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

 

 

 

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

 

 

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

 

 

 

Our operations involve raising animals and are subject to a variety of risks.  Chickens in particular are susceptible to infections by a variety of microbiological agents.

 

 

Hurricanes or other adverse weather conditions could result in additional losses of inventory and damage to our plants and equipment.  Our facilities near Mexico’s coast are most vulnerable to the risk of severe weather. In 2006, we experienced a loss of chickens in our Norwest Complex due to the effects of Hurricane Lane.

 

In April 2010, the table eggs operation located in Mexicali, B.C. was affected by an earthquake that hit northwestern Mexico on April 4.  The earthquake partially affected almost all of the farms located in this region, including our farm.  Our affected farm represents approximately 9.0% of our total egg production.  Other facilities, such as feed mill and distribution centers, were essentially undamaged.  These farms recommenced operations at the end of 2010, with normal production capacity expected to resume by the end of 2011.

 

 

To reduce contamination, we use specialized feedstock and nutritional supplements that have been approved by the Mexican government and meet international industry standards.  We can offer no assurance, however, that in the future we will not be materially adversely affected by claims or consumer concerns arising out of the use of these products in raising our animals.

 

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

 

 

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

 

 

Since 2003, chicken (excluding leg quarters for which the Mexican government imposed some temporary restrictions), eggs and swine import quotas were eliminated through the North America Free Trade Agreement or “NAFTA”.“NAFTA.”  Poultry producers in the United States have developed extremely low-cost production methods and have been successful in exporting primarily frozen and value-added poultry to other countries, especially in periods of overcapacity in the United States.  As tariff barriers decline under NAFTA, U.S. producers can be expected to increase exports to Mexico, which could have a material adverse effect on our performance.

 

On January 1, 2008, the restrictions for leg quarters were phased out. At present there are no restrictions on importingexporting these products intoto Mexico.

 

 

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

 

 

 

 

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

 

The prevailing market prices for the ADS’s and the Shares could decline if the Robinson Bours family sold substantial amounts of their Shares, whether directly, or indirectly, through the Mexican trusts through which they hold their Shares, or if the perception arose that such a sale could occur.

 

 

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 the 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 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.

 

 

We are organized under the laws of Mexico, 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 Mexico.  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 Mexico, 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.

 

 

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: (i) we file a registration statement with the Securities and Exchange Commission with respect to that future issuance of Shares; or (ii) 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.

 

 

There may be less, or different, publicly available information about issuers of securities in Mexico 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.

 

 

 

According to the UNA, we are the largest poultry producer in Mexico.  In 2009,2010, we produced approximately 9.510.0 million chickens per week and accounted for approximately 34.0%35.0% of total chicken production in Mexico.  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 800 production and distribution facilities dispersed throughout Mexico, 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 78.3%81.3% of our net revenues in 2009.2010.  Please also see the table under Item 5. A.  “Operating Results.”

 

We are also a significant producer of commercial balanced feed.  We sell our feed both through distributors and directly to small producers.  During 2009,2010, we sold 338328 thousand tons of balanced feed to external customers, which amounted to 6.3%5.6% of our total revenues for that year.

 

Currently, Bachoco is the second largest producer of table egg products.  In 2009,2010, we sold approximately 143142 thousand tons.  Table egg sales accounted for 10.1%8.5% of our net revenues in 2009.2010.

 

As part of our other product lines, we also sell swine on the hoof to meat packers for pork product production, miscellaneous poultry-related products, and in 2007, we entered into two new business lines:  turkey and beef value-added products.  In 2009,2010, sales of swine and these other lines accounted for 5.3%4.6% 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:

 

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 Mexico 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.

 

 

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 Mexico 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 2006, we separated the units trading on the Mexican Exchange into their component. The Series L Shares was converted into Series B Shares, on a one-to-one basis, thereby creating a single Share class, the Series B Shares, which represent our entire Common Stock.  This change did not modify the face value of the Shares.  These Shares trade 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, 2009,2010, 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 December 2006, we acquired most of the assets and inventories of Del Mezquital to start a new complex in the State of Sonora, located in northern Mexico, close to the border with the United States.

 

In February 2007, we reached a business agreement with Grupo Libra, a Company in the Northeast of Mexico, that includes the buying of all their inventories and a 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 these transactions.

 

In December 2007, we reached an agreement with “Grupo Agra,” a table eggsan egg company located in the states of Nuevo Leon and Coahuila in Northeast Mexico.  The agreement provides for leasing of their facilities, which include laying hen 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 their entire inventory.

 

 

 

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 Mexico that is more widespread than any other chicken producer.  We have also increased the efficiency of our production process and built a reputation for the freshness of our chicken products and quality of our customer service.

