PICTURE IT. Sunset, a gentle breeze, fresh smells of the outdoors. A hungry camper builds a small fire for cooking and finds a handy stick to skewer his vittles -- Mechanically Processed Species Product with 1 percent powdered bone.

A hot dog as we know and love it, with a few alterations.

The future may be changing for hot dog and sausage fans. Meatpackers have perfected a method of removing all the meat from a carcass by rubbing bones against a fine sieve. This method, which retrieves virtually all the meat along with some bone particles, could save an estimated $500 million worth of meat, ostensibly providing cheaper hot dogs. But there is some argument about what to call the final product.

Hot dog packages are now required to say "mechanically processed 'species' product" -- should they contain it -- with the "X percent powdered bone" qualifier attached. This doesn't sound particularly appealing to consumers, say the meatpackers, so they gave up hope of marketing such a product.

They'd like to call hot dogs hot dogs, and list the mechanically processed part among the ingredients as "mechanically deboned meat." Rather than saying that hot dogs contain powdered bone, they would like to say they contain "calcium." The American Meat Institute and Pacific Coast Meat Association have proposed as much to the U.S. Department of Agriculture.

It's the latest round in an old fight. Tom Smith, research director for the Community Nutrition Institute, said the USDA issued a "very strong, very forceful" decision in 1978. If hot dog makers want to sell hot dogs made with mechanically deboned meat, the package must show it in letters right up front. And the front label must include the part about the powdered bone.

Consumer advocates are satisfied with this current MPSP labeling that recognizes the inclusion of powdered bone. Industry says such a label won't sell hot dogs, and has requested the USDA to allow some changes. The department's decision might be the weather vane that shows which way the regulating winds blow.

The climate has certainly changed. The consumer movement, led by such advocates as Carol Foreman (then assistant secretary of agriculture) and Esther Peterson (consumer advocate who was special assistant to the president), thrived during the Carter years.

The Reagan reception to consumer-oriented legislation is chillier than that during the previous administration, say consumer advocates. Former hog farmer John Block leads the USDA. Former president of the American Meat Institute Richard Lyng serves as deputy secretary.

Consequently, consumer advocates express little surprise that industry has pushed for such changes as new food safety laws and looser beef grading regulations. Some predict that the USDA will lean toward industry when it resolves the issue of mechanically processed meat.

Industry spokesmen call the MPSP labeling "pejorative" and say attempts to market such a branded product are futile. "People don't like the idea of eating bone," said Arnold Mikelberg, vice president of processed meats for John Morrell & Co. in Chicago. When they marketed the processed meat product in the '70s "there was tremendous publicity that we were adding bone to the product." He says there is no bone in the hot dog, just some "calcium residue." The meat is in no way adulterated, say industry spokesmen.

That's baloney, says Tom Smith. "The product is of lower general quality and worth less." And that, according to law, is adulterated meat.

Smith is concerned with consumer deception. If the meat won't sell with predominant labeling, but will sell when labeling moves to the ingredient list, does that imply consumer deception? Will the consumer be penalized for not reading labels by being charged conventional prices for a cheaper product? People who buy processed cheese food -- clearly stated on the label -- might do so because of the lower price. Does new meat labeling remove a consumer's ability to compare prices?

Industry people say no. USDA Deputy Secretary Lyng says he hopes not -- but that having predominant labeling on the front of the packaging is no more informative than having the information included in fine print.

Final regulations on labeling are imminent. Other moves to decrease regulatory strain are proposals for relaxed beef grading standards, fewer meat inspectors and less restrictive rules regarding tuberculosis-infected pork.

"I think you could say, in the general sense, that the department would be in favor of lessening regulations that interfere with productivity," said Lyng. Those regulations concerning processed meat were among the first chosen for review by Reagan's "regulatory reform group." Consumer advocates worry that they portend changes to come.