to permit only the deduction of
cost of sales. This reform is not applicable for BSACV, since it is subject to
taxes under the simplified regime.





The
changes in tax rates enacted in 2006 from 16% to 19% in 2007 resulted in a
charge of $336,376 in the consolidated statement of operations.





b)
              Flat
      Rate Business Tax (IETU)-





On
October 1, 2007, new laws were published and a number of tax laws were revised.
This new law came into effect on January 1, 2008.





The IETU
rate is 17.5% for 2010 and thereafter (16.5% for 2008 and 17% for 2009) based on
cash flows and limits certain deductions.





IETU
credits are derived mainly from the unamortized negative IETU base and salaries
credits and social security contributions, as well as credits derived from the
deduction of certain investments, such as inventories and fixed
assets.





The IETU
is required to be paid only when it is greater than the IT. To determine the
IETU payable, income tax paid in a given period shall first be subtracted from
the current IT of the same period and the difference shall be the IETU
payable.





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





c)
              Asset
      tax (AT)-





In 2007,
a new law was enacted that resulted in the derogation of the Asset Tax Law
beginning on January 1, 2008. In 2007, the asset tax rate was payable at 1.25%
and liabilities were no longer deductible from the asset tax base. Until
December 31, 2006, the applicable rate was 1.8% and the asset tax was payable on
the average value of most assets, net of certain liabilities. The asset tax in
2006 and 2007 amounted to $28,267 and $27,189, respectively. In each of the two
years, the Company credited these amounts against the income tax
paid.


F-54


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





At
December 31, 2008, the Company had $4,494 in asset tax credits and such
recoverable AT will expire, as follows:





Asset tax
                      restated atDecember 31,
                    
                    Year ofBase year
                    
                    2008
                    
                    expiration2005
                    
                    $
                    1,137
                    
                    20152006
                    
                    
                    3,357
                    
                    2016$
                    4,494





d)
              Income
      tax charged to operations-





For the
years ended December 31, 2006, 2007 and 2008, income tax charged (credited) to
results of operations was as follows:





2006
                            
                            
                            2007
                            
                            
                            2008Current
      income tax
                            
                            $
                            250,519
                            
                            
                            
                            143,029
                            
                            
                            
                            78,559Flat
      Rate Business Tax
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            108Deferred
      income tax
                            
                            
                            348,607
                            
                            
                            
                            169,716
                            
                            
                            
                            (352,686
                            )Total
      income tax expense (benefit)
                            
                            $
                            599,126
                            
                            
                            
                            312,745
                            
                            
                            
                            (274,019
                            )





e)
              Deferred
      income tax-





Based on
the financial projections of taxable income in each of the next four years the
Company estimated that it will pay income tax (IT); therefore, deferred tax
effects as of December 31, 2007 and 2008 have been recorded reflecting the IT
basis.


F-55


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)








2007
                          
                          
                          2008Deferred
      tax assets:Account
      payable
                          
                          $
                          196,460
                          
                          
                          
                          393,725Labor
      obligations
                          
                          
                          6,697
                          
                          
                          
                          15,851ESPS
      payable
                          
                          
                          1,385
                          
                          
                          
                          9,168Effects
      on derivative financial instruments
                          
                          
                          -
                          
                          
                          
                          150,644Recoverable
      AT
                          
                          
                          4,613
                          
                          
                          
                          4,494Tax
      loss carry forwards
                          
                          
                          -
                          
                          
                          
                          165,121Total
      gross deferred tax assets
                          
                          
                          209,155
                          
                          
                          
                          739,003Less
      valuation allowance
                          
                          
                          4,613
                          
                          
                          
                          28,015Net
      deferred tax assets
                          
                          
                          204,542
                          
                          
                          
                          710,988Deferred
      tax liabilities:Inventories
                          
                          
                          420,993
                          
                          
                          
                          711,742Accounts
      receivables
                          
                          
                          396,437
                          
                          
                          
                          308,543Fixed
      assets
                          
                          
                          1,450,073
                          
                          
                          
                          1,394,687Effects
      on financial instruments
                          
                          
                          23,204
                          
                          
                          
                          -Other
      deductions
                          
                          
                          -
                          
                          
                          
                          15,092Other
      accruals
                          
                          
                          280
                          
                          
                          
                          -Additional
      liability from stockholders’ equity
                          
                          
                          288,580
                          
                          
                          
                          -Total
      gross deferred tax liabilities
                          
                          
                          2,579,567
                          
                          
                          
                          2,430,064Net
      deferred tax liability
                          
                          $
                          2,375,025
                          
                          
                          
                          1,719,076





At
December 31, 2007, the deferred income tax liability determined by treating
stockholders’ equity as a single temporary item is greater than the amount
determined by using the asset and liability method, and thus, the Company
recognized an additional liability of $288,580 in 2007 to account for this
difference.





