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

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

The prevailing market prices for the ~~ADSs~~ADS’s and Shares could decline if either:

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

directly, or

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

the perception arose that such a sale could occur.

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

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

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

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

Our bylaws may only be enforced in México

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

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

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

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

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

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

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

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

Corporate disclosure and accounting in México may differ from other countries

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

ITEM 4.

Information on the Company

~~General~~

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~~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 ~~2007,~~2008, we produced ~~more than 9.0~~approximately 9.4 million chickens per week and accounted for approximately ~~31.2%~~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;

breeding, hatching and growing chickens; and

processing, packaging and distributing chicken products.

Sales of chicken products accounted for ~~77.6%~~76.9% of our net revenues in ~~2007.~~2008. Please also see the table under Item 5. “General—Results of Operations for the Years Ended December 31, ~~2006~~2007 and ~~2007.~~2008.”

We are also a significant producer of commercial balanced feed. We sell our feed both through distributors and directly to small producers. During ~~2007,~~2008, we sold approximately ~~438,000 tonnes~~370 thousand tons of balanced feed to external customers, which amounted to ~~8.0%~~7.3% of our total revenues for that year.

Currently, Bachoco is the second largest producer of table eggs products. In ~~2007,~~2008, we sold approximately ~~147,700~~143 thousand tons. Table egg sales accounted for ~~9.6%~~10.5% of our net revenues in ~~2007.~~

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 ~~have recently~~ entered into two new business lines: turkey and beef value-added products. In ~~2007,~~2008, sales of swine and these other lines accounted for ~~4.8%~~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,

2003

2004

2005

2006

2007

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

	Bachoco Sales Volume (in thousands of tonnes)

	Year Ended December 31,
	2004		2005		2006		2007		2008

Chicken		733.0		773.0		773.7		837.2		878.1
Eggs		138.1		140.6		143.4		147.8		143.6
Swine(1)		9.1		9.6		8.9		16.1		18.8
Balanced 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.

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~~Stock. This change did not modify the face value of the Shares. These Shares are trading on the Mexican stock market. The ADS still consist of twelve underlying Shares, but they are all Series B Shares, with full rights.

As of December 31, ~~2007,~~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.321.6~~Ps. 180.0 million ~~(expressed~~(Ps. $303.9 million in ~~nominal pesos)~~constant Mexican pesos as of December 31, 2007), which reduced retained earnings on our balance sheet. As of May ~~31, 2008,~~29, 2009, we had repurchased ~~no Shares.~~

~~During 2003, we implemented two important projects to expand the facilities at our Northwest Complex and Yucatán Peninsula Complex to increase production capacity in our chicken business. Both~~a total of these projects were completed by the end of the third quarter of 2004. These facilities are ideally suited for the expansion projects due to their sanitary status and their geographical location. Both complexes were expanded to increase capacity by approximately 50%, which will increase opportunities for potential future exports as well as for meeting consumer demand in those regions and in other regions in México. The new facilities in both complexes have been equipped with the best technology available.92,000 shares.

In July 2004, we reached an agreement for renting the farms of the union producers of UPAVAT ~~and~~& UPATEC, a small ~~producer~~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 ~~working capital~~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 ~~working capital~~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.

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

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 ~~recent~~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.

Capital Expenditures

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

In ~~2005,~~2006, we made capital expenditures of ~~Ps.805.3~~Ps.856.2 million net, with which we:

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

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

~~made the acquisition of certain assets of Grupo Sanjor.~~

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

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

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

~~building~~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:

~~began~~Began the construction of the new complex in the state of Sonora.

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

~~increased~~Increased capacity in the production of live chicken;

~~increased~~Increased capacity of the secondary ~~process~~processor at some of our processing plants; and

~~updated~~Updated our transportation fleet, processing plants and feed mills.

~~Business Overview~~

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.

Increased chicken capacity in farms located in Mérida and Veracruz.

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

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

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.

~~In recent years, the~~The value-added chicken products are ~~growing rapidly;~~a new market in Mexico; we participate significantly in the market and try to lead the ~~supplying~~supply of these products. According to the UNA, value-added chicken products currently account for approximately ~~7.0%~~4.0% of the chicken sold in Mé~~xico.~~xico; 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.

According to data obtained from the UNA, total Mexican chicken consumption per capita increased by ~~12.4%~~14.6% from ~~2003~~2004 to ~~2007.~~2008. Chicken is the leading meat consumed in México, and it accounted for approximately ~~34.1%~~the 50.0% of all meat produced in México in ~~2007.~~2008. The following table sets forth total Mexican production of chicken, pork and beef for ~~2003~~2004 to ~~2007:~~2008:

Mexican Production of Chicken, Beef and Pork

(in thousands of tonnes)*(1)

2003

2004

2005

2006

2007

Chicken 2,290 2,390 2,498 2,592 2,683
Beef 1,496 1,543 1,559 1,602 1,628
Swine 1,100 1,150 1,088 1,102 1,116

	2004		2005		2006		2007		2008
Chicken		2,390		2,498		2,592		2,683		2,853
Beef		1,543		1,559		1,602		1,628		1,673
Swine		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 2003, chicken prices decreased by approximately 4.0% over 2002, mainly due to an oversupply in domestic production that was present mainly in the second half of the year and a decrease in the purchasing power of the average consumer.

In 2004, 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 ~~5.5%~~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 ~~4.9% in 2003,~~ 3.3% in 2004, 3.5% in 2005, 2.6% in 2006, ~~and~~ 2.5% in ~~2007.~~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.

~~“Live”~~ Below is a brief description of each chicken is delivered alive to small independent slaughtering operations or to wholesalers that contract with independent slaughtering operations for processing. The freshly slaughtered chicken is then sold to chicken shops and other specialized retailers for sale to consumers and in some areas is sold directly to consumers by the slaughterhouse. According to the UNA, live chicken accounts for approximately 26% by volumeproduct line as well as its respective percentage of the total Mexican chicken ~~sold by producers~~production in ~~México.~~2008:

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

“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.

1517

~~“Rotisserie”~~ ~~chicken is a whole broiler presented eviscerated and ready to cook. Rotisserie chicken is sold by wholesalers and directly by producers to small shops, stands (~~~~rosticerías~~ or ~~asaderos~~) and supermarkets, which cook the chicken and sell it whole and freshly cooked to the end-consumer, providing an economical form of fast-food. According to the UNA, rotisserie chicken accounts for approximately 28%

“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.

~~“Supermarket Broiler”~~

“Rotisserie” chicken is a whole broiler presented eviscerated and ready to cook. Rotisserie chicken ~~is a fresh whole broiler presented with the edible viscera packed separately. In most cases, it~~ is sold by wholesalers and directly by producers to small shops, stands (rosticerías or asaderos) and supermarkets, which cook the chicken and sell it whole and freshly cooked to the end-consumer, providing an economical form of fast-food. According to the UNA, rotisserie chicken accounts for 26% by producers to supermarkets and, in some regions, to other independent food shops. Mexican consumers’ preference for freshness requires regular deliveries of chicken to supermarkets and other food shops. According to the UNA, supermarket broiler chicken accounts for approximately 7% of the volume of the chicken sold by producers in México.

~~“Chicken Parts”~~ ~~refers to cut-up fresh chicken parts sold wrapped in trays or in bulk principally to supermarket chains,~~

“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 fast-food industry and other institutional food-service providers. Producers generally sell directly to the supermarket chains and deliver the chicken directly to the outlet. Sales to the institutional market often require customized cutting and presentation. According to the UNA, chicken parts account for approximately 11% by volume of the chicken sold by producers in México.

~~“Value-added Products”~~ refers mainly to cut up fresh chicken parts with value-added treatment like marinating, breading and individual quantity frozen, sold mainly wrapped in trays principally to supermarkets and other institutional chains. Producers generally sell directly to the supermarket chains and deliver the chicken directly to the store. Sales to the institutional market often require customized cutting and presentation. According to the UNA, chicken parts account for approximately 7% by volume of the chicken sold by producers in México

“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,

2003

2004

2005

2006

2007

Volume

% of Total

Volume

% of
Total

Volume

% of
Total

Volume

% of
Total

Volume

% of
Total

(thousands of tonnes, except percentages)

Public Market and Rotisserie 288.1 44.0 319.1 43.5 349.6 45.2 344.3 44.5 371.0 44.3
Supermarket Broiler, Chicken Parts and Other(1) 194.9 29.7 219.6 30.0 219.1 28.4 228.2 29.5 245.1 29.3
Live 172.5 26.3 194.4 26.5 204.3 26.4 201.2 26.0 221.2 26.4
Total 655.5 100.0 % 733.1 100.0 % 773.0 100.0 % 773.7 100.0 % 837.2 100.0 %

	Year Ended December 31,
	2004					2005					2006					2007					2008
	Volume		% 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		45.8
Supermarket Broiler, Chicken Parts and Other(1)		219.6		30.0			219.1		28.4			228.2		29.5			245.1		29.3			239.0		27.2
Live		194.4		26.5			204.3		26.4			201.2		26.0			221.2		26.4			237.0		27.0
Total		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.~~

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

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

Chicken Marketing, Sales and Distribution

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

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

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

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

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

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

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

At the beginning of 2007, we reached a business agreement with “Grupo Libra,” a chicken producer located in northeast México. We also started to build a new complex in Hermosillo City.

In 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.

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~~ –We sell rotisserie chicken directly to rosticerías, asaderos~~asaderos~~ and supermarkets. We attribute the growth in our sales of rotisserie chicken in large part to the rapid growth of the market for freshly cooked chicken sold by rosticerías and asaderos~~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~~ –Mexican consumers have a greater preference for fresh chicken than their U.S. counterparts. Frozen, heat and serve and other further processed poultry products make up only a small proportion of total Mexican poultry consumption today. Demand for these kinds of fresh products is growing rapidly. The potential for substantial growth in this market is large and we believe that our distribution network, our large market share for supermarket chicken sales, our brand name and our experience in a wide range of existing Mexican distribution channels will be important competitive strengths in this area.

~~Sales~~Even though sales of ~~our fresh~~ value-added products have increased ~~approximately 10.3% over 2006 sales. We are moving to produce and introduce various~~during recent years, fresh chicken still dominates the industry. The Company is constantly developing new, convenient value-added ~~products in México, which we have developed in accordance with Mexican customer preferences. We will continue to do so, as this market grows.~~products.

Table Eggs

According to the UNA, México has one of the largest per capita consumption of table eggs in the world with ~~21.6~~21.7 kilograms per capita a year, ~~a 2.3% decrease when compare to the previous 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.

The Mexican table egg industry is more fragmented than the chicken industry but has experienced some degree of consolidation in recent years, including acquisitions made by us. According to the UNA, the ten largest producers of table eggs in México now account for approximately ~~43%~~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 ~~21%~~20.0% of the eggs sold in México are sold in packaged form, 9%10.0% are sold in processed form and approximately ~~70%~~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 ~~9.0%~~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 USU.S. states with products produced in the ~~US.~~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 and lower sales levels earlier in the year during Lent (particularly in the week prior to Easter).~~season.

Balanced Feed

According to Consejo Nacional de Fabricantes de Alimento Balanceado y de la Nutrición Animal, A.C) (”CONAFAB”), Mexican production of balanced feed ~~increased~~has been in constant growth, increasing from ~~22.1~~23.9 million ~~tonnes~~tons in ~~2001~~2004 to ~~25.2~~an estimated 26.2 million ~~tonnes~~tons in ~~2006.~~2008. In ~~2006,~~2008, México was ranked the ~~fourth~~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 ~~64.0%~~63.4% of total production. Imports of feed come almost entirely from the United States and represent approximately ~~1.2%~~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 ~~4.8%~~3.9% of the market share of the commercial (non-integrated) balanced feed business in Mé~~xico.~~xico, 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 2003, swine prices began to recover, increasing by 7.0%, due mostly to the fact that there was very modest growth in domestic production and imports.~~ In 2004, our swine prices increased by more than 20.0% as a result of an increase in the cost of feed ingredients and a more normalized supply and imports, and, during 2005, our swine prices decreased 9.0% due to larger supplies in the Mexican market which continued in 2006 where prices went down about 11.9%. In 2007, swine prices decrease 5.5% as a result of over-supply conditions in the swine market. 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

~~At the beginning of~~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 ~~2007,~~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.

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. ~~We expect these developments to allow~~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 ~~through the first months~~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 ~~2007,~~2008, we obtained approximately ~~36.4%~~48.0% of our total grain ~~needs~~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. ~~We may, from time to time, engage~~The Company engages in hedging of ~~our~~its feed costs in ~~the future.~~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 ~~56%~~55.0% of total Mexican poultry production; the balance is distributed among approximately ~~two~~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.

Poultry producers in the United States have developed low-cost production techniques and have been successful in exporting primarily frozen and value-added poultry to other countries, especially in periods of overcapacity in the United States. As tariff barriers have declined under NAFTA, we have experienced increased competition from U.S. poultry producers. According to the UNA, in ~~2007,~~2008, imports of poultry products ~~decreased 13.7%~~increased 23.0% in volume over imports in 2007 and an increase of 6.2% over year 2006. This ~~decrease~~increase was ~~caused by a better~~due to lower level of prices in the U.S. and others foreign ~~markets.~~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 ~~6.5%~~12.0% of total Mexican egg production at the end of ~~2007.~~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

~~Balanced Feed~~

OfAccording to the ~~registered producers of~~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 ~~64.4%~~63.4% of total production for their internal use, and the remaining ~~35.6%~~36.6% is produced for sale to third parties. We estimate a market share of approximately ~~4.8%~~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, ~~2007,~~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.

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.

OnStarting on January 1, 2008, the safeguard was phased out. This allows ~~American~~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.

~~Organizational Structure~~

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 ~~87.7%~~94.1% of consolidated total assets as of December 31, ~~2007,~~2008, and ~~88.9%~~91.9% of our consolidated revenues for the year ended December 31, ~~2007.~~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, ~~2005,~~ 2006, 2007 and ~~2007:~~2008:

Percentage Equity Interest

2005

2006

2007

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

In November 2004, the Company acquired all the Shares of Seceba, S.A. de C.V. from a related party for Ps.14.4 million. As of the date of acquisition, the figures of Secba, S.A. de C.V. have been consolidated with the Company’s figures. The excess of the purchase price paid over the book value of this investment amounted to Ps.0.3 million, which was recorded in other income.

	Percentage Equity Interest
	2006		2007		2008
Acuícola Bachoco, S.A. de C.V.		100		100		100
Aviser, S.A. de C.V.		100		100		100
Bachoco, S.A. de C.V. (“BSACV”)		100		100		100
Bachoco Comercial, S.A. de C.V		-		100		100
Campi Alimentos, S.A. de C.V.		100		100		100
Huevo y Derivados, S.A. de C.V.		97		97		97
Operadora de Servicios de Personal, S.A. de C.V.		100		100		100
Pecuarius Laboratorios, S.A. de C.V.		64		64		64
Secba, S.A. de C.V.		100		100		100
Sepetec, S. A. de C.V.		100		100		100
Servicios de Personal Administrativo, S.A. de C.V.		100		100		100
Induba Pavos, S.A. de C.V.		100		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.

~~Property, Plants and Equipment~~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 ~~Durango,~~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.

The following table summarizes the types and number of each type of our production facilities as of March ~~2008:~~2009:

Bachoco Production Facilities

Type	Number
Chicken breeding farms		~~152~~168
Broiler grow-out farms		~~481~~466
Broiler processing plants		9
Egg incubation plants		2221
Egg production farms		~~109~~101
Swine breeding farms		1
Swine grow-out farms		1012
Feed mills		17
Further process plants		43

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

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 ~~380,000 tonnes~~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. ~~While we~~

We own most of our ~~facilities, we~~facilities. We also lease a limited number of farms and sales ~~centers.~~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.

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 1921 to the Consolidated Financial Statements provides a description of the principal differences between Mexican FRS and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of ~~total~~consolidated stockholders’ equity, net ~~income and operating~~ income, a consolidated statement of changes in stockholders’ equity and a ~~condensed~~consolidated statement of cash flows under U.S. GAAP as of December 31, ~~2006~~2007 and ~~2007~~2008 and for the years ended December 31, ~~2005,~~ 2006, 2007 and ~~2007.~~2008.

InAs of January 1, 2008, we have adopted the new standard related to “Inflationary Effects” in accordance with Mexican FRS ~~rules~~(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 ~~price-level restatement~~January 1, 2008, which terminates the recognition of inflationary effects in our financial ~~statements, the~~information. Consequently, financial ~~statements included~~information corresponding to periods prior to December 31, 2007 is expressed in millions of Mexican Pesos with ~~this disclosure recognize certain effects of inflation. In addition, the financial statements and, unless otherwise specified, the other financial data included herein are restated in constant pesos~~purchasing power as of December 31, ~~2007.~~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, ~~2005,~~ 2006, 2007 and ~~2007.~~2008.

Mexican Economic Conditions

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

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

In 2006 the Mexican economy showed signs of volatility during the first part of the year, before the 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~~Cetes~~ decreased to an average of 7.2% for the year.

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

~~In addition to the effects that~~During 2008 the Mexican economy ~~has on our business and results~~was very volatile. In the first half of ~~operations, Mexican political events may significantly affect our operations and~~ the performance of Mexican securities generally. See Item 3, “Key Information—Risk Factors.” A downturn in México’s economic conditions, civil unrest or other adverse social, political or economic developments in or affecting México could adversely affect our business, results of operations, financial condition, ability to obtain financing and prospects for future business.

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

~~Effects of Economic Conditions on the Company~~

Mexican economic conditions have had an important impact on México’s chicken market. Feed costs constitute a substantial portion of the cost of goods sold and are priced with reference to U.S. dollars. We use financial instruments to mitigate the cost of goods sold in currencies other than Mexican pesos. See Note 2-p of the Consolidated Financial Statements.

~~In 2003, average producer prices increased significantly by 10.6%, due primarily to an increase in raw materials prices during most of the year.~~

~~In 2004, average producer prices increased by 6.7%, due mainly to strong increases in the cost of feed ingredients, in particular soybean meal, and a moderate increase of supply in the Mexican market.~~

~~In 2005, average producer prices decreased by approximately 1.7%, mainly~~volatility. However, as a result of ~~a decrease~~the global economic slowdown and particularly the financial crisis in the ~~cost of~~U.S., the ~~main feed ingredients worldwide, and~~Mexican economy experienced a ~~strong oversupply during the last quarter of the year.~~

In 2006, average producer prices decreased by approximately 3.0% mainly from oversupply conditions in the market during the first part of the year and as market conditions return to more normalized levels as compared with the first three quarters of 2005.

~~In 2007, average producer prices increased by approximately 10.0% mainly due to increases in the cost of raw materials and a balance between supply and demand in the market, particularly~~drastic downturn in the second ~~and third quarter~~half of the year. In particular, the Mexican peso experienced a sharp depreciation, the Mexican economy had a general slowdown and economic forecasts deteriorated.

~~As of December 31, 2007, we have an outstanding total indebtedness of Ps.109.6 million all denominated in Mexican pesos.~~ In ~~2007, we had foreign exchange loss of Ps.3.4 million due to fluctuations~~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 ~~foreign exchange gain~~material adverse effect on our future operating and financial results.

Effects of ~~Ps.40.8 million in 2006~~Economic Conditions on the Industry and ~~a foreign exchange loss of Ps.62.3 million in 2005.~~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.

~~Volume of Chicken Sold~~
28

~~The volume~~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 ~~chicken~~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 ~~1.5%~~approximately 3.0% mainly from oversupply conditions in ~~2003~~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 ~~11.8%, 5.5%, 0.1% and 8.2% in each of 2004, 2005, 2006 and 2007, respectively.~~
~~The decrease in volume in 2003 was~~approximately 10.0% mainly due to ~~the effects of Hurricane Isidore on our Peninsula Complex, this situation affected our production during most of the year.~~
~~The increase in 2004 was due mainly to the completion of growing projects in our Northwest and Peninsula complexes, and productivity improvements~~increases in the ~~rest~~cost of ~~our operations.~~
~~The increase in 2005 was due mainly to productivity improvements achieved by the Company~~raw materials and ~~the Sanjor acquisition~~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 of Hurricane Lane on our Northwest Complex during the second half of the year, and a reduction in yield as the Company moves to offering value-added products.

