A Mexican village whose inhabitants were overwhelmed by an outbreak of respiratory illness starting in February has emerged as a possible source of the swine flu outbreak which has now spread across the world.

The state government of Veracruz in eastern Mexico has confirmed one case of swine flu in the village of La Gloria with the sufferer named locally as a four-year-old boy, Edgar Hernández Hernández. The federal government said tonight that he tested positive for the same strain of the virus which has claimed lives in Mexico.

The boy's case earlier this month came amid an outbreak of respiratory illness in the area in which around 400 people requested medical help. The boy was treated in hospital and survived. But two babies from the same village died during the outbreak. Sufferers complained of symptoms including fever, severe cough, and large amounts of phlegm.

"The symptoms were exactly like the ones they talk about now [with swine flu]," said a local resident. "High fevers, pain in the muscles and the joints, terrible headaches, some vomiting and diarrhoea. The illness came on very quickly and whole families were laid up."

It remained unclear tonight whether the illness was swine flu but the Mexican government appeared to cast doubt on its original diagnosis of the outbreak as a more typical H2N3 flu virus when it revealed that the only sample it sent to North America for swine flu tests came back positive.

"The sample of one of the cases, that of a four-year-old boy, was kept," said federal health minister José Ángel Córdova. "It was among the samples sent [to labs abroad] and that came back confirmed."

The Veracruz state government had previously said the infants died of bacterial pneumonia and said it has no plans to exhume their bodies to find out if the cause of death was swine flu.

Early today the US owner of an industrial pig production facility around 12 miles from La Gloria said it had found no clinical signs or symptoms of swine flu in its herd or Mexican employees. The world's biggest pig meat producer, Virginia-based Smithfield, said it is co-operating with the Mexican authorities' attempts to locate the possible source of the outbreak and will submit samples from its herds at its Granjas Carroll subsidiary to the University of Mexico for tests.

"Based on available recent information, Smithfield has no reason to believe that the virus is in any way connected to its operations in Mexico," it said in a statement. "The company also noted that its joint ventures in Mexico routinely administer influenza virus vaccination to their swine herds and conduct monthly tests for the presence of swine influenza."

The statement came after Mexico's national public health authority, the Mexican social security institute, raised concerns that waste from the Granjas Carrol facility may be responsible for the outbreak of illness, according to local media.

"According to state agents of the Mexican social security institute, the vector of this outbreak are the clouds of flies that come out of the hog barns, and the waste lagoons into which the Mexican-US company spews tons of excrement," reported Mexico City newspaper La Jornada.

Swine flu can be caught through contact with infected animals, but it is unclear if contact with flies or excrement has the same effect.

A La Gloria resident who spoke to the Guardian on condition of anonymity yesterday described how illness swept through the village. "Some people started getting ill in February and an eight-month-old baby died," she said. "After that another baby died on 21 March. Suddenly most of the village got ill. It was weekend and the tiny clinic here was closed. The state health authorities then did send doctors and nurses to look after us, and give us medication. About 60% of the village were ill and we asked them what it was and they said it was a severe and atypical cold. We talked about influenza and they said that was impossible, that influenza had been eradicated from Mexico."

Smithfield, which is led by pork baron Joseph W Luter III, has previously been fined for environmental damage in the US. In October 2000 the supreme court upheld a $12.6m (£8.6m) fine levied by the US environmental protection agency which found that the company had violated its pollution permits in the Pagan River in Virginia which runs towards Chesapeake Bay. The company faced accusations that faecal and other bodily waste from slaughtered pigs had been dumped directly into the river since the 1970s .

The outbreak of respiratory illness in the area of the Granjas Carroll plant was first detected at the beginning of this month by Veratect, a company based in Washington state which monitors the spread of disease and pandemics around the world for corporate clients.

On 6 April it reported local officials had declared a health alert. According to its dispatch: "Sources characterised the event as a 'strange' outbreak of acute respiratory infection, which led to pneumonia in some paediatric cases. Health officials recorded 400 cases that sought medical treatment in the last week in La Gloria, which has a population of 3,000; officials indicated that 60% of the town's population, approximately 1,800 cases, has been affected."

Local health officials established a health cordon around La Gloria and the monitoring company reported that officials launched a spraying and cleaning operation that targeted the fly suspected to be the disease carrier. "State health officials also implemented a vaccination campaign against influenza, although sources noted physicians ruled out influenza as the cause of the outbreak," it said.