Effective
January 1, 2008, the Company adopted Mexican FRS D-4, which supersedes Bulletin
D-4 and Circular 54. Mexican FRS D-4 and establishes the asset and liability
method as the only acceptable method to determine deferred taxes. Therefore, the
Company wrote-off $288,580 that relates to the additional deferred tax liability
determined under the stockholders equity method in 2007.





In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.


F-56


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





The
significant items that gave rise to the difference between the effective income
tax rate (current and deferred taxes) and the current year tax determined at the
statutory rate are as follows:




2006
                        
                        
                        2007
                        
                        
                        2008%
                        
                        
                        %
                        
                        
                        %Statutory
      income tax rate
                        
                        
                        16.00
                        
                        
                        
                        19.00
                        
                        
                        
                        (19.00
                        )Effect
      of companies outside simplified regime
                        
                        
                        4.42
                        
                        
                        
                        4.13
                        
                        
                        
                        2.33Effect
      of non-taxable items
                        
                        
                        (3.04
                        )
                        
                        
                        (3.40
                        )
                        
                        
                        (6.95
                        )Effect
      due to change in tax rate from 16% to 19% in 2007
                        
                        
                        22.40
                        
                        
                        
                        -
                        
                        
                        
                        -Effective
      income tax rate
                        
                        
                        39.78
                        
                        
                        
                        19.73
                        
                        
                        
                        (23.62
                        )





f)
              Tax
      loss carryforwards-





As of
December 31, 2008, the Company has tax loss carryforwards restated in accordance
with the current Mexican Tax Law, which can be used to offset future taxable
income in the next ten years, as follows:





Tax loss carryforwards as adjusted by inflation
                        trough December 31, 2008Year of
                      
                      RestatedBase year
                      
                      expiration
                      
                      amount2001
                      
                      2011
                      
                      $
                      1812005
                      
                      2015
                      
                      
                      2412007
                      
                      2017
                      
                      
                      6,2272008
                      
                      2018
                      
                      
                      835,987$
                      842,636





g)
              Equity
      tax value-





As of
December 31, 2007 and 2008, the tax value of the Company’s equity, which will
not be subject to taxation, comprised the following:


F-57


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





2007
                  
                  
                  2008Restated
      contribution capital (CUCA)
                  
                  $
                  1,877,344
                  
                  
                  
                  1,999,574Net
      tax profit account (CUFIN) and net reinvested tax profit account
      (CUFINRE)
                  
                  
                  2,574,183
                  
                  
                  
                  2,535,424Total
                  
                  $
                  4,451,527
                  
                  
                  
                  4,534,998





(17)
              Other
      income (expense), net-





As of
December 31, 2006, 2007 and 2008, other income and expense net, were as
follows:





2006
                  
                  
                  2007
                  
                  
                  2008Other
      income:Sales
      of waste animals, raw material, by- products and other
                  
                  $
                  206,528
                  
                  
                  
                  276,094
                  
                  
                  
                  187,911Tax
      incentives
                  
                  
                  32,379
                  
                  
                  
                  73,054
                  
                  
                  
                  44,899Other
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  8,106Total
      other income
                  
                  
                  238,907
                  
                  
                  
                  349,148
                  
                  
                  
                  240,916Other
      expense:Cost
      of waste animals, raw material, by-  products and
      other
                  
                  
                  (182,324
                  )
                  
                  
                  (261,703
                  )
                  
                  
                  (200,960
                  )Employee
      statutory profit sharing
                  
                  
                  (4,362
                  )
                  
                  
                  (4,828
                  )
                  
                  
                  (32,981
                  )Other
                  
                  
                  (33,794
                  )
                  
                  
                  (13,046
                  )
                  
                  
                  (27,933
                  )Total  other
      expense
                  
                  
                  (220,480
                  )
                  
                  
                  (279,577
                  )
                  
                  
                  (261,874
                  )Total
      other income (expense), net
                  
                  $
                  18,427
                  
                  
                  
                  69,571
                  
                  
                  
                  (20,958
                  )





Employee
statutory profit 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.