The 8.2% increase in the volume in 2007, was mainly due the business agreements entered into in 2007, domestic ~~grow~~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 ~~are~~may also significantly affected by the cyclical and volatile nature of Mexican prices for chicken, feed, eggs and swine.

In 2003, the Company was affected by higher feed ingredient costs and oversupply conditions due to an increase in domestic production. The continued weakness of the Mexican economy affected the purchasing power of customers, and as a result the Company was unable to increase its prices. During 2003, our chicken prices decreased 2.7% primarily as a result of oversupply conditions in the domestic chicken market as well as a decrease in consumer purchasing power.
29

In 2004, our chicken prices increased by 6.4%, mainly as a result of an increase in the cost of our main feed ingredients which pushed the prices up in the industry, a moderate supply of chicken in the Mexican market, mainly in the second part of the year, and our commercial and marketing strategies.
~~In 2005, our chicken prices increased 1.6%, as a result of a strong demand in the first three quarters of the year, partially compensated by weak prices in the last quarter of the year.~~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.
27
In 2007, our chicken prices increased 8.3% as a result of a stable market conditions and increases in the cost of our main raw materials.

~~Prices for feed tend to follow trends in prices of feed ingredients, which we discuss below.~~
In ~~2003, egg~~2008, our chicken prices increased ~~by 17.5%, mainly due to a reduced supply of this product in the market.~~
~~In 2004, egg prices increased by 7.3%, mainly due to an increase in the price of feed ingredients and a moderate supply during the first part of the year in the Mexican market.~~
~~In 2005, our egg prices decreased by 15.7%~~4.4% as a result of ~~continued~~increases in our costs of sales, partially offset by oversupply conditions, inwhich were present throughout the ~~Mexican market due to domestic production.~~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.

~~Bachoco~~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.

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

In ~~2004, our swine price increased~~2008 the Company was strongly affected by ~~25.8% as there was only a moderate supply~~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 ~~Mexican market.~~prices of feed ingredients, which we discuss in “Trends in Prices of Feed Ingredients” below.

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

2830

At present, Mexican feed prices tend to parallel U.S. and international prices.  In ~~2003,~~2006, the percentage of grain purchased from domestic markets was ~~38%. In 2004, it was approximately 35%~~31.0%, ~~in 2005 it was 30%, in 2006 it was 31.3% and~~ in 2007 it was 36.4% and in 2008 it was approximately ~~36.4%~~48.0%.
Due to low inventories worldwide at the end of 2003 and during most of 2004, soybean meal reached historically high prices worldwide. Consequently, the price of other sources of protein, including grain, increased. As a result, the cost of our feed increased substantially. It was not possible for us to pass these increases to our customers, leading us to poor results during the first part of the year. In the second part of the year, mainly in the last quarter, prices resumed more normalized levels, allowing us to improve our results. In 2005, prices of our raw materials were on the average lower compared to 2004; during the year prices were rather constant with a slight trend to increase during the second part of the year.

During the second part of 2006, and through 2007, international corn prices increased significantly as a result of lower inventories and increases in alternative uses of corn, such as ethanol production.

~~International~~Beginning in 2007 and throughout most of the 2008, international grain prices ~~also~~ increased ~~dramatically in 2007~~drastically reaching new historically high prices worldwide and exceeding the corn prices reached in ~~that year, due mainly to strong demand and alternative uses for grain such as ethanol production. Soybean meal prices alse increased, particularly in the second half of the year,~~2004, due to strong demand and lower inventories worldwide.  These price increases put strong pressure on our production costs.

~~In recent years, reductions in tariffs under NAFTA have generally resulted in reductions of our costs of importing feed ingredients. Restriction~~Restrictions on importing grain under NAFTA ~~began to phase~~phased out inat 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:
· During 2003, we implemented two important projects to expand the facilities at our Northwest Complex and Peninsula Complex to increase production capacity in our chicken business. Both complexes were expanded to increase capacity by approximately 50% and were completed by the third quarter of 2004.
· In July 2004, we reached an agreement for renting the facilities of UPAVAT and UPATEC, a small producer of table eggs in the state of Puebla, south of México City, with an annual capacity of about 0.7 million of lying hens.
· In November 2004, the Company acquired all the shares of Secba, S.A. de C.V., from a related party for Ps.15.0 million. As of the date of the acquisition, the figures of Secba, S.A. de C.V. have been consolidated with the Company’s figures. The excess of the purchase price paid over the book value of this investment amounted to Ps. 0.3 million, and was recognized in other income.
· In June 2005, the Company acquired certain assets of Sanjor, a private poultry company located in the Yucatán Peninsula, with production of approximately 300 thousand chickens per week and 100 thousand table egg laying hens, which allow us to reinforce our leadership in this region of the country.
29

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

· In February 2007 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 ~~working capital~~inventories  and brands.
·b) ~~In December 2007, we reached~~Grupo Agra is an ~~agreement with “Grupo Agra”, a table~~ eggs ~~producer~~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 ~~working capital.~~inventories.

~~Summary~~These two transactions in 2007, represent less than 1.0% of ~~Results~~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 ~~Operations~~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,

2005

2006

2007

(percentage of net revenues)

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

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 13.1
Selling, general and administrative expenses (13.3 ) (12.3 ) (12.0 )
Operating income 9.2 8.2 1.1
Comprehensive financing income (loss) 0.4 0.1 (6.8 )
Taxes (3.9 ) (1.7 ) 1.4
Net 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,

2005

2006

2007

(percentage of net revenues)

Chicken 80.1 % 77.6 % 77.6 %
Feed 7.2 % 9.0 % 8.0 %
Eggs 8.7 % 9.2 % 9.6 %
Swine and Others 4.0 % 4.2 % 4.8 %
Total 100.0 % 100.0 % 100.0 %

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

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

We have audited the accompanying consolidated balance sheets of Industrias Bachoco, S.A.B. de C.V. and subsidiaries as of December 31, 2006 and 2007, and the related consolidated statements of income, stockholders’ equity and changes in financial position for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Industrias Bachoco, S.A.B. de C.V. and subsidiaries at December 31 2006 and 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with Mexican Financial Reporting Standards which differ in certain respects from U.S. generally accepted principles (see Note 19).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Industrias Bachoco, S.A.B. de C.V.'s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated June 27 2008 expressed an unqualified opinion thereon.

~~Mancera, S.C.~~

~~A Member Practice of~~

~~Ernst & Young Global~~

~~Francisco José Sánchez González~~

~~Mexico City, Mexico~~

~~June 27, 2008~~

F-3

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

Consolidated Balance Sheets

December 31, 2007 and 2008

(Thousands of mexican pesos-note 2x)

					(Thousands of U.S. dollars) (note 2v)
	2007		2008		2008

Assets

Current assets:
Cash and investments (note 3)	$	3,039,876		1,998,247		144,643
Accounts receivable:
Trade, net (note 4)		765,502		892,207		64,582
Value added and other recoverable taxes		440,945		456,732		33,061

Total accounts receivable		1,206,447		1,348,939		97,643

Inventories, net (note 6a)		3,329,340		3,973,615		287,630
Biological current assets (note 6b)		108,502		139,844		10,123
Derivative financial instruments (note 10a)		123,503		126,164		9,132
Prepaid expenses and other current assets		129,582		154,285		11,168
Land and building available for sale		-		22,771		1,648

Total currents assets		7,937,250		7,763,865		561,987

Property, plant and equipment, net (note 7)		10,256,239		10,689,235		773,741
Biological non-current assets (note 6b)		575,413		681,577		49,336
Intangible assets from labor obligations (note 14)		28,341		-		-
Goodwill, net (note 8)		300,848		300,848		21,777
Other assets		18,333		19,446		1,408

Total assets	$	19,116,424		19,454,971		1,408,249


Liabilities and stockholders' equity

Current liabilities:
Notes payable to banks (note 9a)	$	40,000		40,000		2,895
Current installmet of long-term debt (note 9b)		18,844		194,235		14,059
Account payable		1,138,011		1,651,930		119,575
Related parties (note 5)		26,819		50,336		3,644
Other taxes payable and other accruals (note 12)		243,429		328,602		23,786
Derivative financial instruments (note 10a)		-		919,026		66,524

Total current liabilities		1,467,103		3,184,129		230,483

Long-term liabilities:
Long term debt, excluding current installmens (note 9b)		50,757		391,657		28,350
Deferred income tax (note 16e)		2,375,025		1,719,076		124,435
Labor obligations (note 14)		96,373		80,690		5,841

Total liabilities		3,989,258		5,375,552		389,109

Commitments and contingencies (note 11)

Stockholders' equity (note 15):
Majority interest:
Capital stock		2,294,927		2,294,927		166,118
Additional paid-in capital		743,674		743,674		53,831
Reserve for repurchase of shares		159,455		159,455		11,542
Retained earnings		14,250,225		11,720,612		848,398
Net 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		1,016,259

Minority interest		46,788		39,799		2,881

Total stockholders' equity		15,127,166		14,079,419		1,019,140

Subsequent 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 ~~balance sheets~~Statements of Operations

Years ended December 31, 2006, 2007 and 2008

(Thousands of ~~constant Mexican pesos as of December 31, 2007)~~mexican pesos-note 2x, except per share amount)

	~~December 31,~~
							~~(Thousands of U.S. dollars )~~
							~~(Note 2)~~
	~~2006~~			~~2007~~			~~2007~~
~~ASSETS~~
~~Current assets~~
~~Cash and cash equivalents~~	Ps	~~3,583,891~~		Ps	~~3,039,876~~		$	~~278,453~~
~~Accounts receivable:~~
~~Trade, net~~		~~539,874~~			~~765,502~~			~~70,120~~
~~Value added and other recoverable taxes~~		~~330,490~~			~~440,945~~			~~40,391~~
~~Total accounts receivable~~		~~870,364~~			~~1,206,447~~			~~110,511~~
~~Inventories, net –Note 5~~		~~2,224,095~~			~~3,329,340~~			~~304,968~~
~~Biological current assets –Note 5~~		~~91,905~~			~~108,502~~			~~9,939~~
~~Derivative financial instruments– Note 9~~		-			~~123,503~~			~~11,313~~
~~Prepaid expenses and other current assets~~		~~98,119~~			~~129,582~~			~~11,870~~
~~Total current assets~~		~~6,868,374~~			~~7,937,250~~			~~727,054~~

~~Property, plant and equipment, net –Note 6~~		~~9,835,895~~			~~10,256,239~~			~~939,474~~
~~Biological non-current assets –Note 5~~		~~515,118~~			~~575,413~~			~~52,708~~
~~Intangible assets from labor obligations–Note 13~~		~~22,232~~			~~28,341~~			~~2,596~~
~~Goodwill, net –Note 7~~		~~300,848~~			~~300,848~~			~~27,558~~
~~Other assets~~		~~16,772~~			~~18,333~~			~~1,679~~
~~TOTAL ASSETS~~	Ps	~~17,559,239~~		Ps	~~19,116,424,~~		$	~~1,751,069~~
~~LIABILITIES AND STOCKHOLDERS’ EQUITY~~
~~Current liabilities:~~
~~Notes payable to banks –Note 8~~	Ps	-		Ps	~~40,000~~		$	~~3,664~~
~~Current portion of long-term debt –Note 8~~		~~9,708~~			~~18,844~~			~~1,726~~
~~Accounts payable~~		~~837,445~~			~~1,138,011~~			~~104,242~~
~~Related parties –Note 4~~		~~12,650~~			~~26,819~~			~~2,457~~
~~Income tax~~		~~45,390~~			-			-
~~Other taxes payable and other accruals –Note 11~~		~~243,573~~			~~243,429~~			~~22,298~~
~~Derivative financial instruments– Note 9~~		~~10,818~~			-			-
~~Total current liabilities~~		~~1,159,584~~			~~1,467,103~~			~~134,387~~
~~Long-term liabilities:~~
~~Long-term debt –Note 8~~		~~35,494~~			~~50,757~~			~~4,649~~
~~Deferred income tax –Note 15~~		~~2,182,034~~			~~2,375,025~~			~~217,553~~
~~Labor obligations –Note 13~~		~~79,173~~			~~96,373~~			~~8,828~~
~~TOTAL LIABILITIES~~		~~3,456,285~~			~~3,989,258~~			~~365,417~~
~~COMITMENTS AND CONTINGENCIES~~ –~~Note 10~~
~~STOCKHOLDERS’ EQUITY~~ –~~Note 14~~
~~Majority stockholders’ equity:~~
~~Capital stock~~		~~2,294,927~~			~~2,294,927~~			~~210,216~~
~~Paid-in capital~~		~~743,674~~			~~743,674~~			~~68,121~~
~~Reserve for repurchase company stock~~		~~159,455~~			~~159,455~~			~~14,606~~
~~Retained earnings~~		~~13,707,747~~			~~14,250,225~~			~~1,305,324~~
~~Net majority income of the year~~		~~906,186~~			~~1,270,941~~			~~116,418~~
~~Minimum seniority premium liability adjustment –Note 13~~		~~(916~~	)		~~(2,512~~	)		~~(230~~	)
~~Deficit from restatement of stockholders’ equity~~		~~(3,753,915~~	)		~~(3,735,254~~	)		~~(342,150~~	)
~~Derivative financial instruments–Note 9~~		~~370~~			~~98,922~~			~~9,061~~
~~Total majority stockholders' equity~~		~~14,057,528~~			~~15,080,378~~			~~1,381,366~~

~~Minority interest~~		~~45,426~~			~~46,788~~			~~4,286~~
~~Total stockholders' equity~~		~~14,102,954~~			~~15,127,166~~			~~1,385,652~~
~~TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY~~	Ps	~~17,559,239~~		Ps	~~19,116,424~~		$	~~1,751,069~~

										(Thousands of U.S. dollars) (note 2v)
	2006			2007			2008			2008

Net revenues	$	15,550,965			18,219,647			20,125,321			1,456,773
Cost 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			191,303
Selling, general and administrative expenses (note 5)		2,071,553			2,245,522			2,412,788			174,650

Operating income		1,426,426			1,496,264			230,065			16,653

Other income (expense), net (note 17)		18,427			69,571			(20,958	)		(1,517	)

Comprehensive financial results:
Interest income		302,910			363,016			173,694			12,573
Valuation 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			11,594
Monetary 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			19,835

Net 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			600,000

Net majority interest income (loss) per share	$	1.51			2.12			(1.46	)		(0.11	)

See accompanying ~~notes.~~notes to consolidated financial statements.

~~F-4~~F-5

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

Consolidated Statements of Stockholders' Equity

~~Consolidated statements of income~~Years ended December 31, 2006, 2007 and 2008

(~~Thousands~~Thousand of ~~constant Mexican pesos,~~mexican pesos-note 2x, except per share ~~amounts, as of~~amount)

~~December 31, 2007)~~

Years ended December 31,

(Thousands of
U.S. dollars)

(Note 2)

2005

2006

2007

2007

Net revenues Ps
15,618,192
Ps
15,550,965

Ps
18,219,647

$
1,668,924

Cost of sales
(11,234,562
)

(12,052,986
)

(14,477,861
)

(1,326,176
)
Gross profit
4,383,630

3,497,979

3,741,786

342,748

Selling, general and administrative expenses
(2,005,544
)

(2,071,553
)

(2,245,522
)

(205,690
)
Operating income
2,378,086

1,426,426

1,496,264

137,058

Comprehensive financing income (cost):
Interest income
316,514

302,910

318,879

29,209

Interest expense and financing costs
(209,504
)

(131,852
)

(141,578
)

(12,969
)
Net interest income
107,010

171,058

177,301

16,240

Foreign exchange (loss) gain, net
(62,259
)

40,782

(3,351
)

(307
)
Loss on net monetary position
(118,724
)

(150,438
)

(154,814
)

(14,181
)

(73,973
)

61,402

19,136

1,752

Other ordinary (expense) income, net –Note 16
(25,961
)

18,427

69,571

6,374

Income before income tax, asset tax, and minority interest
2,278,152

1,506,255

1,584,971

145,184

Income tax and asset tax –Note 15
(367,833
)

(599,126
)

(312,745
)

(28,648
)
NET INCOME
Ps
1,910,319
Ps
907,129

Ps
1,272,226

$
116,536

Majority net income
1,908,535

906,186

1,270,941

116,418

Minority net income
1,784

943

1,285

118

NET INCOME
Ps
1,910,319
Ps
907,129

Ps
1,272,226

$
116,536

Weighted average shares outstanding (in thousands)
599,694

599,571

600,000

600,000

NET MAJORITY INCOME PER SHARE
Ps
3.18
Ps
1.51

Ps
2.12

$
0.19

	Number of											Net majority			Minimun			Deficit from
	shares of											interest			liability			restatement
	capital						Reserve for					income			adjustment			of			Derivative									Total
	stock		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			equity

Balances 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			13,503,058
Transfer 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			-			17,849
Cash 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	)		960,122

Balances 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			14,102,954
Transfer 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			1,387,920

Balances 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			15,127,166
Transfer 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			-			288,580
Reclasification 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.~~notes to consolidated financial statements.

~~F-5~~F-6

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

Consolidated ~~statements~~Statements of ~~changes~~Changes in ~~stockholders’ equity~~

~~Years ended December 31, 2005, 2006 and 2007~~Financial Position

(Thousands of ~~constant Mexican pesos as of~~

~~December 31, 2007)~~

Number of shares of capital
stock
(thousands)

Capital
stock

Paid-in capital

Reserve for
repurchase of company stock

Retained
earnings

Net
income of
the
year

Labor obligations
minimum liability adjustment

Deficit from restatement of
stockholders’ equity

Derivative financial instru-ments

Total
majority stockholders’ equity

Minority interest

Total
stockholders’ equity

Balance at December 31, 2004
599,200
Ps 2,294,711 Ps 723,116 Ps 170,917 Ps 11,656,919 Ps 784,087 Ps (1,129 ) Ps ( 3,541,472 ) Ps - Ps 12,087,149 Ps 45,879 Ps 12,133,028

Transfer of prior year´s net income based on stockholders´meeting held in April, 2005.
-
- - - 784,087 (784,087 )
-
- - - - -
Repurchase of stock
(920
)

(251
)

-

(11,462
)

-

-

-

-

-

(11,713
)

-

(11,713
)
Sales of repurchased stock
800

222

2,954

-

-

-

-

-

-

3,176

-

3,176

Cash dividends paid
-

-

-

-

(263,719
)

-

-

-

-

(263,719
)

-

(263,719
)
Comprehensive income, net of tax
-

-

-

-

-

1,908,535

(2,207
)

(172,155
)

(92,374
)

1,641,799
487
1,642,286

Balance at December 31, 2005
599,080

2,294,682

726,070

159,455

12,177,287

1,908,535

(3,336
)

(3,713,627
)

(92,374
)

13,456,692

46,366

13,503,058

Transfer of prior year´s net income based on stockholders´meeting held in April, 2006.
-

-

-

-

1,908,535

(1,908,535
)

-

-

-

-

-

-

Sales of repurchased stock
920

245

17,604

-

-

-

-

-

-

17,849

-

17,849

Cash dividends paid
-

-

-

-

(378,075
)

-

-

-

-

(378,075
)

-

(378,075
)
Comprehensive income, net of tax
-

-

-

-

-
906,186
2,420

(40,288
)

92,744

961,062

(940
)

960,122

Balance at December 31, 2006
600,000

2,294,927

743,674

159,455

13,707,747

906,186

(916
)

(3,753,915
)

370

14,057,528

45,426

14,102,954

Transfer of prior year´s net income based on stockholders´meeting held in April, 2007.
-

-

-

-

906,186

(906,186
)

-

-

-

-

-

-

Cash dividends paid
-

-

-

-

(363,708
)

-

-

-

-

(363,708
)

-

(363,708
)
Comprehensive income, net of tax
-

-

-

-

-

1,270,941

(1,596
)

18,661

98,552

1,386,558

1,362

1,387,920

Balance at December 31, 2007 (Note 14)

600,000

Ps
2,294,927

Ps
743,674

Ps
159,455159,455

Ps
14,250,225

Ps
1,270,941

Ps
( 2,512
)
Ps
(3,735,254
)
Ps
98,922
Ps
15,080,378
Ps
46,788

Ps
15,127,166

mexican pesos-note 2x)

Years ended December 31, 2006 and 2007

	2006			2007

Operating activities:
Net income	$	907,129			1,272,226
Add charges to operations not requiring funds:
Depreciation		537,383			571,393
Deferred income tax		346,110			169,716
Labor obligations, net period cost		37,464			42,112

Funds provided by operations		1,828,086			2,055,447

Changes 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			300,566
Related parties		6,002			14,169
Taxes 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			748,592

Financing activities:
Proceeds from of long-term debt		-			40,000
Proceeds from notes payable to bank		-			40,000
Payment 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			3,583,891

Cash and investments at end of year	$	3,583,891			3,039,876

See accompanying ~~notes.~~
notes to consolidated financial statements.

