UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q


(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 ----
ACT OF 1934
For the quarterly period ended March 31, 1998
                               --------------
                                       OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----
ACT OF 1934
For the transition period from                          to
                               -----------------------     --------------------
Commission file number 2-22791
                       -------

                                   AGWAY INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


DELAWARE                                                              15-0277720
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)


333 Butternut Drive, DeWitt, New York                                      13214
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)


                                  315-449-6431
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes  X   No
                                       ---     ---
Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.



         Class                                    Outstanding at May 1, 1998
------------------------                          --------------------------
Membership Common Stock,                               103,277 shares
 $25 par value per share                               




                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

                                                                                                              PAGE NO.
                                                                                                              --------
PART I.    FINANCIAL INFORMATION
------     --------------------- 
<S>                                                                                                              <C>

           Item 1.  Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of March 31, 1998 and June 30, 1997........................   3

           Condensed Consolidated Statements of Operations and Retained Margin for the three months
           and nine months ended March 31, 1998 and March 31, 1997.............................................   4

           Condensed Consolidated Cash Flow Statements for the nine months ended March 31, 1998
           and March 31, 1997..................................................................................   5

           Notes to Condensed Consolidated Financial Statements................................................   6

           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations......  10


PART II.   OTHER INFORMATION
-------    -----------------

           Item 1.  Legal Proceedings..........................................................................  15

           Item 6.  Exhibits and Reports on Form 8-K...........................................................  15


           SIGNATURES..........................................................................................  16
</TABLE>














                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                    March 31,            June 30,
                                                                                      1998                1997
                                                                                  -------------        ------------
ASSETS                                                                             (Unaudited)
------
<S>                                                                               <C>                  <C>
Current Assets:
     Trade accounts receivable (including notes receivable of
         $23,142 and $44,074, respectively), less allowance for
         doubtful accounts of $9,515 and $7,864, respectively...................  $     154,820        $   209,868
     Leases receivable, less unearned income of $63,199 and
         $58,225, respectively..................................................        129,170            124,552
     Advances and other receivables.............................................         41,982             37,918
     Inventories:
         Raw materials..........................................................          9,184              9,396
         Finished goods.........................................................        198,314            134,336
         Goods in transit and supplies..........................................         19,670              6,908
                                                                                  -------------        ------------
              Total inventories.................................................        227,168            150,640
     Prepaid expenses...........................................................         44,545             52,714
                                                                                  -------------        ------------
         Total current assets...................................................        597,685            575,692

Marketable securities available for sale........................................         36,988             35,586
Other security investments......................................................         52,632             49,668
Properties and equipment, net...................................................        212,043            215,095
Long-term leases receivable, less unearned income of $104,418 and
     $94,366, respectively......................................................        344,431            320,809
Net pension asset...............................................................        168,383            100,052
Other assets  ..................................................................         13,843             11,355
                                                                                  -------------        ------------
         Total assets...........................................................  $   1,426,005        $ 1,308,257
                                                                                  =============        ============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable..............................................................  $      98,100        $    59,200
     Current installments of long-term debt.....................................        102,840            113,720
     Current installments of subordinated debt..................................         82,641             62,999
     Accounts payable...........................................................        157,129            121,063
     Other current liabilities..................................................        121,719            113,927
                                                                                  -------------        ------------
         Total current liabilities..............................................        562,429            470,909

Long-term debt..................................................................        207,090            215,975
Subordinated debt...............................................................        378,563            375,128
Other liabilities...............................................................         88,990             68,494
                                                                                  -------------        ------------
     Total liabilities..........................................................      1,237,072          1,130,506
Shareholders' equity:
  Preferred stock, net..........................................................         48,243             57,541
  Common stock, net.............................................................          2,586              2,639
  Retained margin...............................................................        138,104            117,571
                                                                                  -------------        ------------
     Total shareholders' equity.................................................        188,933            177,751
Commitments and contingencies...................................................
         Total liabilities and shareholders' equity.............................  $   1,426,005        $ 1,308,257
                                                                                  =============        ============
</TABLE>