F-58


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





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





(18)
              Segment
      financial information-





The
segments to be reported are organized by product line. Inter-segment
transactions have been eliminated. Our Poultry segment is comprised of our
chicken and egg products due to their similarity and to the fact that egg sales
represent approximately 10% of total revenue for the years ended on December 31,
2006, 2007 and 2008. The information included under “Others” corresponds to
pigs, balanced animal feed and other non-significant sub-products. The required
disclosures are shown below:





As of and for the year ended at December 31, 2006Poultry
                    
                    
                    Others
                    
                    
                    TotalNet
      revenues
                    
                    $
                    13,486,020
                    
                    
                    
                    2,064,945
                    
                    
                    
                    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
      and financial expenses
                    
                    
                    (129,506
                    )
                    
                    
                    (2,346
                    )
                    
                    
                    (131,852
                    )Monetary
      position loss
                    
                    
                    (150,438
                    )
                    
                    
                    -
                    
                    
                    
                    (150,438
                    )Income
      taxes
                    
                    
                    (567,933
                    )
                    
                    
                    (31,193
                    )
                    
                    
                    (599,126
                    )Net
      majority interest 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-59


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





As of and for the year ended at December 31, 2007Poultry
                    
                    
                    Others
                    
                    
                    TotalNet
      Revenues
                    
                    $
                    15,885,828
                    
                    
                    
                    2,333,819
                    
                    
                    
                    18,219,647Cost
      of sales
                    
                    
                    (12,353,458
                    )
                    
                    
                    (2,124,403
                    )
                    
                    
                    (14,477,861
                    )Gross
      profit
                    
                    
                    3,532,370
                    
                    
                    
                    209,416
                    
                    
                    
                    3,741,786Interest
      income
                    
                    
                    348,167
                    
                    
                    
                    14,849
                    
                    
                    
                    363,016Valuation
      effects of financial instruments
                    
                    
                    (44,137
                    )
                    
                    
                    -
                    
                    
                    
                    (44,137
                    )Interest
      and financial expenses
                    
                    
                    (133,913
                    )
                    
                    
                    (7,665
                    )
                    
                    
                    (141,578
                    )Loss
      on net monetary position
                    
                    
                    (151,035
                    )
                    
                    
                    (3,779
                    )
                    
                    
                    (154,814
                    )Income
      taxes
                    
                    
                    (280,792
                    )
                    
                    
                    (31,953
                    )
                    
                    
                    (312,745
                    )Majority
      net income
                    
                    
                    1,203,149
                    
                    
                    
                    67,792
                    
                    
                    
                    1,270,941Property,
      plant and equipment, net
                    
                    
                    9,986,129
                    
                    
                    
                    270,110
                    
                    
                    
                    10,256,239Total
      assets
                    
                    
                    18,264,882
                    
                    
                    
                    851,542
                    
                    
                    
                    19,116,424Total
      liabilities
                    
                    
                    3,798,656
                    
                    
                    
                    190,602
                    
                    
                    
                    3,989,258Capital
      expenditures
                    
                    
                    987,322
                    
                    
                    
                    4,415
                    
                    
                    
                    991,737Expenses
      not requiring cash disbursement:Depreciation
                    
                    
                    556,188
                    
                    
                    
                    15,205
                    
                    
                    
                    571,393





As of and for the year ended at December 31, 2008Poultry
                    
                    
                    Others
                    
                    
                    TotalNet
      Revenues
                    
                    $
                    17,594,994
                    
                    
                    
                    2,530,327
                    
                    
                    
                    20,125,321Cost
      of sales
                    
                    
                    (15,171,145
                    )
                    
                    
                    (2,311,323
                    )
                    
                    
                    (17,482,468
                    )Gross
      profit
                    
                    
                    2,423,849
                    
                    
                    
                    219,004
                    
                    
                    
                    2,642,853Interest
      income
                    
                    
                    168,283
                    
                    
                    
                    5,411
                    
                    
                    
                    173,694Valuation
      effects of  financial instruments
                    
                    
                    (1,666,821
                    )
                    
                    
                    -
                    
                    
                    
                    (1,666,821
                    )Interest
      and financial expenses
                    
                    
                    (16,691
                    )
                    
                    
                    (19,511
                    )
                    
                    
                    (36,202
                    )Income
      taxes
                    
                    
                    292,563
                    
                    
                    
                    (18,544
                    )
                    
                    
                    274,019Majority
      net (loss) income
                    
                    
                    (939,068
                    )
                    
                    
                    60,020
                    
                    
                    
                    (879,048
                    )Property,
      plant and equipment, net
                    
                    
                    10,422,423
                    
                    
                    
                    266,812
                    
                    
                    
                    10,689,235Total
      assets
                    
                    
                    18,386,409
                    
                    
                    
                    1,068,562
                    
                    
                    
                    19,454,971Total
      liabilities
                    
                    
                    5,039,205
                    
                    
                    
                    336,347
                    
                    
                    
                    5,375,552Capital
      expenditures
                    
                    
                    1,140,843
                    
                    
                    