~~F-6~~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 of
				U.S. dollars
				(note 2v)

	2008			2008
Cash 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			120,653
Depreciation and amortization		616,358			44,615
Loss on sale of plant and equipment		49,485			3,582
Interest income		(173,694	)		(12,573	)
Item relating to financing activities:
Interest expense		36,202			2,620

Subtotal		1,035,116			74,927

Derivative financial instruments		(747,795	)		(54,129	)
Accounts receivable, net		(151,635	)		(10,976	)
Recoverable taxes and other assets		52,972			3,834
Inventories 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			43,158
Income taxes paid		(147,426	)		(10,671	)
Accounts payable to related parties		23,517			1,702
Labor obligations		15,170			1,098
Deferred tax related to derivative financial instruments in stockholders' equity		(23,204	)		(1,679	)
Assets available for sale		2,159			156

Net 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			4,150
Increase in other non-current assets		(1,113	)		(80	)
Interest collected		173,694			12,573

Net 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			38,733
Interest paid		(33,339	)		(2,414	)
Asset tax recovery		8,521			616
Principal payments on loans		(18,809	)		(1,361	)

Net cash provided by financing activities		38,671			2,799

Net decrease in cash and investments		(1,041,629	)		(75,397	)

Cash and investments:
At beginning of year		3,039,876			220,040

At 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

~~Consolidated statements of changes in financial position~~

~~(Thousands of constant Mexican pesos as of December 31, 2007)~~

Years ended December 31,

(Thousands of U.S. dollars) (Note 2)

2005

2006

2007

2007

Operating activities

Net income Ps 1,910,319 Ps 907,129
Ps
1,272,226

$
116,536

Adjustments to reconcile net income to resources provided by operating activities:
Depreciation
497,819

537,383

571,393

52,340

Deferred income tax
1,068

346,110

169,716
��
15,547

Labor obligations, net period cost
40,505

37,464

42,112

3,857

2,449,711

1,828,086

2,055,447

188,280

Changes in operating assets and liabilities:
Accounts receivable
(190,464
)

(51,435
)

(336,083
)

(30,785
)
Inventories and biological assets
(352,768
)

(535,933
)

(1,140,124
)

(104,437
)
Prepaid expenses and other current assets
(34,523
)

(11,081
)

(31,463
)

(2,882
)
Accounts payable
(25,527
)

364,813

300,566

27,531

Related parties
(168
)

6,002

14,169

1,298

Taxes payable and other accruals
137,953

(73,193
)

(45,534
)

(4,170
)
Labor obligations, plan contributions
(26,149
)

(27,576
)

(32,617
)

(2,988
)
Derivative financial instruments
-

(6,407
)

(35,769
)

(3,276
)
Resources provided by operating activities

1,958,065

1,493,276

748,592

68,571

Financing activities

Proceeds from issuance of long-term debt
185

-

40,000

3,664

Proceeds from issuance of notes payable to banks
176,405

-

40,000

3,664

Repayment of long-term debt and notes payable
(206,375
)

(104,836
)

(13,963
)

(1,279
)
Constant pesos effect on notes payable to banks and long term-debt
(6,194
)

(6,081
)

(1,638
)

(150
)
Cash dividends paid
(263,719
)

(378,075
)

(363,708
)

(33,316
)
Sales (repurchases) of Company’s own stock, net
(8,537
)

17,849

-

-

Resources used in financing activities

(308,235
)

(471,143
)

(299,309
)

(27,417
)

Investing activities

Acquisition of property, plant and equipment, net
(835,529
)

(856,227
)

(991,737
)

(90,843
)
Other assets
(2,709
)

(2,060
)

(1,561
)

(143
)
Resources used in investing activities

(838,238
)

(858,287
)

(993,298
)

(90,986
)

Net increase (decrease) in cash and cash equivalents
811,592

163,846

(544,015
)

(49,832
)
Cash and cash equivalents at beginning of year
2,608,453

3,420,045

3,583,891

328,285

Cash and cash equivalents at end of year Ps 3,420,045 Ps 3,583,891
Ps
3,039,876

$
278,453

~~See accompanying notes.~~

~~F-7~~

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

~~AND SUBSIDIARIES~~

Notes to the ~~consolidated financial statements~~Consolidated Financial Statements

Years ended December 31, ~~2005,~~ 2006, 2007 and ~~2007~~2008

(Thousands of ~~constant~~ Mexican pesos ~~as of~~note 2x,

~~December 31, 2007,~~ except per share amounts)

1. ~~Organization and Business Activity~~

(1)	Organization and Business Activity-

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

In June 2006, the new Securities Trading Act came into effect, which, among other provisions, established that corporations listed on the Mexican ~~stock exchange~~Stock Exchange must change their entity names from variable capital stock corporation (S.A. de C.V.) to variable capital stock market ~~corporation(S.~~corporation (S. A. B. de C.V.); as of February 1, 2007, the Company’s name is Industrias Bachoco, S.A.B. de C.V., in compliance with the aforementioned law.

On ~~March 18, 2008,~~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, ~~and~~ Board of ~~Directors´approval~~Directors and ~~issuance.~~Stockholders’ meeting approval.

2.
(2) Accounting Policies and Practices-

The preparation of financial statements requires management to make a number of estimates and ~~Practices~~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~~

Consolidation-

The consolidated financial statements include the ~~accounts~~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 ~~and affiliates~~ were included in the Company’s consolidated financial statements asat the acquisition or inception month.

The consolidation was based on the audited financial statements of the ~~month following the acquisition.~~

issuing companies, which have been prepared in accordance with Mexican FRS.

~~F-8~~

The accompanying consolidated financial statements include the following consolidated subsidiaries as of December 31, ~~2005,~~ 2006, 2007 and ~~2007:~~2008:

Percentage equity interest

2005 2006
2007

%

%

%

Acuícola Bachoco, S.A. de C.V. 100 100
100

Aviser, S.A. de C.V. 100 100
100

Bachoco, S.A. de C.V. (“BSACV”) (Consolidated) 100 100
100

Bachoco, Comercial, S.A. de C.V - -
100

Campi Alimentos, S.A. de C.V. 100 100
100

Huevo y Derivados, S.A. de C.V. 97 97
97

Operadora de Servicios de Personal, S.A. de C.V. 100 100
100

Pecuarius Laboratorios, S.A. de C.V. 64 64
64

Secba, S.A. de C.V. 100 100
100

Sepetec, S. A. de C.V. 100 100
100

Servicios de Personal Administrativo, S.A. de C.V. 100 100
100

Induba Pavos, S.A. de C.V. - 100
100

	Percentage equity interest
	2006		2007		2008
Acuícola Bachoco, S.A. de C.V.		100		100		100
Aviser, S.A. de C.V.		100		100		100
Bachoco, S.A. de C.V. (“BSACV”) (Consolidated)		100		100		100
Bachoco Comercial, S.A. de C.V.		-		100		100
Campi Alimentos, S.A. de C.V.		100		100		100
Huevo y Derivados, S.A. de C.V.		97		97		97
Operadora de Servicios de Personal, S.A. de C.V.		100		100		100
Pecuarius Laboratorios, S.A. de C.V.		64		64		64
Secba, S.A. de C.V.		100		100		100
Sepetec, S.A de C.V.		100		100		100
Servicios de Personal Administrativo, S.A. de C.V.		100		100		100
Induba Pavos, S.A. de C.V.		100		100		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.~~incorporated, respectively. Both entities have 100% ownership from ~~its~~their holding company, Industrias Bachoco, S.A.B. de C.V. These entities are engaged toin the import and trading of turkey.

~~b) Revenue recognition~~

~~In conformity with International Financial Reporting Standard (IFRS) No. 18 “Revenues”.~~

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.

~~F-9~~Based on management analysis and estimates, the Company provides for doubtful receivables (reported under selling expenses).

Recognition of the effects of inflation on financial information-

~~c) Recognition~~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

The financial information recognizes the effects of inflation and therefore the amounts shown in the accompanying financial statements and in these notes are expressed in thousands of Mexican pesos with purchasing power at December 31, 2007. The restatement factor applied to the financial statements for the years ended December 31, 2005 and 2006 was 1.0796 and 1.0376, respectively, which corresponds to the annual rate of inflation from December 31, 2005 and December 31, 2006, respectively, through December 31, 2007, based on the Mexican National Consumer Price Index (NCPI) published by Banco de ~~Mexico.~~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		Inflation
			Yearly			Cumulative

2008		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~~Information” (as modified), which is applicable to financial statements for periods beginning on or after January 1, 1997, disallows the use of appraisals. Based on such amendment, the Company restated the appraised value at December 31, 1996 and property, plant and equipment ~~purchases~~acquisitions since January 1, 1997 until December 31, 2007 are carried at cost adjusted by the NCPI.

- Stockholders’ equity

~~Capital~~

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, ~~and~~ 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)

~~The~~

Until December 31, 2007, the net monetary position gain (loss) ~~represents~~represented the impact of inflation on monetary assets and ~~liabilities.~~liabilities at the beginning of each month updated by inflation factors through year-end. The ~~net~~ monetary position gain (loss) of each year is included in the statements of ~~income~~operations as a part of the comprehensive ~~financing income (cost)~~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

~~The~~

Until December 31, 2007, the deficit from restatement of stockholders’ equity comprises the accumulated monetary position loss at the time the provisions of ~~bulletin~~Bulletin B-10 were first applied and the subsequent gain or loss from holding nonmonetary assets, ~~principally~~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.~~NCPI (see note 2x).

~~d) Statement of Changes in Financial Position~~

Cash and investments-

~~Mexican accounting bulletin B-12,~~ ~~Statement~~Cash and investments consist primarily of ~~Changes~~bank deposits and checking accounts in ~~Financial Position~~~~, specifies~~foreign currencies. At the ~~appropriate presentation~~date of the ~~statement of changes in financial position based on~~consolidated financial statements, restated in constant Mexican pesos in accordance with bulletin B-10. Bulletin B-12 identifies the sources and applications representing differences between beginning and ending financial statement balances in constant Mexican pesos. The bulletin also requires that monetaryinterest income and foreign exchange gains and losses ~~not be treated as non-cash items~~are included in the ~~determination~~statements of ~~resources provided by operating activities.~~operations, under comprehensive financial results.

~~e) Estimates in financial statements~~

Primary investment securities-

~~The preparation of financial statements~~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 ~~conformity with MexFRS requires~~these instruments are reflected on the ~~use of estimates~~line-item “current primary investment securities within cash and ~~assumptions that affect the amounts~~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 ~~statements and accompanying notes. Actual results could differ from those estimates.~~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-10~~F-13

~~f) Cash~~INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2007 and ~~cash equivalents~~2008

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

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

~~g) Allowance for doubtful accounts~~

Allowance for doubtful accounts-

The Company policy is to record an allowance for doubtful accounts for balances which are not likely to be recovered. ~~Management~~In establishing the required allowance, management considers ~~that such accounts are those which are more than~~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 ~~overdue or in litigation.~~are reviewed individually for collectibility.

h)
g) Inventories, agricultural products and biological assets-

- Inventories ~~and biological assets~~

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 ~~are recognized~~ at ~~historical acquisition cost and~~December 31, 2007, are valued using the ~~average-cost method.~~

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

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

-Agriculture

The financial statements recognize the requirements of ~~MexFRS~~Mexican FRS E-1, “Agriculture”~~Agriculture”~~, which establishes the rules for recognizing, ~~valuing,~~measuring, presenting and disclosing biological assets and agricultural products.

~~Bulletin~~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 ~~consist~~are comprised of poultry in their different stages, incubatable eggs and breeder ~~pigs. Agricultural products are processed chicken, commercial eggs and commercial~~ 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 ~~week~~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.

~~F-11~~

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

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

In conformity with ~~bulletin~~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.

~~i) Property, plant~~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, ~~equipment~~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.

Property, plant and equipment-

Property, plant and equipment are ~~carried~~initially recorded at acquisition cost and ~~then restated based on adjustment~~through December 31, 2007, adjusted for inflation by using factors derived from the ~~NCPI.~~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”, ~~the Company started~~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 ~~computed~~calculated on ~~restated values using~~ the straight-line method ~~based on~~over the estimated useful lives of the ~~related~~ assets, determined by management (see note 7).

~~Note 6).~~

Minor repairs and maintenance costs are expensed as incurred.

Impairment of property, plant and equipment and goodwill-

The ~~value~~Company periodically evaluates the values of long-lived assets of property, plant and equipment and goodwill, to determine whether there is ~~reviewed whenever there are indications~~an indication of ~~impairment in their value. The related loss~~potential impairment. Recoverability of assets to be held and used is ~~determined based on~~measured by comparison of the ~~recoverable~~carrying amount of an asset against future cash flow expected to be generated by the ~~related~~asset. If the carrying amount of an asset ~~which is defined as the higher of the asset’s~~exceeds its estimated net ~~selling price and its value in use. An~~revenues, an impairment ~~loss~~charge is recognized ifin the ~~net~~amount by which the carrying amount of the asset exceeds the ~~recoverable amount.~~fair value of the asset.

~~For the years ended December 31, 2006 and 2007, there were no indications of impairment in the Company’s fixed assets.~~

~~j) Leases~~

Leases-

Leased property, plant and equipment arrangements are recognized as capital leases if a) the ownership of the leased asset is transferred to the lessee upon termination of the lease; b) the agreement includes an option to purchase the asset at a reduced price; c) the term of the lease is basically the same as the remaining useful life of the leased asset; or d) the present value of minimum lease payments is basically the same as the market value of the leased asset, net of any benefit or scrap value.

When the risks and benefits inherent to the ownership of the leased ~~good~~asset remain mostly with the lessor, ~~they~~such leases are classified as operating leases and accrued ~~rent~~lease expense is charged to ~~income.~~

results of operations as incurred.

~~F-12~~

The Company classified its leases as operating leases at December 31, 2007 and 2008.

~~k) Goodwill~~

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 ~~then~~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, ~~2006~~2007 and ~~2007, the Company recognized~~2008, there was no impairment loss ~~from impairment~~ in the value of goodwill shown in the consolidated balance sheet.

~~l) Liabilities, provisions, contingent liabilities and commitments~~

Liabilities, provisions, contingent liabilities and commitments-

Liability provisions are recognized ~~whenever:~~when the following three conditions are met: (i) the Company has current obligations (legal or assumed) derived from past events, (ii) it is ~~more likely than not~~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.

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

~~m) Pension plan, seniority premiums and severance benefits~~

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

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~~retirement. This plan includes:

- Defined contribution plan: This fund consists of employee and Company contributions. The employee contribution percentage ranges from 1% to 5%. The Company contribution ranges from 1% to 2% in the case of employees with less than 10 years’ seniority, and the same contribution percentage as the employee ~~(5%~~(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-13~~F-17

~~The Company recognizes~~INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to the ~~liability~~Consolidated Financial Statements

Years ended December 31, 2006, 2007 and 2008

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

Termination benefits for ~~pension benefits, seniority premiums~~reasons other than restructuring and ~~termination benefits (severance payments),~~retirement to which employees are entitled are charged to operations for each year, based on ~~independent~~ actuarial computations using the projected ~~unit-credit~~unit credit method and ~~financial assumptions including effect~~projected salaries. At December 31, 2008 and for purposes of ~~inflation.~~recognizing benefits upon retirement, the remaining average service life of employees entitled to plan benefits approximates 19.66 years (note 14).

~~n) Foreign~~
n) Comprehensive financial results (CFR)-

The CFR includes interest income and expense, foreign exchange ~~differences~~gains and losses and valuation of financial instruments and, through 2007, monetary position gains and losses.

Transactions ~~denominated~~ in foreign currency are recorded at the ~~prevailing~~ exchange rate prevailing on the ~~day~~date of ~~the related transactions.~~execution or settlement. Foreign currency ~~denominated monetary~~ assets and liabilities are translated at the ~~prevailing~~ exchange rate in force at the balance sheet date. Exchange ~~rate~~ differences ~~determined~~arising from ~~such date~~assets and liabilities denominated in foreign currencies are ~~charged or credited to income of~~reported in operations for the year.

~~See Note 12 for the Company’s foreign currency position at the end of each year and the exchange rates used to translate balances denominated in foreign currency.~~

~~o) Comprehensive income~~

Comprehensive income (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 ~~for~~of labor obligations and the ~~minimum effect of~~ minority interest as required by ~~MexFRS~~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 ~~acquired~~not designated and/or not qualifying under strict hedge accounting criteria are recognized within earnings for ~~hedging purposes~~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 ~~order~~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.

Derivative Financial Instruments, and Risk Hedging activities-

As of December 31, 2008

The Company uses selected financial derivative instruments to ~~reduce~~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 hedge accounting 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 ~~risks,~~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 ~~as hedges against~~to hedge certain ~~risks.~~risks and reduce its financial risks exposure.

~~In the normal course of business, the~~The Company is exposed to ~~foreign currency~~ exchange ~~risks~~rate (Mexican Peso-U.S. dollars) fluctuations and fluctuations in the price of ~~corn~~grains (corn and ~~sorgum.~~sorghum) within its normal course of business. The Company ~~mitigates~~manages these risks through a program that includes the use of derivative financial ~~instruments.~~instruments (FDI).

~~The~~ Company’s policy ~~establishes~~is to establish a 25 to 30% range of ~~hedging from 25% to 30%~~protection on the total amount of its ~~total~~annual needs for U.S. ~~dollar denominated transactions. The Company~~dollars. It also uses OTC (non-listed) options and futures ~~contracts to mitigate its exposure to~~agreements exchange rate ~~fluctuations on~~variability in its ~~short-term~~short-tern U.S. dollar cash ~~flows denominated in U.S. dollars (forecasted transaction).~~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 ~~not used for speculative purposes and the counterparties are major~~signed with well-positioned financial institutions.

The ~~derivatives~~FDIs are ~~recognized~~factored in ~~conformity with~~and documented according to the ~~rules~~accounting compliance established in ~~MexFRS~~FRS Financial Reporting Standard (FRS) C-10 “Financial instruments, derivates and ~~Statement of Financial~~ hedging operations” (Mexican GAAP) which is very similar to US GAAP equivalent (SFAS-133 “Accounting ~~Standard (SFAS) 133, “Accounting~~ for Derivative Instruments and Hedging ~~Activities”,~~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 ~~its related interpretations (US GAAP). When the company does not meet the requirements for hedge accounting, the fair value~~2008

(Thousands of ~~the financial instruments are recorded directly in the income statement. ,~~Mexican pesos note 2x, except per share amounts)

The Company has entered into agreements on the following ~~agreements involving derivative financial instruments:~~types of FDI:

Options

~~Options~~

When options are ~~derivatives that give~~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 ~~asset (in~~exchange rate (U.S. dollars parity level against the Mexican Peso in this ~~case dollars)~~case) at ~~an established exercise~~a fixed price or exchange rate known as the Option’s strike price, or level of exercise, at a ~~defined~~certain date ~~in exchange for~~on which the ~~payment~~option contract matures or expires. In the case of ~~a premium. The~~entering as the issuer or seller of the ~~option~~same options, the Company is obligated to ~~buy~~sell (sold Put) or ~~sell when the option is exercised by the buyer. When the right that is acquired is the right to sell, the option is known as a put, when it is~~ to buy ~~it is known as a call. In Bachoco’s case,~~(sold Call) if the ~~options entered into are of~~buyer exercises the ~~European type; that is, they can only be exercised at the maturity date.~~

~~F-14~~

~~The options in more of 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 ~~the instruments consist of both call and put options and the combination~~hedges under one of the premiums payable and receivable is equal to zero. Under this plan, Bachoco acts as both the buyer and the seller and assumes rights (when it purchases) and obligations (when it sells) from these contracts.permissible hedge accounting models.

