Dairy produce is more expensive now than it has been for three years, having risen 14.6% in the 10 weeks to mid-

December 2007.

The Grocer's latest basket of six dairy items shows cheapest own label butter is 23.2% more expensive than in early October and large free-range eggs are 21.8% dearer, while own label mature Cheddar is up 16.5% and own label Blue Stilton up 13.8%.

The increases are already leading to more milk being directed into butter production by dairy farmers keen to benefit from the increased returns, according to the UK's largest independent butter packer, Evan Rees (Butter).

"I believe prices have now peaked and are starting to come back, as more butter is produced," said company MD Russell Carman. "We have always been driven hard to sell for a lower price than necessary, but the retail price is now a bit more realistic than it was. We are hoping sanity will prevail, even when the market comes off a bit."

The basket is 17.2% more expensive than at the same time in 2006 and 19.6% more than in December 2005.