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

 

The key elements of our business strategy are as follows:

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

The value-added chicken products are a new market in Mexico; we participate significantly in the market and try to lead the supply of these products.  According to the UNA, value-added chicken products currently account for approximately 3.0% of the chicken sold in Mexico; this represents a decrease fromwhich is the 4.0% market sharesame percentage as in 2008.the preceding year.

 

 

We believe that changes in Mexican chicken consumption patterns correlate closely with fluctuating chicken prices. According to data obtained from the UNA, total Mexican chicken consumption per capita increased by 1.6%decreased from 200726.8 kilograms in 2008 to 2009.26.0 kilograms in 2010. Chicken is the leading meat consumed in Mexico, and it accounted for approximately 50.0%33.7% of all meatthe total livestock produced in Mexico in 2009.2010.  The following table sets forth total Mexican production of chicken, pork and beef for 20072008 to 2009:2010:

 

Mexican Production of Chicken, Beef and Pork

(in thousands of tonnes)

 

 

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 2009, our chicken prices increased by 12.6% compared to prices in 2008 due to a good balance between supply and demand, mainly during the first half of 2009.

 

We believe that changes in Mexican chicken consumption correlate closely with changingDuring 2010, our chicken prices increased 3.3% compared to prices reported in 2009, primarily due to a good balance between supply and their effect on consumer purchasing power.  According to data fromdemand, particularly during the UNA, chicken per capita consumption increased 3.5% in 2005, 2.6% in 2006, 2.5% in 2007, 5.3% in 2008 and decreased by 3.5% in 2009.second half of 2010.

 

 

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

 

Below is a brief description of each chicken product line as well as its respective percentage of the total Mexican chicken production in 2009:2010:

 

 

 

 

 

 

 

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:

 

 

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

 

 

We have developed an extensive distribution system that we believe is the largest and most modern of any chicken or egg producer in Mexico.  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.

 

Below is a summary of the expansions we have made to our distribution network (which now covers almost all of Mexico) in the last five years:

 

 

 

 

 

 

 

 

 

 

 

 

Table Eggs

 

 

 

The Consejo Nacional de Fabricantes de Alimento Balanceado y de la Industria Animal, A.C. (“CONAFAB”),CONAFAB estimates that the balanced feed production in Mexico recorded a cumulative increase of 3.5%5.8% from 2007 to 2009,2010, where the integrated firms produce approximately 63.0% of total production for their internal use, and the remaining 37.0% is produced for sale to third parties.  We estimate a market share of approximately 3.4%3.1% in our balanced feed product line.

 

 

The Mexican swine industry is highly fragmented, and no producer has more than 15.0% of the market.  On December 31, 2009,2010, we had less than 1.0% of the Mexican market share in swine.  U.S. producers compete in this market in Mexico.

 

 

 

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.

 

 

Effective January 1, 2008, there is a free chicken market between Mexico and the U.S.  This allows U.S. producers to export any amount of chicken leg quarters free of tariffs to Mexico.

 

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

 

 

 

 

 

 

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 Mexico is required to provide Semarnat with periodic reports regarding compliance with the Environmental Law and the regulations thereunder.

 

The level of environmental regulation in Mexico 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 Mexico 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.

 

 

 

We are a holding company with no operations other than holding the stock of our subsidiaries, all of which are incorporated in Mexico, and engaging in transactions with our subsidiaries.  Our principal operating subsidiary is BSACV, which owns our principal operating assets, and which accounted for 91.9%87.5% of consolidated total assets as of December 31, 2009,2010, and 92.1%93.0% of our consolidated revenues for the year ended December 31, 2009.2010.  All of our subsidiaries are directly owned by us in the percentage listed below.

 

 

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 100.0% owned subsidiaries of Industrias Bachoco.

 

In 2009, AcuícolaAcuicola Bachoco, S.A. de C.V. merged with Campi Alimentos, S.A. de C.V.

 

 

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 CuliacánCuliacan includes broiler grow-out farms and a broiler processing plant, as do the complexes located in Puebla, Lagos de Moreno, Coatzacoalcos, Mérida,Merida, Hermosillo and Monterrey.  There are smaller egg production farms at Los Mochis, Ciudad Obregón,Obregon, Puebla and Mexicali.  In GómezGomez Palacio and Saltillo, we have a complex which consists of broiler grow-out farms, a broiler processing plant and egg production farms representing nearly half of our total egg production capacity.