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

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

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

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

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

~~In 2006, the Company followed G20, as a supplement to FRS, in regards to the measurement of effectiveness.~~

The Company meets with these criteria for zero cost collar derivative financial instruments and therefore, the Company’s contracts of this type of instrument are valued at their fair value at the beginning and later on a monthly basis, until their maturity. These instruments are recorded in other comprehensive income at their fair value as of December 31, 2006, rather than being reclassified to results of operations they are cancelled upon their maturity, as they are considered perfectly effective in accordance with G20. As of December 31, 2007, the Company did not follow G20 because it did not have such instruments.

For derivatives other than zero cost collar (the Company did not have such instruments at December 31, 2007) or those that are combination of call option, the Company determines the effective portion for such derivatives and records it in other comprehensive income, while the ineffective portion is recorded in income, as is established in bulletin C-10 and SFAS 133.

~~Effective in~~During 2007, the Company entered into ~~hedge transactions through~~bought options under the program offered by ASERCA ~~(Support and Services related to Agricultural Trading, which is a governmental entity related to the National Ministry of Agriculture and Farming),~~ in order to ~~monitor~~hedge the ~~availability~~risk of lower prices on certain grains ~~like~~prices such as corn, ~~sorgum~~sorghum and wheat. The Company has bought from a counterparty a combined instrument comprised of a future of a grain price and a put option. The future instruments will guarantee a future price of the grain. Otherwise, the put option has a strike price relatedwheat it contracts associated to the ~~future price agreement~~Farming Contract program. Under this program, the Company agrees the terms to buy certain amount of physical grain volumes and ~~both are based on~~abide by the price established in U.S. dollars for each Metric Ton that must be paid against delivery of ~~Chicago Board~~future productions that domestic farmers will supply on certain crop dates. ASERCA provides the Company with Put-type of ~~Trade at a specific date. Additionally,~~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 ~~50% subsidy~~loan that will be recovered by ASERCA (if the price goes down). The results of using these financial derivative instruments ensures that the ~~premium related~~Company obtains protection from falling prices in regard to the ~~put option from ASERCA.~~price it contractually agreed to pay binding farmers as firm commitments to them.

~~F-15~~F-22

~~As a result~~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 this combined instrument Bachoco will obtain the best market price for the grain; therefore if the market price goes below of the future price contracted by Bachoco the strike price of the option will be paid and ASERCA will refund the difference between the strike price and the market price.

~~In 2007, the premium paid on behalf of the Company by ASERCA amounts USD 2,944 thousands. The Company can not predict whether these subsidies will be available in the future.~~Mexican pesos note 2x, except per share amounts)

Futures

Futures are contracts that ~~obligate~~bind two entities to exchange ~~an asset~~a commodity good, and index, exchange rate or a value ~~(in~~(grain prices, in this ~~case grain)~~specific case) at a future date, ~~for a pre-established and agreed quantity,~~at an established amount, quality and price. InDifferent from options, this type of ~~contract, there is no~~contracts do not consider premium ~~payment,~~payments or receptions and can simply exist symmetrically as ~~there is only~~ a ~~gain~~corporate profit or a loss ~~for~~when taken long futures positions in the ~~Company when~~event that the ~~market~~ price of the grain ~~exceeds~~in the ~~strike~~market happens to be higher than the agreed price ~~(gain)~~(profit) or the market price ~~falls below~~is lower than the ~~price agreed to~~amount established in the ~~contract~~agreement (loss). The Company ~~engaged~~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, ~~during 2006~~which generates market interests and ~~2007. The Company holds deposits~~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 ~~some of its counterparties~~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 ~~guarantee~~be established otherwise, the ~~execution of its futures contracts. Such deposits bear market interest at market rates.~~position is closed with a realized loss.

~~Assessment of~~Effectiveness testing

In order to access special hedge accounting requirements, both prospective assessment and retrospective effectiveness

~~The effectiveness~~ testing of the ~~Company’s hedges~~hedging relationship (hedge item and designated hedge instrument) is ~~determined at the time the financial derivatives are designated as hedges and~~needed. Said effectiveness is ~~assessed~~measured on a periodic basis. ~~Hedges considered as highly effective are those~~In the case of cash flow hedges, an instrument in which the ~~fair~~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 ~~on a period-by-period~~by the hedge instrument (FDI), it is then considered that the hedge relationship is highly effective (a either period by period or cumulative ~~basis by changes~~dollar offset in the ~~fair value or cash flows of the financial derivative itself within a~~ range of 80% ~~and~~to 125% is to be considered as to meet hedge effectiveness goals).

~~In conformity with bulletin~~FRS C-10 ~~and SFAS 133, paragraph 30,~~establishes that the effective portion of a profit or loss ~~or gain on~~obtained from a cash flow ~~hedge~~hedging derivative is ~~recorded~~recognized in the comprehensive ~~income~~profit (OCI, within stockholders equity), net of ~~related income~~deferred taxes, ~~(stockholders’ equity)~~ while the ineffective portion is ~~recorded~~recognized directly in ~~results of operations.~~the earnings.

~~q) Deferred taxes~~

Income taxes (Income Tax (IT), Asset Tax (AT), Flat Rate Business Tax (IETU)), and employee statutory profit sharing (ESPS)-

~~The Company records~~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 ~~taxes on temporary~~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 in the ~~balance sheet accounts for~~ financial ~~and tax reporting purposes, using the enacted income tax rate at the balance sheet date, or the enacted rate that will be in effect at the time the temporary differences giving rise to deferred tax~~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.

Statement of operations-

The ~~possibility~~Mexican FRS B-3 “Statement of ~~recovering deferred tax assets is evaluated periodically and, if necessary, a valuation allowance is created for those assets~~Operations”, that ~~are unlikely to be recovered.~~

~~Deferred employee profit sharing is recognized only on temporary differences considered non-recurring with a known turnaround time.~~

~~Asset tax is recorded as part of deferred taxes, after making the appropriate evaluation of its recovery.~~

~~As a result of the adoption of interpretation to MexIFRS8,~~ ~~Effects of the Flat-Rate Business Tax,~~ ~~as of October~~came into effect in 2007, ~~the Company has taken into account the provision related to the effects of deferred FRBT established in the interpretation (see Note 15).~~

~~F-16~~

~~r) Concentration of risk~~

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

~~s) Income statement presentation~~

~~Costs~~costs and expenses in the Company’s ~~income~~ 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 ~~MexFRS~~Mexican FRS B-3 “Statement of ~~income~~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 ~~ordinary~~ revenues ~~and~~as well as operating costs and expenses and thus excludes other ~~ordinary~~ 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)

~~This~~The presentation ~~is comparable to~~of the ~~one used in the financial statements~~statement of operations for the year ended December 31, ~~2006.~~2006, is in accordance with the presentation used in 2007 and 2008.

~~t) Net income per share~~

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 ~~MexFRS B-14.~~Mexican FRS B-14 “Profit per Share”.

Financial information by segments-

~~u) Financial information by segments~~

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

Financial information by segment is prepared based on a management’s approach, in conformity with ~~bulletin~~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 17.~~note 18.

~~v) Convenience translation~~

Convenience translation-

United States dollar amounts as ~~of December 31, 2007,~~ shown in the accompanying consolidated ~~financial~~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 ~~Ps 10.917~~$13.815 to one U.S. dollar, which was the exchange rate at December 31, ~~2007.~~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 ~~or any other~~ rate. ~~Figures shown in US Dollars do not represent the translation of the financial statements in accordance with US GAAP (~~~~SFAS 52 “Foreign Currency Translation”~~).

~~F-17~~

w)~~Reclassifications~~

Reclassifications-

Certain captions shown in the ~~2005 and 2006~~2007 financial statements as originally issued have been reclassified for uniformity of presentation with the ~~2007~~2008 financial statements.

The changes in these reclassifications were recognized retrospectively in the accompanying statement of ~~income~~operations at December 31, ~~2005 and 2006,~~2007, in conformity with ~~MexFRS~~Mexican FRS B-1, “Accounting Changes and Error ~~Corrections~~Corrections”. ~~As of December 2005 and 2006, the employee profit sharing is charged to the statement of income, under the caption other income (expenses). The effects of the reclassifications are as follows:~~

~~Other ordinary (expenses) income net~~

2005 2006
Original amount Ps (22,504 ) Ps 22,789
Reclassified (25,961 ) 18,427

~~x) New accounting pronouncements~~

~~The most important new pronouncements that came into force in 2007 are as follows:~~

~~MexFRS B-3,~~ ~~Statement of Operations~~

MexFRS B-3 establishes the guidelines for classifying income, costs and expenses as either ordinary or non-ordinary and modifies certain MexFRS. The primary sections of the statement of income have been redefined to embody the concepts of “ordinary items” and the classification of income. Also, the caption Initial accumulated effect of accounting changes has been eliminated from the income statement, as established in MexFRS B-1, ~~Accounting Changes and Error Corrections~~.

MexFRS B-3 also allows entities to present costs and expenses in the statement of operations, based on their function or nature or a combination of both. MexFRS B-3 does not require the presentation of operating income in the statement of operations, but still allows for it when operating income is deemed to be an important indicator for evaluating a particular entity’s performance. When an entity does decide to include the operating income caption, MexFRS B-3 requires the disclosure of the items comprising such caption and a justification for its inclusion in the statement of income.

~~MexFRS C-13,~~ ~~Related Parties~~

This MexFRS broadens the definition of related parties to include the immediate family members of key management personnel or directors and funds derived from labor obligation plans, as well. MexFRS C-13 also requires the following disclosures:

1) the relationship between the controlling company and its subsidiaries, irrespective of whether transactions were actually carried out between them in the period; 2) the name of the direct controlling company and, when different from such, the name of the principal controlling company of the economic group to which the entity belongs; 3) compensations granted to the entity’s key management personnel or directors (in the case of public companies). Lastly, this standard allows entities to disclose that the pricing of its transactions carried out with its related parties are similar to prices that would be established for similar transactions between third parties, provided that such parity may be demonstrated.

~~MexFRS D-6,~~ ~~Capitalization of the Comprehensive Cost of Financing~~

~~MexFRS D-6 establishes that entities must capitalize comprehensive financing cost (CFC), which had been optional under the previous MexFRS C-6,~~ ~~Property, Plant and Equipment~~~~; this rule eliminated the choice to capitalize or not the comprehensive cost of financing.~~

~~F-18~~F-25

~~Capitalizable CFC is defined as~~INDUSTRIAS BACHOCO, S.A.B. DE C.V. AND SUBSIDIARIES

Notes to the ~~amount attributable to qualifying assets that could have been avoided if such acquisition had not taken place,~~Consolidated Financial Statements

Years ended December 31, 2006, 2007 and ~~includes in the case~~2008

(Thousands of Mexican peso denominated financing, interest and the net monetary position, and in the case of foreign currency denominated financing, it also includes exchange gains and exchange losses. Qualifying assets are defined as those assets acquired by an entity requiring a prolonged acquisition or construction period for their use, as well as assets that are to be sold or leased that require a prolonged period to be acquired or readied for sale or lease. The capitalization of the comprehensive cost of financing starts and continues provided the investments in the acquisition are actually being made, the activities required for conditioning the asset for sale or use are underway and interest is being accrued.

MexFRS D-6 establishes that the amount of capitalizable CFC will be determined based on the loans that were specifically use to acquire the qualifying assets, or if such identification can not be made, by applying the weighted average capitalization rate for financing to the weighted average of investments in qualifying assets made during the acquisition period. Financing with imputed interest cost may be capitalized against the cost of acquired assets, since the financing is recognized at its present value.

~~The adoption of MexFRS D-6 did not materially affect the comprehensive financing income as of December 31, 2007.~~pesos note 2x, except per share amounts)

~~MexFRS 4,~~ At December 31, 2007, according with Mexican FRS C-2 “Financial Securities”~~Presentation~~, the valuation effect of ~~Employee Profit Sharing~~financial securities is disclosed in a specific line-item in the ~~Statement~~consolidated statement of ~~Operations~~operations.

~~The Interpretation~~

	2007

Interest income	$	318,879
Reclassified		363,016

F-26

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

Notes to ~~MexFRS 4 establishes, based on~~ the ~~result~~Consolidated Financial Statements

Years ended December 31, 2006, 2007 and 2008

(Thousands of the analysis of MexFRS B-3, MexFRS D-3 and MexFRS D-4, that employee profit sharing must be presented in the statements of income as an ordinary expense, then effective 2007, employee profit-sharing is classified and disclosed in “other ordinary expenses” into the income statement (prior years was disclosed as a single caption before net income). For comparative purposes this MexFRS is disclosed retroactively for 2005 and 2006. (See Note 16).Mexican pesos note 2x, except per share amounts)

New accounting pronouncements-

~~MexFRS 8,~~ ~~Effects~~The Mexican Board for Research and Development of ~~the Flat-Rate Business Tax (FRBT)~~Financial Reporting Standards (Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera

~~In December 2007, the CINIF~~ or CINIF) has issued the ~~Interpretation to MexFRS 8, which is~~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 ~~or after October~~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, ~~2007. Such standard~~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 ~~created~~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 ~~need to clarify whether~~adoption of this Mexican FRS, the ~~flat-rate business tax should be treated~~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 ~~a tax on profits and to establish the guidelines~~of December 31, 2007, were eliminated. Furthermore, for ~~its accounting treatment.~~2008, amortization of unamortized items resulted in an approximate gain of $845.

~~MexFRS 8 establishes~~

(c)

Mexican FRS 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 ~~FRBT is a~~additional deferred tax ~~on profit and that for~~liability determined under the ~~year~~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)

Mexican FRS B-2 “Statement of cash flows”- Mexican FRS B-2 supersedes Bulletin B-12 "Statement of changes in financial position" 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 ~~effects should be recognized~~consolidated statement of changes in ~~conformity with~~financial position for 2007 and 2006 as issued and the ~~provisions~~consolidated statement of ~~MexFRS D-4,~~ ~~Accounting~~cash flows for ~~Income Tax, Asset Tax~~2008 under the indirect method.

(3)	Cash and investments-

Consolidated cash and ~~Employee Profit Sharing~~~~, and~~investments as of ~~January 1,~~December 31, 2007 and 2008 ~~in conformity with MexFRS D-4,~~ ~~Taxes on Profits~~. Based on the conclusions of this Interpretation, an entity must first determine whether its tax base generates FRBT payable or income tax payable. To do so, taxpayers should carry out financial projections to determine if their tax-on-profits base will be for income tax or FRBT. Based on the results of these projections, taxpayers will be able to plan in advance for either FRBT or income tax as it arises each year.consist of:

~~Entities that have determined that they will essentially pay FRBT must recognize~~

	2007		2008

Cash and bank accounts	$	221,539		228,589

Current primary investment securities (note 10 b)		2,818,337		1,545,737

Restricted 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 ~~effects~~Consolidated Financial Statements

Years ended December 31, 2006, 2007 and 2008

(Thousands of ~~deferred FRBT in their financial statements~~Mexican pesos note 2x, except per share amounts)

(4)	Trade receivable net-

Trade receivables at December 31, ~~2007. This deferred tax must correspond to the temporary differences~~2007 and FRBT credits existing in 2007 for which payment or recovery of FRBT is expected as of or after 2008. Therefore, those entities that have determined that they will essentially pay FRBT in the future must eliminate the deferred income tax asset or liability recognized at such date. These adjustments give rise to an expense or income that must be recognized in the 2007 statement of operations as part of the caption Taxes on profits or in stockholders’ equity when it relates to other comprehensive items.

~~F-19~~

In the determination of deferred FRBT asset or liability, taxpayers must consider that certain FRBT credits generate a deferred tax asset, provided that the law establishes the possibility of applying such credits against the FRBT of future periods. These credits must be reviewed at least once a year and written down for those portions for which there is uncertainty as to recoverability.

The deferred tax rate is the rate enacted and established in the tax provisions at the date of the financial statements or the rate that is expected to be in force at the time the deferred FRBT assets and liabilities will be realized (16.5% for 2008, ~~17% for 2009 and 17.5% for 2010 and subsequent years).~~

Deferred FRBT for the period must be recognized as a deferred tax expense or income in the income statement of the period as part of the tax on profits caption (in stockholders’ equity for those amounts associated with comprehensive income items) and as a non-current asset or long-term liability in the balance sheet. In the notes to the financial statements, the Company must disclose an analysis of the taxes on profits presented in the income statement, listing the amounts of payable and deferred FRBT. The entity must also mention the deferred FRBT related to other comprehensive items.

Under the FRBT Law, an entity must determine the amount of asset tax generated through 2007 that it will be able to recover as of 2008. Such amount must be recognized in the 2007 financial statements as a recoverable tax account and any amount of asset tax considered unrecoverable must be cancelled from the 2007 balance sheet and recognized as an expense in the statement of operations of the same period as part of the Taxes on profit caption. As of 2008, the balance of recoverable taxes must be reviewed on each financial statement closing date and written down when there is evidence that some amounts may not be recoverable after all.

~~The effects of adopting this new accounting pronouncement are described in Note 15.~~

~~3. Accounts receivable~~

~~Accounts receivable at December 31, 2006 and 2007,~~ are shown net of an allowance for ~~bad debts~~doubtful accounts for ~~$ 31,852~~$36,154 and ~~$ 36,154,~~$28,320, respectively.

~~4. Related Parties~~

(5)	Related parties-

The companies mentioned ~~above~~below are considered affiliates, assince the Company’s stockholders are also stockholders in such companies.

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

	~~Relation~~		~~2006~~		~~2007~~
~~Vimifos, S.A. de C.V.~~		~~Affiliate~~	Ps	~~9,234~~	Ps	~~21,311~~
~~Maquinaria Agrícola, S.A. de C.V.~~		~~Affiliate~~		~~3,042~~		~~3,382~~
~~Autos y Accesorios, S.A. de C.V.~~		~~Affiliate~~		~~318~~		~~438~~
~~Llantas y Accesorios, S.A. de C.V.~~		~~Affiliate~~		56		~~1,168~~
			Ps	~~12,650~~	Ps	~~26,819~~

	Relation	2007		2008
Vimifos, S.A. de C.V.	Affiliate	$	21,311	$	39,496
Maquinaria Agrícola, S.A. de C.V.	Affiliate		3,382		4,858
Llantas y Accesorios, S.A. de C.V.	Affiliate		1,688		3,953
Pulmex 2000, S.A. de C.V.	Affiliate		-		905
Frescopack, S.A. de C.V.	Affiliate		-		715
Camiones y Tractocamiones de Sonora, S.A. de C.V.	Affiliate		-		149
Autos y Tractores de Culiacán, S.A. de C.V.	Affiliate		-		106
Autos y Accesorios, S.A. de C.V.	Affiliate		438		76
Alfonso R Bours, S.A. de C.V.	Affiliate		-		48
Distribuidora Automotriz de los Mochis, S.A. de C.V.	Affiliate		-		28
Qualyplast, S.A. de C.V.	Affiliate		-		2
		$	26,819	$	50,336

At December 31, ~~2006~~2007 and ~~2007,~~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.

