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* Butchers report rise in sales after horsemeat furore
* People avoiding meat from supermarkets
* Many areas now lack alternative to big retailers
By Costas Pitas
LONDON, Feb 15 (Reuters) - In one of Britain's oldest butcher's shops, staff in straw hats are rushing to cope with a surge in demand for pricey pies and sausages from customers worried about a scandal over mislabelled horsemeat and rich enough to buy peace of mind.
Founded in 1850, Lidgates in London's smart Notting Hill district retains a Dickensian atmosphere, displaying beef from grass-fed cows, organic chickens, and silver trophies won by its products.
The discovery of horsemeat in food labelled as beef has shocked the British, a nation of horse-lovers, and exposed a gap between rich shoppers who can afford top-quality meat and those forced to hunt for bargains at the other end of the market.
The current climate of economic austerity has squeezed family budgets, forcing many to choose cheap mass-produced foods containing often untraceable ingredients.
But Lidgates, where a whole beef fillet sells for more than 100 pounds ($160) and half a dozen sausages cost 6 pounds ($9), is a world away from these concerns.
"Sales on items such as minced beef, pies, sausages went up ranging 10 and 20 percent directly on day one," said Danny Lidgate, 33, the fifth generation of his family to run the shop.
The trend towards upmarket meat appears to be gathering pace elsewhere in Britain, where many people are so sentimental about horses that they find the idea of eating their meat repulsive.
According to the Q Guild, which represents high-end independent butchers, its members say sales of beefburgers and meatballs have risen by 30 per cent since the horsemeat furore started, with overall trade up by an average of 20 percent.
As the scandal deepened this week, the government played down the health risks, saying it was doing everything to ensure food sold across the country was safe enough to eat. Generally, horsemeat is not a danger to health, but the damage to public confidence has already been done.
Scrutinising a cut of rib-eye steak, Jacqueline O'Leary, a housewife from the upscale Kensington district, said the revelations about horsemeat had changed her shopping habits.
"I haven't bought lately (from supermarkets). I've just been buying more here so they've probably seen me three times a week and I buy sausages and mince from here now, it's just easier."
Upstairs in Lidgates' busy kitchen, a butcher completes a cottage pie, the traditional British dish of minced meat covered in a layer of potato.
Selling for more than 5 pounds ($8) a portion, the fresh grass-fed or organic minced beef dish is rather more expensive than the alternative from frozen food giant Findus, available for just 1 pound from one supermarket.
After finding it beef lasagne contained horsemeat, the British unit of Findus began recalling the product from supermarket shelves last week on advice from its French supplier Comigel, raising questions over the complicated nature of the European food chain.
Elsewhere in London, Mark McCartney, another shopper, said he would rather go to his local butcher than buy meat at the supermarket.
"I trust this meat more than I trust anything out of the supermarkets and you can pick and choose and give this man the money." he said. "It's cheaper, it's better quality and it's better people getting the money."
The loss of trust in supermarkets and processed food may be temporary and will probably be restored gradually after the scandal.
But the trend is still a worry for Britain's food and farming industries, which contribute 88 billion pounds ($140 billion) to the economy every year.
Meat and meat products accounted for 1.7 billion pounds out of Britain's total food and drink exports of 18.2 billion pounds in 2011, according to farm minister Owen Paterson.
Nearly half of British consumers said they would avoid buying meat from supermarkets affected by the horsemeat scandal, according to a survey this month for Retail Week magazine.
Family butchers may be experiencing a revival but it is likely to be short-lived given the attraction of supermarkets to busy shoppers.
In Britain, four supermarket chains together account for over three quarters of the grocery market, according to the Kantor research company.
Many family-run butchers have been hit hard in the past decade, with many blaming high parking charges in towns as well as increasingly time-poor customers.
The number of registered butcher's shops fell to around 6,800 in 2011 from more 9,000 in 2000, according to figures from the British tax authorities.
At a bustling London street market, butcher Raymond Roe said he had been in the trade for 37 years but at least eight of his local competitors had close their doors since 1976.
Even though shoppers are angry with supermarkets now, he was pessimistic about the future.
"They've lost their trust," he said. "I get a lot of people saying they're not going buy from them (supermarkets).
"But the thing is, supermarkets are convenient for everyone and most people haven't got much time. A lot of it is, people don't cook no more."
Pointing behind him on the wall to diagrams of animals with lines drawn to indicate cuts of meat, Roe described his role as butcher, teacher and chef for his customers.
"I show them the charts where the cuts come from to try and educate them because years ago, the older people - a lot of them are dead now - they knew the cuts but no one knows nothing now," he said sadly. "They don't even know how to cook."
($1 = 0.6433 British pounds) (Editing by Maria Golovnina and Giles Elgood)