 

The following table summarizes the types and number of each type of our production facilities as of March 2010:2011:

 

 

In April 2010, the table eggs operation located in Mexicali, B.C. was affected by an earthquake that hit northwestern Mexico on April 4.  The earthquake partially affected almost all of the farms located in this region, including our farm.  Our affected farm represents approximately 9.0% of our total egg production.  Other facilities, such as feed mill and distribution centers, were essentially undamaged.  This farm recommenced operations at the end of 2010, with normal production capacity expected to resume by the end of 2011.

 

We operate 18 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 419,000397,500 tons per month.  We estimate that we are the largest producer of animal feed in Mexico.

 

Our other facilities include two poultry manure-processing plants.  We also own a laboratory that produces vaccines for the poultry industry, which we mainly use for internal purposes.  Our headquarters are located in Celaya Guanajuato, Mexico, and we have 5860 sales centers throughout the regions we serve.

 

We own most of our facilities.  We lease a limited number of farms and sales centers, all of which we do not consider material.  We also employ a network of contract growers.

 

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

 

None

 

The following discussion should be read in conjunction with our Audited Consolidated Financial Statements.  The Audited Consolidated Financial Statements have been prepared in accordance with Mexican FRS, which differs in certain respects from U.S. GAAP.  Note 21 to the Audited Consolidated Financial Statements provides a description of the principal differences between Mexican FRS and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of consolidated stockholders’ equity, net income, a consolidated statement of stockholders’ equity and a consolidated statement of cash flows under U.S. GAAP as of December 31, 20082009 and 20092010 and for the years ended December 31, 2007, 2008, 2009 and 2009.2010.

 

 

 

In the following discussiondiscussions we describe various trends and how they affected our results of operations for the years ended December 31, 2007, 2008, 2009 and 2009.2010.

 

 

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

 

 

During 2009, the Mexican economy continued to show signs of volatility as a result of the global economic slowdown and particularly the financial crisis in the United States.  In particular, the Mexican peso experienced significant volatility during the first half of the year but tended to appreciate against the U.S. dollar towards the end of the year.

 

In 2009, the annual inflation rate was 3.57%.  The Mexican peso appreciated 5.4% against the U.S. dollar as compared with the end of 2008.

 

 

A contraction 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.

 

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

 

We use financial instruments to mitigate the cost of goods sold in currencies other than Mexican pesos.  See Note 2-q2q and Note 10-a10a of the Audited Consolidated Financial Statements.

 

 

In 2009, average Mexican producer prices increased by approximately 18.8%.  This increase is mainly attributable to (i) the adequate balance between supply and demand present during the first half of the year, and (ii) the general increase in the cost of raw materials throughout the year.

 

Our outstanding total indebtednessdebt, including our current installments of long-term debt, at the end of 2009 increased2010 decreased to Ps. 963.8646.9 million as compared to the Ps. 625.9963.8 million in 2008,2009, as we increasedreduced our debt in order to ensure sufficient liquidity.  short- term debt.

In 2009,2010, we had a foreign exchange lossgain of Ps. 37.911.1 million due to fluctuations in the exchange ratepositive effect of the revaluation of the peso against the U.S. dollar,dollar; as compared to a foreign exchange loss Ps. 37.9 million in 2009 and a foreign exchange gain of Ps. 160.2 million in 2008 and a foreign exchange loss of Ps. 3.4 million in 2007. 2008.

Our valuation effects of financial instruments were a gain of Ps. 18.9 million in 2010, compared to a loss of Ps. 174.6 million in 2009, compared toand a loss of Ps. 1.7 billion in 2008, as a result of a lower amount ofdecrease in our financial instruments.instruments activity. See note 10-a in our Audited Consolidated Financial Statements.

 

 

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 MéridaMerida and Coatzacoalcos complexes.

 

In 2009, the Company increased its volume of chicken sold by 4.6%, compared to 2008, mainly due to the business agreement reached with producers in the Northeast, as mentioned above in Item 4: “Information on the Company – History and Development of the Company – Background and Ownership Structure.”

 

 

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

 

 

 

At present, Mexican feed prices tend to parallel U.S. and international prices.  In 2007,2008, the percentage of grain purchased from domestic markets was 36.4%, in 2008 it was approximately 48.0% and, in 2009 it was approximately 50.0% and in 2010 it was approximately 54.0%.

 

 

Restrictions on importing grain under NAFTA have been phased out as of the beginning of 2008.  We expect this development to benefit the Company and result in a reduction of the costs associated with importing our feed ingredients.

 

In 2009, international corn prices showed more stability and were in fact lower when compared with previous years.  However, the high level of inventories and exchange rate volatility did not result in a net decrease in our cost of sales. In 2010 we observed stable grain prices, with an upward trend by year end.

 

 

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:

 

 

 

 

 

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