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		2008

Vimifos, S.A. de C.V.	$	251,931		192,188		283,912
Frescopack, S.A. de C.V.		-		-		128,176
Pulmex 2000, S.A. de C.V.		-		-		15,619
Qualiplast, S.A. de C.V.		-		634		22

Purchases of vehicles, tires and spare parts
Maquinaria Agrícola, S.A. de C.V.		17,585		47,155		54,502
Autos y Tractores de Culiacán, S.A. de C.V.		-		-		26,665
Llantas y Accesorios, S.A. de C.V.		12,289		23,349		22,426
Autos y Accesorios, S.A. de C.V.		33,585		14,985		21,729
Camiones y Tractocamiones de Sonora, S.A. de C.V.		-		-		14,501
Distribuidora Automotriz de los Mochis, S.A. de C.V.		-		8,095		13,687
Alfonso R. Bours, S.A. de C.V.		-		2,171		3,356

Airplane leasing expenses
Taxis Aéreos del Noroeste, S.A. de C.V.		4,196		3,153		2,106

~~F-20~~

F-31

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

~~b) For~~Notes to the ~~years~~Consolidated Financial Statements

Years ended December 31, ~~2005,~~ 2006, 2007 and ~~2007, the Company had the following transactions with related parties:~~2008

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

2005 2006
2007

Purchases of feed, raw materials and packing supplies
Vimifos, S.A. de C.V. Ps 194,053 Ps 251,931 Ps
192,188

Qualiplast, S.A. de C.V.
-

-

634

Purchases of vehicles, tires and spare parts
Maquinaria Agrícola, S.A. de C.V.
16,229

17,585

47,155

Llantas y accesorios, S.A. de C.V.
11,341

12,289

23,349

Autos y Accesorios, S.A. de C.V.
30,994

33,585

14,985

Alfonso R. Bours, S.A. de C.V.
-

-

2,171

Distribuidora Automotriz los Mochis, S.A. de C.V.
-

-

8,095

Airplane leasing expenses
Taxis Aéreos del Noroeste, S.A, de C.V.
4,687

4,196

3,153

~~Sales and purchases~~Purchases transactions with related parties are made at ~~markets~~market prices, which are similar to ~~other independent parties.~~those that would be used in arms-length transactions.

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

(6)	Inventories and biological assets-

~~5. Inventories and biological assets~~

Inventories consist of the following:

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

	2007		2008
Raw materials and byproducts	$	2,004,691	$	2,232,409
Medicine, materials and spare parts		369,337		457,106
Finished feed		56,608		71,841
		2,430,636		2,761,356
Agricultural products:
Live chicken		667,022		921,061
Processed chicken		177,719		228,619
Commercial egg		22,551		24,383
Turkey		28,339		35,113
Beef		2,708		2,445
Others		365		638
		898,704		1,212,259
Total	$	3,329,340	$	3,973,615

~~F-21~~F-32

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

~~b) Biological assets at~~Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2007 and ~~2007 consist~~2008

(Thousands of ~~the following:~~Mexican pesos note 2x, except per share amounts)

	b)	~~2006~~		Biological assets at December 31, 2007
~~Current biological assets:~~
~~Breeder pigs~~		Ps	~~24,775~~		Ps	~~32,464~~
~~Incubatable eggs for fattening~~			~~67,130~~			~~76,038~~
~~Total current biological assets~~			~~91,905~~			~~108,502~~

~~Non-current biological assets:~~
~~Laying~~ and ~~breeder hens~~			~~173,927~~			~~202,214~~
~~Incubatable eggs for laying hens~~			~~7,714~~			-
~~Pigs~~			~~25,231~~			~~27,280~~
~~Laying hens~~			~~521,044~~			~~577,043~~
~~Allowance for productivity declines~~			~~(212,798~~	)		(~~231,124~~	)
~~Total non-current biological assets~~			~~515,118~~			~~575,413~~
~~Total inventories and biological assets~~		Ps	~~2,831,118~~		Ps	~~4,013,255~~	2008 consist of the following:

	2007			2008
Current biological assets:
Breeder pigs	$	32,464		$	40,709
Incubatable eggs for fattening		76,038			99,135
Total current biological assets	$	108,502			139,844

Non-current biological assets:
Laying and breeder hens	$	202,214		$	248,877
Breeder pigs		27,280			28,040
Laying hens		577,043			681,114
Allowance 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 ~~presented~~measured at their fair value ~~was Ps. 28,072~~presented increases of $10,879 in ~~2005 (increase), Ps. 10,879~~2006; $10,882 in ~~2006 (increase)~~2007; and ~~Ps. 10,882~~$16,358 in ~~2007 (increase). In 2005, 2006 and 2007, the~~2008. Such effects were included ~~as part~~in the results of ~~the caption Net revenue.~~operations each year.

~~6. Property, Plant and Equipment~~

(7)	Property, plant and equipment-

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

Property, plant and equipment at December 31consists of the following:

Useful lives
(years)

2006

2007

Land
-
Ps
811,584
Ps
856,486

Buildings, farm structures and equipment
7-27

13,270,667

13,987,063

Office, furniture and equipment
3

218,498

227,183

Transportation equipment
6

1,159,922

1,162,747

15,460,671

16,233,479

Accumulated depreciation
(6,264,119
)

(6,702,709
)
Net
9,196,552

9,530,770

Construction in progress
639,343

725,469

Total Ps
9,835,895
Ps
10,256,239

	Useful lives (years)		2007			2008
Buildings, farm structures and equipment		7-27	$	13,987,063		$	14,914,390
Office, furniture and equipment		3		227,183			237,727
Transportation equipment		6		1,162,747			1,207,229
				15,376,993			16,359,346
Accumulated depreciation				(6,702,709	)		(7,164,781	)
Net				8,674,284			9,194,565
Land				856,486			897,273
Construction in progress and advance payments				725,469			597,397
Total			$	10,256,239		$	10,689,235

~~b) Depreciation expense for~~

F-33

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

Notes to the ~~years~~Consolidated Financial Statements

Years ended December 31, ~~2005,~~ 2006, 2007 and ~~2007, was Ps 497,819, Ps 537,383, and Ps 571,393, respectively.~~2008

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

~~7. Goodwill~~

Depreciation expense for the years ended December 31, 2006, 2007 and 2008, amounted to $537,383, $571,393 and $616,358, respectively.

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 ~~Grupo~~ Campi Alimentos, S.A. de C.V. in the amount of ~~Ps. 367,135.~~$367,135. At December 31, 2005 ~~and 2006,~~(the last year of amortization), accumulated amortization aggregates ~~Ps. 66,287. As mentioned in Note 2 k), in~~to $66,287. In 2006, 2007 and ~~2007,~~2008, goodwill was not amortized ~~derived from~~as a result of the adoption of ~~bulletin~~Mexican FRS B-7 “Business ~~Acquisitions.~~Acquisitions”.

~~F-22~~

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

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

(9)	Notes payable to banks and long-term debt-

	~~2006~~a)		~~2007~~
~~Unsecured~~Short-term notes payable to ~~banks:~~
~~Denominated in Mexican pesos, interest rate: TIIE(1) FIRA(2) rate less 3.00 points~~			-		~~40,000~~
~~Total notes payable to bank~~		Ps	-	Ps	~~40,000~~	banks, consist of the following:

	2007		2008
Unsecured 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, ~~2006~~2007 and ~~2007~~2008 was ~~5.32%,~~4.93% and ~~4.93%~~5.73%, respectively. Average interest rates on short-term ~~debt~~notes for the years ended December 31, ~~2006~~2007 and ~~2007~~2008 were ~~5.25%~~4.68% and ~~4.68%~~5.28%, respectively.

Long-term notes payable to banks, as of December 31, consist of the following:

	2007			2008

Secured by equipment:
Denominated in pesos, payable in monthly installments through December 2010, at CETES(3) rate plus 2 points.	$	30,400		$	20,500

Secured 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.		-			500,000

Unsecured:
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			4,112
Denominated 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			61,280

Total		69,601			585,892
Less 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, ~~consists~~2006, 2007 and 2008

(Thousands of ~~the following:~~

	~~2006~~			~~2007~~

~~Long-term debt to banks:~~
~~Secured by equipment:~~
~~Denominated in Mexican pesos, repayable in monthly installments:~~
~~Through December, 2010, at CETES(3) rate plus 2 points~~	Ps	~~41,089~~		Ps	~~30,400~~

~~Unsecured:~~
~~Denominated in Mexican pesos, at TIIE(1) FIRA(2) rate less 3.30 points, with minimum rate of 2.90%, through December, 2010~~		~~4,113~~			~~39,201~~
~~Total~~		~~45,202~~			~~69,601~~
~~Less current portion~~		~~(9,708~~	)		(~~18,844~~	)
~~Total long-term debt~~	Ps	~~35,494~~		Ps	~~50,757~~

Mexican pesos note 2x, except per share amounts)

(1) TIIE = Interbank Equilibrium Rate

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

(3) CETE = ~~Certificados de la Tesorería~~Treasury Bills

Weighted average interest rates on long-term debt at December 31, ~~2006~~2007 and ~~2007~~2008 were ~~8.58%~~7.80% and ~~7.80%~~12.92%, respectively. The weighted average interest rate on the Company’s total ~~long term~~long-term debt for the years ~~ened as of~~ended December 31, ~~2006~~2007 and ~~2007~~2008 was ~~9.26%~~7.92%, and ~~7.92%~~8.45%, respectively.

The weighted average interest rate of the Company’s total debt at December 31, ~~2006~~2007 and ~~2007~~2008 was ~~6.67%~~6.75% and ~~6.75%~~12.46%, respectively.

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.

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

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

Year	Amount

2010	$	360,902
2011		15,280
2012		11,540
2013		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 ~~unused lines~~and 2008

(Thousands of ~~credit totaled Ps 835,918 and Ps 956,050, respectively. In 2006 and 2007,~~Mexican pesos note 2x, except per share amounts)

OTC1 foreign currency option structures – finance counter-party in private agreements:

Effects on the

results of

operations

Counter-party

Instrument

Underlying6

Notional

Maturity

RIF

Merril Lynch5

TARNs2

Exchange rate

5,500

April through July

Capital

MXP/USD

US$

2009

753,705

Services Inc

(OTC)

KO FWD3

Exchange rate

2,000

January and May

MXP/USD

US$

2009

(19,478

)

Call Spread

Exchange rate

84,000

January

MXP/USD

US$

2009

(30,639

)

European Call

Exchange rate

1,500

March

MXP/USD

US$

2009

(34

)

Banamex (OTC)

European Call

Exchange rate MXP/USD

3,000

US$

January through

March

2009

(586

)

European Put

Exchange rate MXP/USD

2,000

US$

February through

March

2009

Call Digital

Exchange rate MXP/USD

600

US$

January though

March

2009

584

TARNs

Exchange rate

21,000

January and April

MXP/USD

US$

2009

59,480

Barclays

TARFs4

Exchange rate

2,000

November

Capital

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.

2Target Redemption Notes: Options structure on MXP/USD exchange rates that provide the Company ~~did not pay any fee for unused lines~~with limited earnings when the Mexican peso appreciates, and an unlimited loss when the U.S. dollar appreciates before the Mexican peso.

3Knock 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 ~~credit.~~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)

d)Derivatives on prices of farming goods (commodities):

				Effects on the result of operations
Counter-party	Instrument	Underlying	Maturity	RIF

Cargill	Swap	Corn	January 2009	$	16,862
(OTC)
	Swap	Soy bean	January 2009		3,285

New Edge7	Futures	Corn	March 2009		12,001

	Futures	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 ~~collateralizing long-term debt was Ps 145,438~~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 sales

ASERCA	Puts	Corn	March And May
			2009	$	(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 ~~Ps 137,857~~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.

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 liability

Sorghum purchase agreements	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 corn inventories	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	)

________________________

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.~~

~~e) Maturities of long-term debt as of December 31,~~ 2007 ~~are~~and 2008, both in U.S. dollars and Mexican pesos, as follows:

Year

Amount

2009 Ps 19,768
2010
19,769

2011
7,480

2012
3,740

Ps 50,757

	2007							2008
For trading purposes	Book value		Fair value		Average interest rates			Book value		Fair value		Interest10 rate

Mexican 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		1,343,269

U.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

	2008
Held to maturity	Paid price when bought		Impairment		Expected recovery amount		Interest rate

Mexican peso denominated debt securities:
Commercial paper	$	48,415	$	13,116		35,299		8.2	%

10 Average 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-23~~F-41

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

Notes to the Consolidated Financial ~~Instruments~~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~~FIMAT USA, LLC, to hedge U.S. dollar exchange rates, ~~and~~ corn and ~~sorgum~~sorghum for the Company’s projected cash expenditures for the period from January through December ~~2008.~~2007.

AFollowing is a summary of these instruments ~~as of~~at December 31, ~~2006 and 2007 is as follows:~~2007:

2006 Other Ineffective
Derivatives financial
Instruments
Type Posi-tion
Notional
Amount
Fair value
comprehensive
income

portion
(income)

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

2007
Other Ineffective
Derivatives financial
Instruments
Type Posi- tion
Notional
Amount
Fair value
comprehensive
income

portion
(income)

Financial Instruments – Hedging
Bean and soy futures Short Ps 2,469 Ps (3,442 ) Ps (3,442 )
Bean and soy futures Long 2,379 4,424 4,424
Corn futures Short 167 (420 ) (420 )
Corn futures Long 553 1,424 1,424
Bean and soy options Call Long 1,890 1,947 1,947
Bean and soy options Put Long 3,480 (255 ) (255 )
Corn options Call Long 2,870 3,815 3,815
Corn options Put Short 5,380 (226 ) (226 )
Corn options Acerca Put Long 48,438 99,310 99,310
Embedded corn futures Long 16,356 15,549 15,549
122,126 122,126
Financial Instruments
Exchange rate options Call Long 49,500 9,424 - Ps 9,424
Exchange rate options Put Long 7,500 429 - 429
Exchange 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 - 21,246
Exchange rate forward Put Short 120,000 (10,219 ) - (10,219 )
1,377 - Ps 1,377
Total 123,503 122,126
Deferred tax effect (23,466 ) (23,204 )
Total net of taxes Ps 100,037 Ps 98,922

~~F-24~~

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			-			9,424
Exchange rate options	Put	Long		7,500		429			-			429
Exchange 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			-			21,246
Exchange rate forward	Put	Short		120,000		(10,219	)		-			(10,219	)
						123,503			122,126			1,377
Deferred tax effects						(23,466	)		(23,204	)		-
Net total after deferred tax effects						100,037			98,922			1,377

As a part of the exchange ~~rate~~hedge strategy, ~~there are certain~~the Company, includes the use of financial ~~derivatives~~derivative instruments to reduce ~~the~~ exchange rate ~~risk in~~fluctuations associated with forecasted grain purchase ~~transactions. There are contract agreements for~~operations. The Company has short-tem call and put options ~~for short-term hedge which cover assets~~whose fair value amount as of 2007 ascending to 277,000 U.S. ~~367 thousand for 2006~~dollars and ~~U.S.277 thousand for~~liabilities in the amount of 225,000 U.S. dollars. The Company recognized a net payment in the amount of $8,097 in 2007 ~~as well as liabilities of U.S. 233 thousand and U.S. 225 thousand for 2006 and 2007, respectively. These contracts resulted~~ in ~~a charge~~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 ~~income statement by Ps 70,495 for~~Consolidated Financial Statements

Years ended December 31, 2006, 2007 and ~~a credit by Ps 8,097 for 2007 included in the comprehensive cost~~2008

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

~~10. Commitments~~

Year ended December 31,	Amount

2006	$	124,028
2007		153,165
2008	$	167,871

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

(b)

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

Year ended
December 31,

Amount

2005 Ps
33,160

2006
30,762

2007
40,733

(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.

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

(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.

Year ended
December 31,

Amount

2008 Ps
69,989

2009
62,658

2010
56,671

2011
55,141

2012
54,447

2013 and thereafter
12,006

Total Ps
310,912

(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.

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

(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.

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

(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		2008

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

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

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			2008
Assets:
Cash and investments	$	380,344		$	451,957
Other accounts		-			3,958
Advances to suppliers (included in inventories and property, plant and equipment)		404,936			433,333
		785,280			889,248
Liabilities:
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)

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-

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 2008

	Termination		Retirement		Total

Plan contributions	$	-		17,450		17,450
Benefits 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 2008

	Termination		Retirement			Total

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

Net 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 2008
	Termination			Retirement			Total

Accumulated benefit obligation (ABO)	$	52,131			138,077			190,208

Projected benefit obligation (PBO)		70,915			210,319			281,234
Plan assets at fair value		-			(188,815	)		(188,815	)

Projected benefit obligation over plan assets		70,915			21,504			92,419

Unrecognized items:
Transition liability		(18,370	)		(21,793	)		(40,163	)
Plan modifications		-			(25,437	)		(25,437	)
Actuarial gains		-			53,871			53,871

Projected liability, net	$	52,545			28,145			80,690

~~F-25~~F-46

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

~~12. Foreign Currency Position~~Notes to the Consolidated Financial Statements

Years ended December 31, 2006, 2007 and 2008

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

Following is an itemized analysis of the determination of benefits obligations of the plan at December 31, 2008:

	Retirement benefits

	Seniority premium			Pension plan			Total
Defined benefits obligations:
Obligation because of defined benefits at the beginning of year	$	32,095			199,333			231,428
Current labor cost		2,658			15,880			18,538
Interest cost		2,743			17,137			19,880
Actuarial 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

~~a) A summary~~Following is an itemized analysis of the ~~Company’s~~determination regarding the plan’s assets at December 31, 2008:

	Retirement benefits

	Seniority premium		Pension plan			Total
Plan assets:
Plan asset at the beginning of year	$	-		182,017			182,017
Yield expected		-		(8,475	)		(8,475	)
Company contributions		-		17,450			17,450
Benefits		-		(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, ~~denominated in U.S. dollars (the only foreign currency) as of~~based on experience:

	Seniority premium*

	2004		2005		2006		2007		2008
Defined benefits obligations	$	36,238		46,546		49,097		56,601		59,086
Plan 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, is2006, 2007 and 2008

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

	Pension plan

	2004			2005			2006			2007			2008
Defined benefits obligations	$	130,860			152,360			189,355			199,333			177,339
Plan 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.

