Almost a century ago, Carl Sandberg proclaimed his beloved Chicago "hog butcher for the world."

Not anymore. The biggest hog butcher in the world today is Smithfield Foods Inc. of Smithfield, Va.

Smithfield earned that title by producing 2.7 billion pounds of fresh pork and another 1.6 billion pounds of bacon, ham, sausage and other processed meat in the fiscal year that ended in May.

Smithfield's 48 plants slaughter and process 20 percent of the nation's hogs -- 19 million last year. Its farms grow 1 of every 4 of those porkers, making Smithfield the world's biggest pig farmer.

As the 300-pound boar of the business, Smithfield has put shareholders in hog heaven.

Since the present management headed by Chairman Joseph Luter III took over in 1974, the company has produced a compounded annual return to shareholders of 28 percent a year. In the past three years, Smithfield stock is up 117 percent, while shares of IBP Inc., No. 1 in pork packing and No. 1 in beef, gained just 6 percent, and the stock of Tyson Foods, which rules the roost in chicken, rose 17 percent.

Smithfield's success has increased its exposure to another variable that investors often fail to take into consideration -- political risk.

The company faces increasing government regulation and is a fat target for influential pressure groups -- environmental advocates, anti-corporate-farming activists, corporate governance critics and labor organizations, which find new issues with each innovation.

Smithfield has gotten so huge by buying up smaller packers that couldn't keep up with the modernization and consolidation of the industry. The old Corn Belt brands -- Rath, Morell and Cudahy -- now belong to the Virginia company, along with the familiar local labels: Smithfield, Luter, Gwaltney, Esskay, Dinner Bell, Lykes and Valleydale.

The company sells products in two dozen countries. It owns the biggest pork packer in Poland, has been acquiring chicken, pork and processed-foods firms in Canada. Earlier this month Smithfield bought its second French abattoir, making it the largest private-label pork packer in the land of pa^te, charcuterie and jambon.

Surprisingly, packers make more money when prices are low -- because raw material prices fall more than supermarket prices -- so with hog prices at their lowest in five decades, Smithfield has had three record years in a row. In the latest fiscal year, revenue was down 9 percent, but tonnage was up more than 10 percent. Profit grew almost 40 percent to $94.9 million, or $2.31 a share.

Ordinarily, the odds would be against another strong year. The corn-hog cycle is a classic example of how the interplay of supply and demand for inputs and outputs creates equilibrium in markets. Low hog prices sooner or later lead to production cuts that push prices up. But by vertically integrating, Smithfield makes more money on the growing side when hog prices are high, and wins on the packing side when prices are low.

Escaping the brutal economics of agriculture is Luter's legacy in the pork industry, which has traditionally been a boom and bankruptcy business for farmers. Its critics, however, consider Smithfield not the successor to Sandberg's poetic Chicago, but an incarnation of another of that city's turn-of-the-century literary classics: Upton Sinclair's "The Jungle," the still-shocking expose of the meat industry.

Smithfield has a long history of running afoul of pollution regulations. The company is appealing a federal court decision that resulted in a $12.6 million fine -- the largest ever imposed in an Environmental Protection Agency case. Also on appeal is a Virginia state case that found 22,000 pollution violations and seeks a $3.8 million penalty.

Smithfield's vulnerability to political risks was evident in a recent run-in with the labor organization known as FAST -- the AFL-CIO's Food and Allied Services Department. The affiliate of the United Food and Commercial Workers Union represents about 6,500 of the company's 20,000 packing plant workers.

At last year's annual shareholder meeting, FAST President Jeff Fiedler grilled Smithfield Chairman Luter like a hot dog, poking him with questions about several issues.

At this year's annual meeting next Thursday, Fiedler plans a two-pronged attack. In a filing with the Securities and Exchange Commission earlier this month, he introduced a resolution advocating that a majority of the board be made up of independent, outside directors, and opposed reelection of one director, Chicago commodities trader Joel Greenberg, who has been sanctioned for securities law violations by the SEC.

Within days of Fiedler's filing, Greenberg was dropped, replaced by Ray A. Goldberg, 72, a professor emeritus at Harvard Business School. In turn, FAST withdrew its resolution seeking more outside directors, keeping that controversy off the agenda for the shareholders meeting and, more importantly, out of the proxy materials sent to Smithfield shareholders.

Obviously some kind of deal was cut, but FAST and Smithfield have agreed not to talk about it before the meeting on Thursday.

It's unusual for a company to give in so easily to shareholder activists, especially since there was no chance that FAST could find enough votes to block the election of Greenberg.

But Smithfield's board is vulnerable to other shareholder activists who advocate that directors be independent of corporate management. All but two of its 13 members are either Smithfield employees or people who make money doing business with the company -- suppliers, lawyers and the like. Besides the newly nominated Harvard professor, the only outsider is Richard J. Holland, 73, chairman of the Farmers Bank of Windsor.

That issue will come up at Smithfield's board meeting this week, and the company has another confrontation coming up at its headquarters in Norfolk on Sept. 11.

On that day, the Sierra Club and the Animal Welfare Institute are planning a demonstration in conjunction with a visit to the United States by a group of Polish farmers, including the heads of Rural Solidarity and other organizations.

In June, Smithfield completed the acquisition of an 80 percent stake in Animex, the largest meat and poultry processor in Poland. The company's 10 plants produce 400 million pounds of meat a year. A quarter of that output is already exported, and as trade barriers in Europe are removed, Smithfield will have a base to become hog butcher to the continent.

It's not multinational meat processing that Smithfield's Polish critics fear, but its other innovations -- vertical integration and corporate farming. Polish hog raising is at least half a century behind the state of the art in America, with lots of small farms raising a few hogs.

Polish farmers fear the competitive threat of modern mass production, which their American environmentalist and animal-rights hosts call "animal factories."

Smithfield's view is that scientific swine production is not only more cost-effective, but produces healthier hogs and better meat. Smithfield is a pioneer in managing the animals' environment and diet to produce low-fat pork.

But the system also produces what is surely the sweetest euphemism ever coined for hog manure -- nutrient management issues. If not properly managed, giant hog production facilities can create even more intense pollution than packing plants.

Smithfield's record on environmental issues plays into the hands of its environmental critics. They are eager to export that issue to Europe, where environmental regulations are often less stringent than in the United States, but where "green" political groups are far more influential.

The anti-agribusiness movement is also extremely potent in Europe. Smithfield would be no match for French farmers if it tried to vertically integrate its operations there. In the United States, opposition to corporate agriculture is mostly a Midwest issue, but that political risk also is headed for Smithfield country.

The prairie populists and pop music stars who created the annual Farm Aid concerts are coming east this year to play at Nissan Pavilion on Sept. 12 -- the day after the Sierra Club and the Polish delegation plan to be in Norfolk. You can bet that Willie Nelson, John Mellencamp, Dave Matthews and Neil Young will add their voices to the chorus of Smithfield critics.

Group Meating

Smithfield Foods is the world's largest pork processor and hog producer, with six domestic and three international subidiaries, also known as the meat processing group. Below are sales from their 48 plants:

Subsidiary Fiscal 1999 sales

John Morrell & Co. $1.4 billion

Smithfield Packing Co. $1.3 billion

Schneider Corp. $550 million*

Gwaltney of Smithfield $489 million

Animex S.A. $350 million*

Lykes Meat Group $159 million

Patrick Cudahy Inc. $144 million

Societe Bretonne de $100 million*

Salaisons

North Side Foods $60 million*

*Estimated annualized sales.

SOURCE: Company reports