                    15,325
                    
                    
                    
                    1,156,168Expenses
      not requiring cash disbursement::Depreciation
                    
                    
                    594,704
                    
                    
                    
                    21,654
                    
                    
                    
                    616,358


F-60




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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)








Year ended at
                                December 31, 2006hens
                              
                              
                              Eggs
                              
                              
                              TotalNet
      revenues
                              
                              $
                              12,053,293
                              
                              
                              
                              1,432,727
                              
                              
                              
                              13,486,020Year ended at
                                December 31, 2007hens
                              
                              
                              Eggs
                              
                              
                              TotalNet
      revenues
                              
                              $
                              14,135,242
                              
                              
                              
                              1,750,586
                              
                              
                              
                              15,885,828Year ended at
                                December 31, 2008hens
                              
                              
                              Eggs
                              
                              
                              TotalNet
      revenues
                              
                              $
                              15.486,614
                              
                              
                              
                              2,108,380
                              
                              
                              
                              17,594,994


F-61


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(19)
              Subsequent
      event-





The
Official Federal Gazette granted a tax credit to the Company corresponding to
Technological Research and Development on February 27, 2009 for fiscal year 2008
in the amount of $58,122.





(20)
              Recently
      issued accounting standards-





The CINIF
has issued the following Mexican FRS, effective for years beginning after
December 31, 2008. Early application is not permitted.





(a)
              FRS B-7
      “Business acquisitions”– Mexican FRS B-7
      supersedes Bulletin B-7 and establishes, among other things, the general
      rules for the initial valuation and recognition at the acquisition date of
      net assets, stressing that all business acquisitions should be accounted
      under the purchase method.





Management
considers that the initial effects of this new FRS will not be
material.





(b)
              FRS B-8
      “Consolidated and combined financial statements”-Mexican FRS B-8
      supersedes Bulletin B-8 "Consolidated and combined
      financial statements and valuation of permanent investments in
      shares" and establishes the general rules for the preparation and
      presentation of consolidated and combined financial statements and related
      disclosures. Amendments
include:





(i)
            The
      obligation to consolidate special purpose entities (SPEs) when
      controlled.





(ii)
            The
      possibility, under certain rules, of presenting unconsolidating financial
      statements when the parent is, in turn, a subsidiary with no minority
      interest or when the minority stockholders do not object to the fact that
      consolidated financial statements are not
  issued.





(iii)
            Consideration
      is given to the existence of potential voting rights that might be
      exercised or converted in favor of the entity as parent and that
      may  change its involvement in decision making at the time of
      assessing the existence of control.





(iv)
            Additionally,
      regulations relating to the valuation of permanent investments have been
      transferred to a different
bulletin.





Management
estimates that the initial effects of this new FRS will be
immaterial.





(c)
              FRS C-7
      “Investments in associates and other permanent
      investments”-  Mexican FRS C-7 sets forth the rules to
      account for investments in associates as well as other permanent
      investments where there is no control, joint control or significant
      influence. The principal changes with respect to the former standard
      include the following:


F-62


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(i)
            Equity
      method of accounting is required for SPEs where significant influence is
      exercised.





(ii)
            Consideration
      is given to the existence of potential voting rights that might be
      exercised or converted in favor of the entity as parent and that
      may  change its involvement in decision making at the time of
      assessing the existence of significant
  influence.





(iii)
            A
      specific procedure and a limit for recognizing the associated entity's
      losses are provided.





Management
estimates that the initial effects of this new FRS will not be
material.





(d)
              FRS C-8
      “Intangible assets”-Mexican FRS C-8
      supersedes Bulletin C-8 and establishes general rules for the initial and
      subsequent recognition of intangible assets acquired individually, either
      through the acquisition of a business or arising internally during the
      normal course of the entity's operations. Main changes
      include:





(i)
              The
      definition of intangible assets is narrowed to establish that separability
      is not the only condition for the intangible asset to be
      identifiable;





(ii)
              Subsequent
      outlays for research and development projects in progress should be
      expensed as earned if they are part of the research phase or as an
      intangible asset if they meet the criteria to be recognized as
      such;


F-63


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


Notes
to the Consolidated Financial Statements


Years
ended December 31, 2006, 2007 and 2008


(Thousands
of Mexican pesos note 2x, except per share amounts)





(iii)
              Greater
      detail is provided to account for the exchange of an asset, in accordance
      with the provisions of international standards and other
    FRS;





(iv)
              The
      presumption that an intangible asset may not exceed a useful life of
      twenty years was eliminated;





Management
estimates that the initial effects of this new FRS will not be
material.


F-64