	Benefits
	2007			2008

Discount 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:

(Thousands U.S. dollars)

2006
2007

Assets:

Cash and cash equivalents
$
23,776

$
34,862

Advances to suppliers (included in inventories and property, plant and equipment)
39,001

37,116

62,777

71,978

Liabilities:

Accounts payable
(15,984
)

(14,148
)
Net long position

$
46,793

$
57,830

	Assets to ended year

	2006			2007			2008

Fixed rate investment		74	%		77	%		77	%
Variable rate investment		26	%		23	%		23	%

Total		100	%		100	%		100	%

~~b) As~~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 ~~2007, the exchange rate was Ps 10.82 and Ps 10.91~~2008

(Thousands of Mexican pesos note 2x, except per ~~dollar, respectively. At March 17, 2008, the date of the audit report on these financial statements, the exchange rate was $ 10.76 per U.S. dollar.~~share amounts)

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

(Thousands of U.S. dollars)

2006
2007

Inventories
$
20,654

$
29,899

Property, plant and equipment
140,093

141,695

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

~~13. Labor Obligations~~

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

Severance

2005 2006
2007
2005 2006
2007
2005 2006
2007

Net period cost:
Labor cost Ps 10,798 Ps 11,791 Ps
15,429
Ps 3,296 Ps 3,781 Ps
4,361
Ps 9,143 Ps 9,475 Ps
9,191

Return on plan assets
(7,369
)

(8,395
)

(10,090
)

-

-

-

-

-

-

Amortization of unrecognized prior past service costs
2,698

2,429

2,239

3,439

3,757

1,215

4,583

1,530

4,250

Interest cost
7,906

7,864

8,890

2,090

2,298

2,348

1,877

1,993

1,765

Net period cost Ps 14,033 Ps 13,689 Ps
16,468
Ps 8,825 Ps 9,836 Ps
7,924
Ps 15,603 Ps 12,998 Ps
15,206

Loss from early extinguishment of obligations Ps
-
Ps
-
Ps
-
Ps
-
Ps
-
Ps
-
Ps
2,044
Ps
941
Ps
2,514

	Pension plan						Seniority premium				Severance

	2006			2007			2006		2007		2006		2007
Net periodic cost:

Labor cost	$	11,791			15,429			3,781		4,361		9,475		9,191
Return on plan assets		(8,395	)		(10,090	)		-		-		-		-
Amortization of unrecognized prior past service costs		2,429			2,239			3,757		1,215		1,530		4,250

Interest cost		7,864			8,890			2,298		2,348		1,993		1,765

Net periodic cost		13,689			16,468			9,836		7,924		12,998		15,206

Loss from early extinguishment of obligations	$	-			-			-		-		941		2,514

~~F-26~~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

Severance

2006
2007
2006
2007
2006
2007

Labor Obligations:

Accumulated benefit obligation Ps 160,280 Ps
186,865
Ps 33,063 Ps
36,306
Ps 31,936 Ps
38,567

Current benefit obligation
99,220

124,592

28,202

30,821

31,036

38,567

Projected benefit obligation
189,355

199,333

49,098

56,601

36,053

42,895

Plan assets
(160,421
)

(182,017
)

-

-

-

-

Unrecognized prior service cost
(22,971
)

(20,959
)

(6,930
)

(6,283
)

-

-

Transition liability
-

-

-

-

(27,913
)

(23,198
)
Unrecognized net gains
36,756

48,415

(15,784
)

(21,490
)

7,223

(455
)
Unrecognized changes or improvements
(28,545
)

(27,322
)

104

-

-

-

Net projected benefit obligation
14,174

17,450

26,488

28,828

15,363

19,242

Unfunded accumulated benefit obligation
4,624

15,960

33,063

36,307

31,936

38,567

Current net liability over net projected liability in some subsidiaries
-

4,049

6,575

7,479

16,573

19,325

Additional liability
-

(4,049
)

(6,575
)

(7,479
)

(16,573
)

(19,325
)
Intangible assets
-

4,049

5,659

5,967

16,573

18,325

Minimum labor obligation liability adjustment Ps
-
Ps
-
Ps
916
Ps
1,512
Ps
-
Ps
1,000

Change in benefit obligation:

Benefit obligation at beginning of year Ps
152,360
Ps
189,355
Ps
46,546
Ps
49,097
Ps
42,671
Ps
36,053

Service cost
11,791

15,429

3,781

4,361

9,475

9,191

Interest cost
7,864

8,890

2,298

2,348

1,992

1,765

Actuarial differences
8,518

(12,587
)

2,339

6,379

( 6,077
)

9,726

Benefits paid
(1,554
)

(1,754
)

(5,867
)

(5,584
)

(8,803
)

(13,840
)
Changes to plan not applied
-

-

-

-

(3,205
)

-

Increase for plan improvement
10,376

-

-

-

-

-

Projected benefit obligation at end of year Ps
189,355
Ps
199,333
Ps
49,097
Ps
56,601
Ps
36,053
Ps
42,895

	Pension plan						Seniority premium						Severance

	2006			2007			2006			2007			2006			2007
Labor obligations:
Accumulated benefit obligation	$	160,280			186,865			33,063			36,306			31,936			38,567
Current benefit obligation		99,220			124,592			28,202			30,821			31,036			38,567
Projected benefit obligation		189,355			199,333			49,098			56,601			36,053			42,895
Plan assets		(160,421	)		(182,017	)		-			-			-			-
Unrecognized prior service cost		(22,971	)		(20,959	)		(6,930	)		(6,283	)		-			-
Transition liability		-			-			-			-			(27,913	)		(23,198	)
Unrecognized net gains		36,756			48,415			(15,784	)		(21,490	)		7,223			(455	)
Unrecognized changes or improvements		(28,545	)		(27,322	)		104			-			-			-
Net projected benefit obligation		14,174			17,450			26,488			28,828			15,363			19,242
Unfunded accumulated benefit obligation		4,624			15,960			33,063			36,307			31,936			38,567
Current net liability over net projected liability in some subsidiaries		-			4,049			6,575			7,479			16,573			19,325

Additional liability		-			(4,049	)		(6,575	)		(7,479	)		(16,573	)		(19,325	)

Intangible assets		-			4,049			5,659			5,967			16,573			18,325
Minimum labor obligation liability adjustment	$	-			-			916			1,512			-			1,000

	~~Pension plan~~
	~~2006~~			~~2007~~
~~Changes in plan assets:~~
~~Plan assets at beginning of the year~~	Ps	~~130,742~~		Ps	~~160,421~~

~~Actual return on plan assets~~		~~8,395~~			~~10,090~~
~~Employer contribution~~		~~14,039~~			~~13,193~~
~~Actuarial differences~~		~~8,799~~			67
~~Benefit paid~~		~~(1,554~~	)		~~(1,754~~	)
~~Fair value of plan assets at end of year~~		~~160,421~~			~~182,017~~

~~Funded status~~		~~(28,934~~	)		(~~17,316~~	)
~~Unrecognized net actuarial loss (gain)~~		~~(36,758~~	)		(~~48,415~~	)
~~Unrecognized prior service cost (benefit)~~		~~22,971~~			~~20,959~~
~~Net amount recognized~~	Ps	(~~42,721~~	)	Ps	(~~44,772~~	)

	Pension plan						Seniority Premium						Severance

	2006			2007			2006			2007			2006			2007
Change in benefit obligation:
Benefit obligation at beginning of year	$	152,360			189,355			46,546			49,097			42,671			36,053
Service cost		11,791			15,429			3,781			4,361			9,475			9,191
Interest cost		7,864			8,890			2,298			2,348			1,992			1,765
Actuarial differences		8,518			(12,587	)		2,339			6,379			(6,077	)		9,726
Benefits paid		(1,554	)		(1,754	)		(5,867	)		(5,584	)		(8,803	)		(13,840	)
Changes to plan not applied		-			-			-			-			(3,205	)		-
Increase for plan improvement		10,376			-			-			-			-			-
Projected benefit obligation at end of year	$	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 plan
	2006			2007
Changes in plan assets:
Plan assets at beginning of the year	$	130,742			160,421
Actual return on plan assets		8,395			10,090
Employer contribution		14,039			13,193
Actuarial differences		8,799			67
Benefit paid		(1,554	)		(1,754	)

Fair value of plan assets at end of year		160,421			182,017

Funded status		(28,934	)		(17,316	)
Unrecognized net actuarial loss (gain)		(36,758	)		(48,415	)
Unrecognized prior service cost (benefit)		22,971			20,959

Net amount recognized	$	(42,721	)		(44,772	)

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

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

~~F-27~~

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

Percentage of plan at year end

Target
allocation

2005 2006
2007

2008

Fixed-income securities 75 % 74 % 77 % 75 %
Fixed-variable income securities 25 % 26 % 23 % 25 %

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

~~The rates considered in the actuarial study in 2004, 2005 and 2006 are as follows:~~

2005 2006
2007

Labor obligations discount 5.25 % 5.25 %
5.25
%
Future salary increases 1.00 % 1.00 %
1.00
%
Return on assets 6.25 % 6.25 %
6.25
%

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

	~~Pension~~ ~~plan~~		~~Seniority~~ ~~premium~~		~~Severance~~
~~Expected benefit payment:~~
~~2008~~	Ps	~~6,972~~	Ps	~~6,395~~	Ps	~~8,215~~
~~2009~~		~~8,222~~		~~6,857~~		~~7,431~~
~~2010~~		~~9,482~~		~~7,145~~		~~7,002~~
~~2011~~		~~10,859~~		~~7,282~~		~~6,651~~
~~2012~~		~~11,957~~		~~7,369~~		~~6,303~~
~~2013-2017~~		~~76,959~~		~~37,704~~		~~27,856~~
~~Total~~	Ps	~~124,451~~	Ps	~~72,752~~	Ps	~~63,458~~

	Pension plan		Seniority premium		Severance
Expected benefit payment
2008	$	6,972		6,395		8,215
2009		8,222		6,857		7,431
2010		9,482		7,145		7,002
2011		10,859		7,282		6,651
2012		11,957		7,369		6,303
2013-2017		76,959		37,704		27,856
Total
	$	124,451		72,752		63,458

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

~~14. Stockholders’ Equity~~

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)

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.

(15)	Stockholders’ Equity-

In April 1997, Bachoco had a stock split and created so-called “BL” units, which consist of one series “B” share and one series “L” share, and so-called “BB” units, which consist of two series “B” shares. Series “L” shares have limited voting rights.

In September 2006, the Company ~~separated~~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 ~~shares~~ have voting rights.

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

c) The Mexican Corporation Act requires that at least 5% of each year’s net income be appropriated to increase the legal reserve until such reserve is equal to 20% of capital stock issued and outstanding. The balance of the legal reserve at December 31, 2006 and 2007, included in retained earnings, was Ps 205,735.

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.

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.

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-28~~F-52

~~d) The Company approved a stock repurchase plan in 1998, in conformity with~~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 Securities Trading Act, providing a stock repurchase reserve for that purpose of Ps 180,000 (Ps 303,861 expressed in constant Mexican pesos) through the appropriation of retained earnings in 1998. During 2005 the Company repurchased 920 thousand shares for Ps 11,462. During 2006 and 2007, no shares were repurchased. In 2005, and 2006, the Company sold 800 thousand and 920 thousand of shares, respectively, previously repurchased; the sales value of latter was for Ps 2,954 and

~~Ps 17,604, respectively. In 2007 no shares were sold.~~pesos note 2x, except per share amounts)

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.

The Company obtains the majority of its revenues and net profit from Bachoco, S.A. de C.V. (BSACV). For the years 2005 through 2007, pretax income of BSACV, represented between 90% and 94% of Bachoco’s consolidated pretax income.

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.

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

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

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

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)-

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 ~~payment of~~ corporate income tax under the provisions of the simplified regime, which is applicable to companies engaged exclusively in agriculture, cattle-raising, fishing, forestry and certain other ~~activities the~~activities. The income tax law establishes that ~~are~~such regime is exclusive ~~when the~~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.~~paid (cash basis). The tax rate for this regime was 16% in 2005 and ~~2006. In 2007 it was~~2006, and 19%. from 2007.

The income tax reforms passed in December 2004 include the elimination, as from ~~beginning in the 2006 fiscal year,~~January 2005, of the ~~taxable~~purchase deduction ~~of purchases~~ so as to permit only the deduction of cost of sales. This reform is ~~only~~not applicable ~~to the subsidiary Campi Alimentos S.A. de C.V. as it pays taxes under the general regime, while~~ for BSACV, since it is ~~not applicable, due~~subject to ~~the fact that it pays~~ taxes under the simplified regime.

InThe changes in tax rates enacted in 2006 ~~changes were made to Mexican tax law that as of 2007, will increase the tax rate~~ from 16% to 19%~~. This change~~ in 2007 resulted in a charge of ~~Ps. 336,376 to income, reflected~~$336,376 in ~~deferred taxes under “change in tax rates”.~~the consolidated statement of operations.

~~F-29~~

~~b) Asset tax~~

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

The Company and its subsidiaries are required to pay asset tax if the amount of asset tax exceeds the computed income tax liability. Asset tax paid can be credited against income tax in subsequent years (up to ten years). At December 31, 2007, the Company had Ps 6,420 in asset tax credits.

~~Base year~~	b)	~~Asset tax paid~~		~~Year of expiration~~
~~2004~~		Ps	10		~~2014~~
~~2005~~			~~3,258~~		~~2015~~
~~2006~~			~~3,152~~		~~2016~~
		Ps	~~6,420~~			Flat Rate Business Tax (IETU)-

~~During~~On October 1, 2007, new laws were published and a number of tax laws were revised. This new ~~tax reform was enacted and it abolished the asset tax effective in~~law came into effect on January 1, 2008.

~~c) Flat-Rate Business Tax (FRBT)~~

The ~~Flat-Rate Business Tax (FRBT) Law was published in the Official Gazette on October 1, 2007. This Law will come into force as of January 1, 2008~~IETU rate is 17.5% for 2010 and ~~abolish the Asset Tax Law.~~

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

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

~~FRBT shall~~The IETU is required to be ~~payable~~paid only towhen it is greater than the ~~extent it exceeds income tax for~~IT. To determine the ~~same period. In other words, to determine FRBT~~IETU payable, income tax paid in a given period shall first be subtracted from the current ~~FRBT~~IT of the same period and the difference shall be the ~~FRBT~~IETU payable.

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

~~Based~~

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 ~~result projections,~~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 ~~considers that it will be subject to~~credited these amounts against the ~~payment of~~ income tax ~~in the following years.~~paid.

~~F-30~~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)

~~d) Income~~At December 31, 2008, the Company had $4,494 in asset tax ~~charged to results~~credits and such recoverable AT will expire, as follows:

	Asset tax restated at
	December 31,		Year of
Base year	2008		expiration

2005	$	1,137	2015
2006		3,357	2016

	$	4,494

Income tax charged to operations-

For the years ended December 31, ~~2005,~~ 2006, 2007 and ~~2007,~~2008, income tax charged (credited) to results of operations was as follows:

2005 2006
2007

Current year income tax Ps 363,587 Ps 250,519 Ps
143,029

Current year asset tax
3,178

2,497

-

Deferred income tax
1,068

346,110

169,716

Total income tax Ps 367,833 Ps 599,126 Ps
312,745

	2006		2007		2008

Current income tax	$	250,519		143,029		78,559
Flat Rate Business Tax		-		-		108
Deferred income tax		348,607		169,716		(352,686	)

Total income tax expense (benefit)	$	599,126		312,745		(274,019	)

~~e) Deferred income tax~~

Deferred income tax-

~~On the basis of~~Based on the financial projections ~~for~~of taxable income in each of the next four years ~~based on future computations and retrospectively, based on historical results,~~ the Company ~~considers~~estimated that it will pay income tax (IT); therefore, deferred tax effects as of December 31, 2007 and 2008 have been recorded reflecting the ~~new FRBT will not have effect on~~IT basis.

F-55

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

Notes to the ~~Company’s financial information.~~Consolidated Financial Statements

Years ended December 31, 2006, 2007 and 2008

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

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

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

	2007		2008
Deferred tax assets:
Account payable	$	196,460		393,725
Labor obligations		6,697		15,851
ESPS payable		1,385		9,168
Effects on derivative financial instruments		-		150,644
Recoverable AT		4,613		4,494
Tax loss carry forwards		-		165,121

Total gross deferred tax assets		209,155		739,003
Less valuation allowance		4,613		28,015
Net deferred tax assets		204,542		710,988

Deferred tax liabilities:
Inventories		420,993		711,742
Accounts receivables		396,437		308,543
Fixed assets		1,450,073		1,394,687
Effects on financial instruments		23,204		-
Other deductions		-		15,092
Other accruals		280		-
Additional liability from stockholders’ equity		288,580		-

Total gross deferred tax liabilities		2,579,567		2,430,064

Net deferred tax liability	$	2,375,025		1,719,076

At December 31, ~~2006 and~~ 2007, the deferred income tax liability determined by ~~considering~~treating stockholders’ equity as a single temporary item is greater than the amount determined by using the ~~assets~~asset and ~~liabilities method. Due to the above,~~liability method, and thus, the Company recognized an additional liability of ~~Ps. 290,214 in 2006 and Ps. 359,717~~$288,580 in 2007 ~~in order~~ to ~~recognize~~account for this difference.

Effective January 1, 2008, the ~~difference between deferred tax determined using~~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 ~~and by considering the stockholders’ equity~~ 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 ~~item.~~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 ~~most~~ significant items that gave rise to athe difference between the ~~total amount of current year~~effective income tax rate (current and deferred taxes) and the current year ~~deferred~~ tax determined at the statutory rate are as follows:

2005 2006
2007

% %
%

Statutory income tax rate 16.00 16.00
19.00

Effect of companies outside simplified regime 2.3 4.42
4.20

Effect of non-taxable items ( 2.2 ) ( 3.04 )
( 3.40
)
Effect due to change in tax rate from 16% to 19% in 2007
22.27

Effective income tax rate 16.1 39.65
19.80

~~F-31~~

	2006			2007			2008
	%			%			%
Statutory income tax rate		16.00			19.00			(19.00	)
Effect of companies outside simplified regime		4.42			4.13			2.33
Effect 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	)

Tax loss carryforwards-

~~f) Net loss carryforward~~

AtAs of December 31, ~~2007,~~2008, the Company has ~~net~~tax loss carryforwards restated in accordance with the ~~actual~~current Mexican Tax Law, which can be used to offset ~~the~~ future taxable income ~~for~~in the next ten years, as follows:

Net loss carryforward

Base year

Year of
expiration

Restated
amount

2001 2011 Ps 16,092
2005 2015
229

Ps 16,321

Tax loss carryforwards as adjusted by inflation trough December 31, 2008
	Year of	Restated
Base year	expiration	amount

2001	2011	$	181
2005	2015		241
2007	2017		6,227
2008	2018		835,987

		$	842,636

~~g) Equity tax value~~

Equity tax value-

AtAs of December 31, ~~2006~~2007 and ~~2007,~~2008, the tax value of the Company’s equity, which will not be subject to taxation, is comprised of 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		2008

Restated contribution capital (CUCA)	$	1,877,344		1,999,574
Net tax profit account (CUFIN) and net reinvested tax profit account (CUFINRE)		2,574,183		2,535,424

Total	$	4,451,527		4,534,998

(17)	~~2006~~		~~2007~~
~~Restated contributed capital (CUCA)~~	Ps	~~1,877,344~~	Ps	~~1,877,344~~
~~Net tax profit (CUFIN) and net reinvested tax profit (CUFINRE)~~		~~2,399,602~~		~~2,574,183~~
~~Total~~	Ps	~~4,276,946~~	Ps	~~4,451,527~~	Other income (expense), net-

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

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

2005 2006
2007

Other ordinary income:
Sales of waste animals, raw materials, by-products and others. Ps 215,587 Ps 206,528 Ps
276,094

Tax incentives
9,054

32,379

73,054

Total other ordinary income
224,641

238,907

349,148

Other ordinary expense:
Cost of waste animals, raw materials, by-products and others.
(189,998
)

(182,324
)

(261,703
)
Employee profits sharing
(3,457
)

(4,362
)

(4,828
)
Other
(57,147
)

(33,794
)

(13,046
)
Total other ordinary expense
(250,602
)

(220,480
)

(279,577
)
Total other ordinary income net: Ps (25,961 ) Ps 18,427 Ps
69,571

	2006			2007			2008
Other income:
Sales of waste animals, raw material, by- products and other	$	206,528			276,094			187,911
Tax incentives		32,379			73,054			44,899
Other		-			-			8,106

Total other income		238,907			349,148			240,916

Other 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 ~~profits~~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 ~~expenses~~expense caption.

