Almarai, Saudi Arabia's largest food producer, has been ordered to reduce its milk prices.
The company says it will trim the price of its 2-litre fresh milk and laban packs in the kingdom back to July 1 levels with "immediate effect" on the instructions of the government.
Almarai, whose fresh dairy products account for about 40 per cent of its revenue, had initially raised the price of these products by about 14 per cent.
Customers were paying 1 Saudi riyal extra for a 2-litre bottle of milk. The "rationale and justification behind the price increase is still valid", Almarai said in a statement to the Saudi bourse.
The company added that it would "continue to work with the relevant government authorities to address this issue", without releasing further details.
Shares in the company based in Riyadh slumped to their lowest level in four months on the kingdom's Tadawul All-Share Index yesterday, closing at 92.25 riyals, 2.4 per cent lower than Sunday's price.
On Sunday, the kingdom's ministry of commerce and industry said dairy companies that raised prices or refused to sell at specified prices would face penalties.
"There is very little flexibility in raising prices, so this is a concern, especially in the environment where direct material products are going up in price," said Hatem Alaa, a senior equity analyst at Alembic HC Securities who covers Almarai's stock.
The company said in its latest financial statement that the "increase in raw materials is impacting" a range of its lines, including dairy products.
Al Safi, the second-largest dairy company in Saudi Arabia, increased the price for 2 litres of its laban from 7 riyals to 8 riyals, the Saudi Gazette reported.
Globally, a basket of basic foods such as meat, grain, vegetables and fruit is 37 per cent more expensive than it was at this time last year, a report by the UN Food and Agriculture Organization shows.