One of Britain's biggest companies has been accused of "blackmail" by a Ugandan MP spearheading tough new anti-smoking laws in his country.

British American Tobacco, in conjunction with other leading tobacco companies, is using its considerable financial clout to oppose Dr Chris Baryomunsi's private member's bill aimed at curbing smoking in a country where cigarettes kill 13,500 people a year. Anti-tobacco campaigners see the bill as a watershed moment with significant consequences for cigarette companies.

Enó Isong, associate director, International Communications Campaign for Tobacco-Free Kids, said European tobacco companies could not countenance a decrease in smoking rates in Africa. "Most western countries have put in place policies to blunt the tobacco industry," he said. "It is very clear that the tobacco industry is shifting its market to Africa – a young market where they can bully their way around."

In a letter to Baryomunsi, BAT Uganda confirmed that it will no longer do business with the 709 farmers in his Kihihi constituency that it normally buys from because his bill – and a related plan to raise tobacco taxes – has rendered the arrangement "increasingly less economically viable".

BAT, which has a stock market valuation of $65bn, buys tobacco from 18,000 farmers in Uganda and Baryomunsi said he was under no illusions about why the company had targeted the farmers in his district first. "Although they said it was a business decision, the reason was merely blackmail," Baryomunsi said. "They thought that the farmers would rise against me and disorganise me politically, but I told them I was not moved. I actually assured them that what mattered to me was not the number of years I spend in parliament but what I do when in parliament. I assured them that no amount of blackmail and intimidation would shake me."

Baryomunsi's bill will impose large health warnings covering 75% of the face of cigarette packets, bar smoking within 100 metres of public buildings, prohibit advertising, ban point of sale display marketing, raise the smoking age from 18 to 21 and limit interaction between the government and tobacco lobby. But tobacco farmers' groups, backed by tobacco lobbyists, have reacted with fury to the plans, claiming the measures will put them out of business.

Documents seen by the Observer show that BAT has mounted a heavy lobbying campaign, warning MPs on the country's health committee that replacing the existing Tobacco Act threatens the livelihoods of thousands of farmers.

"Currently an estimated 60,000 farmers grow tobacco in Uganda under the sponsorship of licensed tobacco companies which are obliged to purchase the crop, hence providing a ready market," the company warns them in a letter. "Repeal of the Tobacco (Control and Marketing) Act and Regulations would not only threaten the livelihood of these farmers but also the revenues generated and investments made in this part of the sector by tobacco companies."

In March, Senegal introduced new anti-smoking legislation and Baryomunsi predicted other African countries would soon follow suit.

"My bill is quite comprehensive and once passed will revolutionalise the fight against tobacco in Africa," Baryomunsi said. "The bill has the support of Ugandans. It is only the [tobacco] industry that is spearheading this opposition voice. There are some provisions that have attracted debate, maybe I will concede on some of the proposals in the bill, but definitely the bill will have to pass without being severely watered down."

Rachel Rose Jackson, of the tobacco tactics team at the Tobacco Control Research Group at the University of Bath, accused BAT of double standards.

"BAT wants us to believe that it is acting responsibly and transparently and it repeats this message to the public over and over again. In fact, the company is acting in violation of its mandates and international codes and regulations. In Uganda, some of BAT's activities include actively trying to attract children and women to its products; using its political influence and economic power behind the scenes to stall tobacco legislation; and fostering a system of credit bondage whereby tobacco farmers are continually indebted to the company."

BAT rejected the accusations and said that it was acting legitimately to defend the livelihood of farmers.

"It can't be underestimated how important tobacco growing is to farmers in Uganda," the company said in a statement. "Many depend on tobacco growing to feed and house their families, and pay for children to attend school. If Ugandan tobacco leaf becomes uncompetitive abroad, we have to look at other options. Regrettably, the uncertainty in Uganda, which may make it unnecessarily costly for us to source tobacco from there, has forced us to review our tobacco growing operations in Kihihi."