~~F-32~~

~~17. Financial information by segments~~

(18)	Segment financial information-

The segments to be reported are ~~focused~~organized by product line. Inter-segment transactions have been eliminated. Our Poultry segment is comprised of our chicken and egg products due to ~~its~~their similarity and to the fact that egg sales ~~do not exceed~~represent approximately 10% of total revenue for the years ended on December 31, ~~2005,~~ 2006, 2007 and ~~2007.~~2008. The information included under “Others” corresponds to pigs, balanced animal feed and other ~~sundry~~non-significant sub-products. The required disclosures are shown below:

As of and for the year ended December 31, 2005
Poultry Others Total
Net revenues Ps 13,871,147 Ps 1,747,045 Ps 15,618,192
Cost of sales
(9,740,992
)

(1,493,570
)

(11,234,562
)
Gross profit
4,130,155

253,475

4,383,630

Interest income
304,045

12,469

316,514

Interest expense and other financing costs
(209,129
)

(375
)

(209,504
)
Loss on net monetary position
(118,724
)

-

(118,724
)
Income tax and asset tax
(335,554
)

(32,279
)

(367,833
)
Majority net income
1,830,128

78,407

1,908,535

Property, plant and equipment, net
9,300,678

216,373

9,517,051

Total assets
15,836,258

694,647

16,530,905

Total liabilities
(2,838,443
)

(189,405
)

(3,027,848
)
Capital expenditures
835,529

-

835,529

Expenses not requiring cash disbursement:
Depreciation
489,396

8,423

497,819

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

~~F-33~~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 December 31,
2007

Poultry

Others

Total

Net revenues
$
15,885,828

Ps2,333,819

Ps18,219,647

Cost of sales
(12,353,458
)

(2,124,403
)

(14,477,861
)
Gross profit
3,532,370

209,416

3,741,786

Interest income
304,030

14,849

318,879

Interest expense and other financing costs
(133,913
)

(7,665
)

(141,578
)
Loss on net monetary position
(151,035
)

(3,779
)

(154,814
)
Income tax and asset tax
(280,792
)

(31,953
)

(312,745
)
Majority net income
1,203,149

67,792

1,270,941

Property, plant and equipment, net
9,986,129

270,110

10,256,239

Total assets
18,264,882

851,542

19,116,424

Total liabilities
3,798,656

190,602

3,989,258

Capital expenditures
987,322

4,415

991,737

Expenses not requiring cash disbursement:
Depreciation Ps
556,188
Ps
15,205
Ps
571,393

	As of and for the year ended at December 31, 2007
	Poultry			Others			Total
Net Revenues	$	15,885,828			2,333,819			18,219,647
Cost of sales		(12,353,458	)		(2,124,403	)		(14,477,861	)
Gross profit		3,532,370			209,416			3,741,786
Interest income		348,167			14,849			363,016
Valuation 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			1,270,941
Property, plant and equipment, net		9,986,129			270,110			10,256,239
Total assets		18,264,882			851,542			19,116,424
Total liabilities		3,798,656			190,602			3,989,258
Capital expenditures		987,322			4,415			991,737
Expenses not requiring cash disbursement:
Depreciation		556,188			15,205			571,393

	As of and for the year ended at December 31, 2008
	Poultry			Others			Total
Net Revenues	$	17,594,994			2,530,327			20,125,321
Cost of sales		(15,171,145	)		(2,311,323	)		(17,482,468	)
Gross profit		2,423,849			219,004			2,642,853
Interest income		168,283			5,411			173,694
Valuation 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	)		274,019
Majority net (loss) income		(939,068	)		60,020			(879,048	)
Property, plant and equipment, net		10,422,423			266,812			10,689,235
Total assets		18,386,409			1,068,562			19,454,971
Total liabilities		5,039,205			336,347			5,375,552
Capital expenditures		1,140,843			15,325			1,156,168
Expenses 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)

Revenues from our poultry segment are ~~analized~~analyzed as follows:

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

	Year ended at December 31, 2006
	hens		Eggs		Total

Net revenues	$	12,053,293		1,432,727		13,486,020

	Year ended at December 31, 2007
	hens		Eggs		Total

Net revenues	$	14,135,242		1,750,586		15,885,828

	Year ended at December 31, 2008
	hens		Eggs		Total

Net revenues	$	15.486,614		2,108,380		17,594,994

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

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)	~~As of and for the year ended December 31,~~~~2007~~
		~~Chicken~~		~~Egg~~		~~Total~~
~~Net revenues~~		Ps	~~14,135,242~~	Ps	~~1,750,586~~	Ps	~~15,885,828~~	Recently issued accounting standards-

~~18. New accounting Pronouncements~~

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

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

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

~~F-34~~

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

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

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

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

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

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

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

~~MexFRS D-3,~~ ~~Employees Benefits~~

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

~~F-35~~

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

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

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

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

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

~~In November 2007, the CINIF~~has issued the ~~Interpretation to MexFRS 5, which is~~following Mexican FRS, effective for years beginning ~~on or~~ after ~~January 1,~~December 31, 2008. ~~This Interpretation~~Early application is ~~intended to clarify whether or~~ not ~~the additional consideration agreed at the inception of a derivative to adjust the instrument to its fair value should be amortized over the life of the hedge.~~

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

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

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

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

~~F-36~~

~~MexFRS 6,~~ ~~Formally Designating a Hedge~~

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

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

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

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

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

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

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

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

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

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

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

(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 ~~application~~initial effects of ~~the MexFRS 5,~~this new FRS ~~6, and FRS 7~~ will ~~have no material effect on the Company’s financial position or on its results of operations.~~not be material.

~~F-37~~

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

(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:

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

The Mexican and U.S. GAAP prior periods amounts, included throughout Note 18, are presented in constant Mexican pesos by using the 1.0376 and 1.0796 Mexican inflation factor, respectively. The reconciliation to U.S. GAAP does not include the reversal of the adjustments to the financial statements for the effects of inflation required under MexFRS because the application of bulletin B-10 represents a comprehensive measure of the effects of price level changes in the Mexican economy and, as such, is considered a more meaningful presentation than historical cost based financial reporting for both Mexican and US accounting purposes as permitted by the “Securities and Exchange Commission” (SEC).

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

~~Cash flow information:~~

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

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

~~F-38~~

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

Cash Flow Information

Years ended December 31,

2005 2006
2007

OPERATING ACTIVITIES:

Net income Ps 1,893,395 Ps 895,570 Ps
1,261,883

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation
500,684

540,862

575,306

Deferred income tax
(2,126
)

330,982

168,405

Loss (gain) on net monetary position
118,414

149,825

154,765

Labor obligations, net period cost
40,505

58,155

44,619

2,550,872

1,975,394

2,204,978

Changes in assets and liabilities:
Accounts receivable
(214,857
)

(85,313
)

(375,590
)
Inventories and biological assets
(603,362
)

(780,452
)

(1,418,210
)
Prepaid expenses and other accounts receivable
(36,925
)

25,502

(74,556
)
Accounts payable
(9,645
)

392,321

338,084

Related parties
53

6,410

14,944

Other taxes payable and other accruals
148,024

(60,488
)

(35,827
)
Labor obligations, net
(58,474
)

(26,085
)

(37,610
)
Derivative financial instruments
-

(5,856
)

(36,131
)
Cash flows provided by operating activities

1,775,686

1,441,433

580,082

FINANCING ACTIVITIES:

Proceeds from issuance of notes payable to banks
176,590

-

80,000

Repayment of long-term debt and notes payable
(212,570
)

(107,324
)

(12,529
)
Cash dividends paid
(263,719
)

(378,075
)

(363,708
)
Repurchase (sale) of stock
(8,536
)

17,849

-

Cash flows used in financing activities

(308,234
)

(467,550
)

(296,237
)

INVESTING ACTIVITIES:

Acquisition of property, plant and equipment
(847,821
)

(904,300
)

(998,622
)
Other assets
(2,711
)

(2,696
)

(2,216
)
Cash flows used in investing activities

(850,532
)

(906,996
)

(1,000,838
)

Effect of inflation accounting

194,673

96,959

172,978

Net ( decrease ) increase in cash and cash equivalents

811,592

163,846

(544,015
)
Cash and cash equivalents at beginning of year

2,608,453

3,420,045

3,583,891

Cash and cash equivalents at end of year
Ps 3,420,045 Ps 3,583,891 Ps
3,039,876

~~F-39~~

~~Agriculture~~

~~The Company follows the requirements of the MexFRS E-1,~~ ~~Agriculture~~, which establishes the rules for recognizing, valuing, presenting and disclosing biological assets and agricultural products; it also establishes the treatment to be given to government subsidies on biological assets.

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

In conformity with U.S. GAAP, under SOP 85-3 biological assets and agricultural products are to be valued at cost. Accordingly, the reconciliation between MexFRS and U.S. GAAP for 2005, 2006 and 2007 includes a reversal of the unrealized (gain) on valuation of biological assets and agricultural products at fair value, which gave rise to a decrease of

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

~~Capitalized interest:~~

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

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

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

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

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

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

Ps 497,282 and Ps 739,444 for 2006 and 2007 respectively. Under US GAAP, the balance sheet classification is based on the classification of the underlying item which gives rise to the deferred income taxes. Under MexFRS, the balance sheet classification is non-current.

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

~~F-40~~

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

~~Severance indemnities.~~

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

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

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

This statement requires (1) recognition on the balance sheet of an asset for a defined benefit plan’s overfunded status or a liability for a plan’s underfunded status, (2) measurement of a defined benefit plan’s assets and its obligations that determine its funded status as of the end of the employer’s fiscal year, and (3) recognition of the changes in the funded status of a defined benefit postretirement plan as a component of other comprehensive income in the year the changes occur.

~~In 2006 the Company adopted SFAS 158 for USGAAP reconciliation purposes~~

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

2006
Before SFAS 158 After
Net projected benefit obligation (pension) Ps
14,175
Ps
14,759
Ps
28,934

Net projected benefit obligation (seniority premium)
26,488

22,610

49,098

Net projected benefit obligation (Severance)
36,053

-

36,053

Minimum labor obligation liability adjustment (Seniority premium)
916

(916
)

-

Ps 36,453 Ps 114,085

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

2006

Pension
plan

Seniority
premium
Severance
Total

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

~~F-41~~

(i)

~~2007~~

~~Pension~~

~~plan~~

~~Seniority~~

~~premium~~

~~Severance~~

~~Total~~

~~Projected benefit~~The obligation

~~199,333~~

~~56,601~~

~~42,895~~

~~298,829~~

~~Market value of plan assets~~

~~182,017~~

~~Under-funded defined benefit plan~~

~~17,316~~

~~56,601~~

~~42,895~~

~~116,812~~

to consolidate special purpose entities (SPEs) when controlled.

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

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

~~Goodwill~~

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

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

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

~~Reporting comprehensive income~~

For US GAAP reconciliation purposes, the Company has adopted the SFAS No. 130, “Reporting Comprehensive Income” SFAS 130, which establishes rules for reporting and disclosure of comprehensive income and its components. Comprehensive income consists of current year net income plus the following items applied to stockholders’ equity: the result from holding non-monetary assets net of taxes, the cumulative effect of deferred taxes, the effect of adopting SFAS158 and the effective portion of changes in the fair value of financial instruments.

~~Reclassification~~

~~Certain amounts were reclassified to conform to the 2007 presentation.~~

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

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

~~Accounting for uncertainty in income taxes:~~

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

~~F-42~~

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

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

~~Recent Accounting Pronouncements:~~

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

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

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

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

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

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

~~F-43~~

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

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

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

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

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

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

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

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

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

~~F-44~~

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

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

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

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

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

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

Years ended December 31,

2005 2006
2007

Net income as reported under Mexican FRS Ps
1,910,319
Ps
907,129
Ps
1,272,226

Adjustments to reconcile net income to U.S. GAAP:
Biological assets and agricultural products valuation at fair value
(28,072
)

(10,879
)

(10,882
)
Interest cost capitalized
12,293

8,692

6,885

Depreciation of capitalized interest
(2,865
)

(3,479
)

(3,913
)
Net period cost due SFAS 112
-

(20,691
)

(2,507
)
Deferred income tax on US GAAP adjustments
3,194

15,128

1,310

Effect of inflation accounting on U.S. GAAP adjustments
310

613

49

Minority interest
(1,784
)

(943
)

(1,285
)
Net income under U.S. GAAP Ps 1,893,395 Ps 895,570 Ps
1,261,883

Weighted average number of shares outstanding (thousands)
599,694

599,571

600,000

Net income per share Ps
3.16
Ps
1.49
Ps
2.10

~~F-45~~

~~Classification differences:~~

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

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

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

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

	(ii)	~~Years ended December 31~~
		~~2006~~			~~2007~~
~~Majority stockholders' equity as reported~~The possibility, under ~~Mexican FRS~~		Ps	~~14,057,528~~		Ps	~~15,080,378~~
~~Adjustments~~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 ~~reconcile majority stockholders’ equity to U.S. GAAP:~~

~~Biological assets and agricultural products valuation at fair value~~			~~(84,502~~	)		(~~95,384~~	)
~~Accumulated differences between~~ the ~~financing cost capitalized for MexFRS and U.S. GAAP purposes~~			~~87,596~~			~~94,481~~
~~Accumulated depreciation on the above items~~			~~(16,682~~	)		(~~20,595~~	)
~~Net period cost due SFAS 112~~			~~(20,691~~	)		(~~23,198~~	)
~~Deferred income taxes on U.S. GAAP adjustments~~			~~7,727~~			~~9,086~~
~~Accumulated amortization of goodwill~~			~~58,716~~			~~58,716~~
~~SFAS 158 effect~~			~~(36,453~~	)		-(~~31,735~~	)
~~Majority stockholders’ equity as reported under U.S. GAAP~~		Ps	~~14,053,239~~		Ps	~~15,071,749~~	fact that consolidated financial statements are not issued.

~~The~~

(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 ~~the above adjustments do not have any impact on minority interest.~~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-46~~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)

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

(i)

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

Capital stock

Paid in-capital

Stock repurchase reserve

Retained earnings

Other comprehensive income

Comprehensive
income

Total stockholders’ equity

Balance at December 31, 2004 Ps 2,294,711 Ps 723,116 Ps 170,917 Ps 12,498,927 Ps (3,542,601 ) Ps 12,145,070
Repurchase of stock
(251
)

-

(11,462
)

-

-

-

(11,713
)
Sales of repurchased stock
222

2,954

-

-

-

-

3,176

Cash dividends paid
-

-

-

(263,719
)

-

-

(263,719
)
Comprehensive income:
Net income for the year
-

-

-

1,893,395

-

1,893,395

1,893,395

Components of other comprehensive income:
Deficit from holding of non monetary assets
-

-

-

-

(172,155
)

(172,155
)

(172,155
)
Derivative financial instruments
-

-

-

-

(92,374
)

(92,374
)

(92,374
)
Minimum labor obligations liability adjustment
-

-

-

-

(2,207
)

(2,207
)

(2,207
)
Other comprehensive income, net of taxes
(266,736
)

Comprehensive income Ps 1,626,659
Balance at December 31, 2005
2,294,682

726,070

159,455

14,128,603

(3,809,337
)

13,499,473

Sales of repurchased stock
245

17,604

-

-

-

-

17,849

Cash dividends paid
-

-

-

(378,075
)

-

-

(378,075
)
Comprehensive income:
Net income for the year
-

-

-

895,570

-

895,570
895,570
Components of other comprehensive income:
Deficit from holding of non monetary assets
-

-

-

-

(40,288
)

(40,288
)

(40,288
)
Derivative financial instruments
-

-

-

-

92,744

92,744

92,744

Minimum labor obligations liability adjustment
-

-

-

-

2,420

2,420

2,420

Other comprehensive income, net of taxes
54,876

Comprehensive income Ps 950,446
Other comprehensive income SFAS 158 adoption
-

-

-

(36,454
)

-

(36,454
)
Balance at December 31, 2006
2,294,927

743,674

159,455

14,646,098

(3,790,915
)

14,053,239

Sales of repurchased stock
-

-

-

-

-

-

-

Cash dividends paid
-

-

-

(363,708
)

-

-

(363,708
)
Comprehensive income:
Net income for the year
-

-

-

1,261,883

-

1,261,883

1,261,883

Components of other comprehensive income:
Deficit from holding of non monetary assets
-

-

-

-

18,661

18,661

18,661

Derivative financial instruments
-

-

-

-

98,552

98,552

98,552

Other comprehensive income SFAS 158 effect
-

-

-

-

3,122

3,122

3,122

Other comprehensive income, net of taxes
120,335

Comprehensive income             Ps
1,382,218

Balance at December 31, 2007
Ps
2,294,927
Ps
743,674
Ps
159,455
Ps
15,544,273
Ps
(3,670,580
)
   Ps
15,071,749

(ii)

(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:

~~F-47~~

(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

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

U.S. GAAP ¨		International Financial Reporting	Other x
	Standards as issued by the International
	Accounting Standards Board ¨		~~Other~~x

PART II				75

	ITEM 13.	~~Default, Dividend Arrearages and Delinquencies~~	70DEFAULT, DIVIDEND ARREARAGES AND DELINQUENCIES	75
	ITEM 14.	~~Material Modifications to the Rights of Security Holders and Use of Proceeds~~	70MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	75
	ITEM 15.	~~Controls and Procedures~~	71CONTROLS AND PROCEDURES	75
	ITEM 16.	~~[Reserved]~~	73[RESERVED]	77
	ITEM ~~16A.~~16.A.	~~Audit Committee Financial Expert~~	73AUDIT COMMITTEE FINANCIAL EXPERT	77
	ITEM ~~16B.~~16.B.	~~Code of Ethics~~	73CODE OF ETHICS	77
	ITEM ~~16C.~~16.C.	~~Principal Accountant Fees and Services~~	73PRINCIPAL ACCOUNTANT FEES AND SERVICES	77
	ITEM ~~16D.~~16.D.	~~Exemptions from the Listing Standards for Audit Committees~~	74EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	78
	ITEM ~~16E.~~16.E.	~~Purchases of Equity Securities by the Issuer and Affiliated Purchasers~~	74PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	78
	ITEM 16.F.		CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT	78
	ITEM 16.G.		CORPORATE GOVERNANCE	78

PART III				82

	ITEM 17.	~~Financial Statements~~	74FINANCIAL STATEMENTS	82
	ITEM 18.	~~Financial Statements~~	74FINANCIAL STATEMENTS	82
	ITEM 19.	~~Exhibits~~	74EXHIBITS	82
	~~Index of Exhibits~~INDEX OF EXHIBITS			7582

	As of and for the year ended December 31,
	2003			2004			2005			2006			2007			2007(2)
Income Statement Data	(millions of constant pesos as of December 31, 2007)(1)																(millions of U.S. dollars)
Mexican FRS:
Net revenues	Ps.	12,616.6		Ps.	14,836.7		Ps.	15,617.7		Ps.	15,551.0		Ps.	18,219.6			1,668.9
Cost of sales		10,263.4			12,032.42			11,234.2			12,053.0			14,477.9			1,326.2
Gross profit		2,353.2			2,804.3			4,383.5			3,498.0			3,741.8			342.7
Operating income		507.2			952.4			2,378.1			1,426.4			1,496.3			137.1
Comprehensive financing income (loss)		146.8			(79.8	)		(74.0	)		61.4			19.1			1.8
Majority net income		633.1			788.3			1,908.4			906.2			1,270.9			116.4
Majority net income per Share(3)		1.06			1.32			3.19			1.51			2.12			0.19
Majority net income per ADS(4)		12.66			15.8			38.2			18.1			25.4			2.3
Dividends per Share(5)		0.60			0.46			0.44			0.61			0.59			0.05
Weighted average Shares outstanding (thousands)		598,738			599,260			599,694			599,571			600,000			600,000
U.S. GAAP:
Majority net income	Ps.	590.4		Ps.	825.9		Ps.	1,893.3		Ps.	895.5		Ps.	1,261.8			116.0

Statement of Financial Position Data
Mexican FRS:
Cash and cash equivalents	Ps.	1,841.5		Ps.	2,608.4		Ps.	3,419.9		Ps.	3,583.9		Ps.	3,039.9			278.5
Total assets		14,577.1			15,008.6			16,530.9			17,559.2			19,116.4			1,751.0
Short-term debt(6)		68.2			111.2			100.0			9.8			58.8			5.4
Long-term debt		109.0			80.9			56.0			35.5			50.8			4.6
Stockholders’ equity		11,805.2			12,132.7			13,502.7			14,102.9			15,127.2			1,385.7
U.S. GAAP:
Stockholders’ equity		11,772.7			12,144.7			13,499.0			14,053.2			15,017.7			1,381.0

Selected Operating Data
Sales volume (thousands of tonnes):
Chicken		655.4			733.0			773.0			773.7			837.2
Eggs		132.1			138.1			140.6			143.4			147.8
Swine and Others		8.5			9.1			9.6			8.9			16.1
Balanced Feed		316.2			320.7			389.6			484.4			438.8
Gross margin (%)		18.7	%		18.9	%		28.1	%		22.5	%		20.5	%
Operating margin (%)		4.0	%		6.4	%		15.2	%		9.2	%		8.2	%
Net margin (%)		5.0	%		5.3	%		12.2	%		5.8	%		7.0	%
Total employees		18,495			18,896			20,432			21,035			23,088

	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			1,456.8
Cost of sales		12,032.4			11,234.2			12,053.0			14,477.9			17,482.5			1,265.5
Gross profit		2,804.3			4,383.5			3,498.0			3,741.8			2,642.9			191.3
Operating income		952.4			2,378.1			1,425.4			1,496.3			230.1			16.7
Comprehensive 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			0.05
Weighted average Shares outstanding (thousands)		599,260			599,694			599,571			600,000			600,000			600,000
Statement of Financial Position Data
Mexican 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			144.6
Total assets		15,008.6			16,530.9			17,559.2			19,116.4			19,455.0			1,408.2
Short-term debt(6)		111.2			100.0			9.8			58.8			234.2			17.0
Long-term debt		80.9			56.0			35.5			50.8			391.7			28.3
Total stockholders’ equity		12,132.7			13,502.7			14,102.9			15,127.2			14,079.4			1,019.1
Capital Stock		2,294.6			2,294.6			2,294.9			2,294.9			2,294.9			166.1
Selected Operating Data
Sales volume (thousands of tonnes):
Chicken		733.0			773.0			773.7			837.2			878.1
Eggs		138.1			140.6			143.4			147.8			143.6
Swine and Others		9.1			9.6			8.9			16.1			18.8
Balanced Feed		320.7			389.6			484.4			438.8			370.7
Margins
Gross 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

				Page
~~PART I~~
PART I				3

	ITEM 1.	~~Identity of Directors, Senior Management and Advisers~~	1IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
	ITEM 2.	~~Offer Statistics and Expected Timetable~~	1OFFER STATISTICS AND EXPECTED TIMETABLE	3
	ITEM 3.	~~Key Information~~	1KEY INFORMATION	3
	~~ITEM 4.~~A.	~~Information on the Company~~	10
	~~ITEM 5.~~Selected Financial Data	~~Operating and Financial Review and Prospects~~	25
	~~ITEM 6.~~	~~Directors, Senior Management and Employees~~	39
	~~ITEM 7.~~	~~Major Stockholders and Related Party Transactions~~	46
	~~ITEM 8.~~	~~Financial Information~~	48
	~~ITEM 9.~~	~~The Offer and Listing~~	50
	~~ITEM 10.~~	~~Additional Information~~	53
	~~ITEM 11.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	69
	~~ITEM 12.~~	~~Description of Securities Other Than Equity Securities~~	703

~~PART II~~	B.		Capitalization and Indebtedness	6

	C.		Reasons for the Offer and Use of Proceeds	6

	D.		Risk Factors	6

	ITEM 4.		INFORMATION ON THE COMPANY	12
	A.		History and Development of the Company	12

	B.		Business Overview	16

	C.		Organizational Structure	26

	D.		Property, Plants and Equipment	26

	ITEM 4.A.		UNRESOLVED STAFF COMMENTS	27
	ITEM 5.		OPERATING AND FINANCIAL REVIEW AND PROSPECTS	28
	A.		Operating Results	32

	B.		Liquidity and Capital Resources	40

	C.		Research and Development, Patents and Licenses, etc.	41

	D.		Trend Information	41

	E.		Off-Balance Sheet Arrangements	41

	F.		Tabular Disclosure of Contractual Obligations	41

	G.		Safe Harbor	41

	ITEM 6.		DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	42
	A.		Directors and Senior Management	42

	B.		Compensation	48

	C.		Board Practices	48

	D.		Employees	48

	E.		Share Ownership	49

ITEM 7.	MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS	49
A.	Major Shareholders	49

B.	Related Party Transactions	50

C.	Interests of Experts and Counsel	51

ITEM 8.	FINANCIAL INFORMATION	51
A.	Consolidated Statements and Other Financial Information	51

B.	Significant Changes	52

ITEM 9.	THE OFFER AND LISTING	53
A.	Offer and Listing Details	53

B.	Plan of Distribution	55

C.	Markets	55

D.	Selling Shareholders	57

E.	Dilution	57

F.	Expenses of the Issue	57

ITEM 10.	ADDITIONAL INFORMATION	57
A.	Share Capital	57

B.	Memorandum and Articles of Association	57

C.	Material Contracts	66

D.	Exchange Controls	66

E.	Taxation	67

F.	Dividends and Paying Agents	72

G.	Statement by Experts	72

H.	Documents on Display	72

I.	Subsidiary Information	72

ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	73
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	74
A.	Debt Securities	74

B.	Warrants and Rights	74

C.	Other Securities	75

D.	American Depository Receipts	75

	Exchange Rate(1) (in current pesos per U.S. dollar)
Year Ended December 31,	High		Low		Average(2)		Year End
2003		11.41		10.11		10.79		11.24
2004		11.64		10.81		11.29		11.15
2005		11.41		10.41		10.89		10.63
2006		11.46		10.43		10.91		10.80
2007		11.27		10.67		10.93		10.92

	Exchange Rate(1) (in current pesos per U.S. dollar)
Year Ended December 31,	High		Low		Average(2)		Year End
2004		11.64		10.81		11.29		11.15
2005		11.41		10.41		10.89		10.63
2006		11.46		10.43		10.91		10.80
2007		11.27		10.67		10.93		10.92
2008		13.94		9.92		11.14		13.83

	Exchange Rate(1) (in current pesos per U.S. dollar)
Period	High		Low
December 2007		10.92		10.80
January 2008		10.97		10.82
February 2008		10.82		10.67
March 2008		10.85		10.63
April 2008		10.60		10.44
May 2008		10.57		10.31

	Exchange Rate(1) (in current pesos per U.S. dollar)
Period	High		Low
December 2008		13.83		13.09
January 2009		13.33		14.33
February 2009		15.09		14.13
March 2009		15.41		14.02
April 2009		13.89		13.05
May 2009		13.82		12.88

	Percentage Equity Interest
	2005		2006		2007
Acuícola Bachoco, S.A. de C.V.		100		100		100
Aviser, S.A. de C.V.		100		100		100
Bachoco, S.A. de C.V. (“BSACV”)		100		100		100
Bachoco Comercial, S.A. de C.V.		-		-		100
Campi Alimentos, S.A. de C.V.		100		100		100
Huevo y Derivados, S.A. de C.V.		97		97		97
Operadora de Servicios de Personal, S.A. de C.V.		100		100		100
Pecuarius Laboratorios, S.A. de C.V.		64		64		64
Secba, S.A. de C.V.		100		100		100
Sepetec, S. A. de C.V.		100		100		100
Servicios de Personal Administrativo, S.A. de C.V.		100		100		100
Induba Pavos, S.A. de C.V.		-		100		100

	Payments Due by Period (millions of constant pesos as of December 31, 2007)

Contractual Obligations	Total		2008		2009		2010		2011		2012
Long-term debt	Ps.	50.8		0.0		19.8		19.8	Ps.	7.5	Ps.	3.7
Operating leases		310.9	Ps.	70.0	Ps.	62.7	Ps.	56.7		55.1		54.4
Total	Ps.	361.7	Ps.	70.0	Ps.	82.5	Ps.	76.5	Ps.	62.6	Ps.	58.1

		Payments Due by Period (millions of constant pesos as of December 31, 2008)

Contractual Obligations		Total	2010		2011		2012			2013
Long-term debt	Ps.	391.6		360.9		15.3		11.5	Ps.	3.9
Operating leases	Ps.	227.8		70.5		69.0		68.2	Ps.	20.1

Name	Position	~~Position~~	Years as a a Member of the Board of ~~Director~~ Directors
Enrique Robinson Bours Almada	Honorary Chairman of the board	5455
Mario Javier Robinson Bours Almada	Life Honorary Shareholder Director	5455
Francisco Javier R. Bours Castelo	Chairman of the Board and Proprietary Shareholder Director	2627
Eduardo Rojas Crespo	Secretary of the Board	~~Since April, 2008~~ 1
Jose Gerardo Robinson Bours Castelo	Proprietary Shareholder Director	~~Since April, 2008~~ 1
Juan Bautista Salvador Robinson Bours	Proprietary Shareholder Director	5455
~~Arturo~~Jesús Enrique Robinson Bours ~~Griffith~~ Muñoz	Proprietary Shareholder Director	1415
Jesús ~~Enrique~~Rodolfo Robinson Bours Muñoz	Proprietary Shareholder Director	14 7
~~Ricardo Aguirre Borboa~~ Arturo Bours Griffith	Proprietary Shareholder Director	1415
Octavio Robinson Bours ~~Griffith~~	Proprietary Shareholder Director	1112
~~Jesús Rodolfo Robinson Bours Muñoz~~ Ricardo Aguirre Borboa	Proprietary Shareholder Director	615
José Eduardo Robinson Bours Castelo	Alternate Director	1415
Juan Salvador Robinson Bours Martínez	Alternate Director	1415
José Francisco ~~Robinson~~ Bours Griffith	Alternate Director	1415
Guillermo Pineda Cruz	Alternate Director	1415
Avelino Fernández Salido	Independent Director	5 6
Humberto Schwarzbeck Noriega	Independent Director	5 6

Name	Position	Age
Cristóbal Mondragón Fragoso	Chief Executive Officer	6263
Daniel Salazar Ferrer	Chief Financial Officer	4344
David Gastélum Cazares	Director of Sales	5657
José Luis López Lepe	Director of Personnel	6263
Rodolfo Ramos Arvizu	Technical Director	5051
Ernesto Salmón Castelo	Director of Operations	4546
Andres Morales Astiazaran	Director of Marketing and Value-added Products	3940
Marco Antonio Esparza Serrano	Comptroller Director	53

Title of Class	Identity of Group	Amount Owned		Percent of Class

Series B(1)	Control Trust and Family Trust		398,250,000		88.5	%

Series L(2)	Control Trust and Family Trust		98,250,000		65.5	%

All Classes(3)	Control Trust and Family Trust		496,500,000		82.8	%

Title of Class	Identity of Group	Amount Owned		Percent of Class

Series B(1)	Control Trust and Family Trust		398,250,000		88.5	%

Series L(2)	Control Trust and Family Trust		98,250,000		65.5	%

All Classes(3)	Control Trust and Family Trust		496,500,000		82.8	%

Year	Percentage

México		~~85.0~~84.8	%
Other Countries		~~15.0~~15.2	%

Year	High		Low		Close
2004		13.35		8.50		13.10
2005		20.70		12.22		17.25
2006		23.70		15.70		23.66
2007		30.96		20.00		28.60
2008		30.15		14.21		15.99

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

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

~~Mancera~~	KPMG Cárdenas Dosal, S.C.
~~A Member Practice of~~
~~Ernst & Young Global~~

~~C.P.C. José Sánchez González~~

	Mancera, S.C.				KPMG, Cárdenas Dosal S.C.
	Thousands of Mexican pesos, year ended December 31,
	2007		2008		2007		2008

Audit fees	Ps. 4,456.2		Ps. 3,067.3			—	Ps. 2,573.5
Tax fees		953.5		261.5		—		—
Other fees		—		267.0		—		—
Total fees	Ps. 5,409.7		Ps. 3,595.9			—	Ps. 2,573.5

NYSE Corporate Governance Rules for Domestic Issuers		Our Corporate Governance Practices

~~ITEM 17.~~Director 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;

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:

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.

NYSE Corporate Governance Rules for Domestic Issuers		Our Corporate Governance Practices

Code 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.

Exhibit No.		Description

1.1		An English translation of the Bylaws (estatutos sociales) of Industrias Bachoco, S.A. de C.V. dated June 29, 2007 (incorporated by reference to Exhibit 1.1 on Form 20-F filed with the U.S. Securities and Exchange Commission on June 29, 2007 (File No. 333-07950)).

2.1		Form of Amended and Restated Deposit Agreement, among Industrias Bachoco, S.A. de C.V., the Depositary and each Owner and Beneficial Owner from time to time of American Depositary Receipts issued thereunder, including the form of American Depositary Receipt (incorporated by reference to Exhibit 1.1 on Form F-6 filed with the U.S. Securities and Exchange Commission on August 18, 2006 (File No. 333-07480)).

2.2		Trust Agreement, dated April 1, 1995, among Banco Internacional, S.A., Institución de Banca Múltiple, Grupo Financiero Prime Internacional, as trustee, and the stockholders of the Company named therein, together with an English translation, (incorporated by reference on our registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission on August 22, 1997 (File No. 333-7472)).

2.3		Trust Agreement, dated August 20, 1997, among Banco Internacional, S.A., Institución de Banca Múltiple, Grupo Financiero Bital, as trustee, and the stockholders of the Company named therein, together with an English translation, (incorporated by reference on our registration statement on Form F-1 filed with the U.S. Securities and Exchange Commission on August 22, 1997 (File No. 333-7472)).

8.1		Subsidiaries of Industrias Bachoco S.A. de C.V.
12.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
~~12.1~~12.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~12.2~~		~~Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

13.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

INDUSTRIAS BACHOCO, S.A.B de C.V.

By:	/s/ ~~Daniel Salazar Ferrer~~DANIEL SALAZAR FERRER
	Daniel Salazar Ferrer
	Chief Financial Officer

~~Report of Independent Registered Public Accounting Firm~~	~~F-3~~

~~Consolidated Financial Statements:~~

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

	Years ended December 31,
										(Thousands of U.S. dollars)
										(Note 2)
	2005			2006			2007			2007

Net revenues	Ps	15,618,192		Ps	15,550,965		Ps	18,219,647		$	1,668,924
Cost of sales		(11,234,562	)		(12,052,986	)		(14,477,861	)		(1,326,176	)
Gross profit		4,383,630			3,497,979			3,741,786			342,748
Selling, general and administrative expenses		(2,005,544	)		(2,071,553	)		(2,245,522	)		(205,690	)
Operating income		2,378,086			1,426,426			1,496,264			137,058

Comprehensive financing income (cost):
Interest income		316,514			302,910			318,879			29,209
Interest expense and financing costs		(209,504	)		(131,852	)		(141,578	)		(12,969	)
Net interest income		107,010			171,058			177,301			16,240
Foreign exchange (loss) gain, net		(62,259	)		40,782			(3,351	)		(307	)
Loss on net monetary position		(118,724	)		(150,438	)		(154,814	)		(14,181	)
		(73,973	)		61,402			19,136			1,752

Other ordinary (expense) income, net –Note 16		(25,961	)		18,427			69,571			6,374

Income before income tax, asset tax, and minority interest		2,278,152			1,506,255			1,584,971			145,184
Income tax and asset tax –Note 15		(367,833	)		(599,126	)		(312,745	)		(28,648	)
NET INCOME	Ps	1,910,319		Ps	907,129		Ps	1,272,226		$	116,536

Majority net income		1,908,535			906,186			1,270,941			116,418
Minority net income		1,784			943			1,285			118
NET INCOME	Ps	1,910,319		Ps	907,129		Ps	1,272,226		$	116,536

Weighted average shares outstanding (in thousands)		599,694			599,571			600,000			600,000

NET MAJORITY INCOME PER SHARE	Ps	3.18		Ps	1.51		Ps	2.12		$	0.19

	Number of shares of capital stock (thousands)			Capital stock			Paid-in capital		Reserve for repurchase of company stock			Retained earnings			Net income of the year			Labor obligations minimum liability adjustment			Deficit from restatement of stockholders’ equity			Derivative financial instru-ments			Total majority stockholders’ equity			Minority interest			Total stockholders’ equity

Balance at December 31, 2004		599,200		Ps	2,294,711		Ps	723,116	Ps	170,917		Ps	11,656,919		Ps	784,087		Ps	(1,129	)	Ps	( 3,541,472	)	Ps	-		Ps	12,087,149		Ps	45,879		Ps	12,133,028

Transfer of prior year´s net income based on stockholders´meeting held in April, 2005.		-			-			-		-			784,087			(784,087	)		-			-			-			-			-			-
Repurchase of stock		(920	)		(251	)		-		(11,462	)		-			-			-			-			-			(11,713	)		-			(11,713	)
Sales of repurchased stock		800			222			2,954		-			-			-			-			-			-			3,176			-			3,176
Cash dividends paid		-			-			-		-			(263,719	)		-			-			-			-			(263,719	)		-			(263,719	)
Comprehensive income, net of tax		-			-			-		-			-			1,908,535			(2,207	)		(172,155	)		(92,374	)		1,641,799			487			1,642,286
Balance at December 31, 2005		599,080			2,294,682			726,070		159,455			12,177,287			1,908,535			(3,336	)		(3,713,627	)		(92,374	)		13,456,692			46,366			13,503,058

Transfer of prior year´s net income based on stockholders´meeting held in April, 2006.		-			-			-		-			1,908,535			(1,908,535	)		-			-			-			-			-			-
Sales of repurchased stock		920			245			17,604		-			-			-			-			-			-			17,849			-			17,849
Cash dividends paid		-			-			-		-			(378,075	)		-			-			-			-			(378,075	)		-			(378,075	)
Comprehensive income, net of tax		-			-			-		-			-			906,186			2,420			(40,288	)		92,744			961,062			(940	)		960,122
Balance at December 31, 2006		600,000			2,294,927			743,674		159,455			13,707,747			906,186			(916	)		(3,753,915	)		370			14,057,528			45,426			14,102,954

Transfer of prior year´s net income based on stockholders´meeting held in April, 2007.		-			-			-		-			906,186			(906,186	)		-			-			-			-			-			-
Cash dividends paid		-			-			-		-			(363,708	)		-			-			-			-			(363,708	)		-			(363,708	)
Comprehensive income, net of tax		-			-			-		-			-			1,270,941			(1,596	)		18,661			98,552			1,386,558			1,362			1,387,920
Balance at December 31, 2007 (Note 14)		600,000		Ps	2,294,927		Ps	743,674	Ps	159,455159,455		Ps	14,250,225		Ps	1,270,941		Ps	( 2,512	)	Ps	(3,735,254	)	Ps	98,922		Ps	15,080,378		Ps	46,788		Ps	15,127,166

	Years ended December 31,
										(Thousands of U.S. dollars) (Note 2)
	2005			2006			2007			2007
Operating activities
Net income	Ps	1,910,319		Ps	907,129		Ps	1,272,226		$	116,536
Adjustments to reconcile net income to resources provided by operating activities:
Depreciation		497,819			537,383			571,393			52,340
Deferred income tax		1,068			346,110			169,716	��		15,547
Labor obligations, net period cost		40,505			37,464			42,112			3,857
		2,449,711			1,828,086			2,055,447			188,280
Changes in operating assets and liabilities:
Accounts receivable		(190,464	)		(51,435	)		(336,083	)		(30,785	)
Inventories and biological assets		(352,768	)		(535,933	)		(1,140,124	)		(104,437	)
Prepaid expenses and other current assets		(34,523	)		(11,081	)		(31,463	)		(2,882	)
Accounts payable		(25,527	)		364,813			300,566			27,531
Related parties		(168	)		6,002			14,169			1,298
Taxes payable and other accruals		137,953			(73,193	)		(45,534	)		(4,170	)
Labor obligations, plan contributions		(26,149	)		(27,576	)		(32,617	)		(2,988	)
Derivative financial instruments		-			(6,407	)		(35,769	)		(3,276	)
Resources provided by operating activities		1,958,065			1,493,276			748,592			68,571

Financing activities
Proceeds from issuance of long-term debt		185			-			40,000			3,664
Proceeds from issuance of notes payable to banks		176,405			-			40,000			3,664
Repayment of long-term debt and notes payable		(206,375	)		(104,836	)		(13,963	)		(1,279	)
Constant pesos effect on notes payable to banks and long term-debt		(6,194	)		(6,081	)		(1,638	)		(150	)
Cash dividends paid		(263,719	)		(378,075	)		(363,708	)		(33,316	)
Sales (repurchases) of Company’s own stock, net		(8,537	)		17,849			-			-
Resources used in financing activities		(308,235	)		(471,143	)		(299,309	)		(27,417	)

Investing activities
Acquisition of property, plant and equipment, net		(835,529	)		(856,227	)		(991,737	)		(90,843	)
Other assets		(2,709	)		(2,060	)		(1,561	)		(143	)
Resources used in investing activities		(838,238	)		(858,287	)		(993,298	)		(90,986	)

Net increase (decrease) in cash and cash equivalents		811,592			163,846			(544,015	)		(49,832	)
Cash and cash equivalents at beginning of year		2,608,453			3,420,045			3,583,891			328,285
Cash and cash equivalents at end of year	Ps	3,420,045		Ps	3,583,891		Ps	3,039,876		$	278,453