     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED MARGIN
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                   Three Months Ended                    Nine Months Ended
                                                        March 31,                            March 31,
                                               ------------------------------       -----------------------------
                                                   1998              1997               1998              1997
                                               -------------    -------------       -------------    ------------
<S>                                            <C>              <C>                 <C>              <C>
Net sales and revenues from:
     Product sales (including
       excise taxes)........................   $     359,765    $     406,747       $   1,004,339    $  1,091,730
     Leasing operations.....................          16,210           14,290              48,318          41,748
     Insurance operations...................           6,658            6,834              20,482          19,883
                                               -------------    -------------       -------------    -------------
         Total net sales and revenues.......         382,633          427,871           1,073,139       1,153,361

Cost and expenses from:
     Products and plant operations..........         326,087          378,934             937,983       1,032,422
     Leasing operations.....................           5,654            4,958              19,801          16,895
     Insurance operations...................           4,174            4,181              12,840          12,168
     Selling, general and administrative
       activities...........................          33,936           31,656              96,345          95,208
                                               -------------    -------------       -------------    -------------
         Total costs and expenses...........         369,851          419,729           1,066,969       1,156,693

Operating margin (loss).....................          12,782            8,142               6,170          (3,332)
Interest expense, net.......................          (8,824)          (8,902)            (22,835)        (23,491)
Other income, net...........................           5,522           11,631              10,276          15,742
                                               -------------    -------------       -------------    -------------
Margin (loss) from operations before
     income taxes...........................           9,480           10,871              (6,389)        (11,081)
Income tax benefit (expense)................          (5,430)          (4,856)               (847)           (399)
                                               -------------    -------------       -------------    -------------
Margin (loss) from operations before
  cumulative effect of an
   accounting change........................           4,050            6,015              (7,236)        (11,480)
Cumulative effect on prior years
     (to June 30, 1997) of an accounting
     change, net of tax expense of $16,500                 0                0              28,956               0
                                               -------------    -------------       -------------    -------------
Net margin (loss)...........................   $       4,050    $       6,015       $      21,720    $    (11,480)

Retained Margin:
     Balance at beginning of period.........         133,949           91,590             117,571         110,714
     Dividends..............................              (3)               0              (1,794)         (2,087)
     Adjustment to unrealized gains (losses)
       on available-for-sale securities,
       net of tax...........................             108             (469)                607             (11)
                                               -------------    -------------       -------------    -------------
Balance at end of period....................   $     138,104    $      97,136       $     138,104    $     97,136
                                               =============    =============       =============    =============

</TABLE>










     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                                                         Nine Months Ended
                                                                                            March 31,
                                                                                -----------------------------------
                                                                                    1998                  1997
                                                                                ------------         --------------
<S>                                                                             <C>                  <C>
Net cash flows provided by operating activities..............................   $     27,370         $      28,683

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................        (23,026)              (15,274)
     Proceeds from disposal of property, plant and equipment.................          6,879                 7,103
     Proceeds from disposal of businesses....................................            298                20,385
     Cash paid for acquisitions..............................................         (2,631)                 (973)
     Leases originated.......................................................       (165,272)             (160,282)
     Leases repaid...........................................................        131,707               117,337
     Proceeds from sale of marketable securities.............................         11,742                20,622
     Purchases of marketable securities......................................        (12,537)              (22,572)
     Net purchase of investments in related cooperatives.....................         (2,980)              (12,100)
                                                                                -------------        --------------

Net cash flows used in investing activities..................................        (55,820)              (45,754)


Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings.....................................         38,510                28,600
     Proceeds from long-term debt............................................         62,857                28,402
     Repayment of long-term debt.............................................        (82,181)              (52,854)
     Proceeds from sale of subordinated debt.................................        106,288                54,107
     Maturity and redemption of subordinated debt............................        (83,210)              (32,626)
     Payments on capital leases..............................................           (520)               (2,554)
     Redemption of stock, net ...............................................         (9,351)               (1,707)
     Cash dividends paid.....................................................         (3,943)               (4,297)
                                                                                -------------        --------------

Net cash flows provided by financing activities..............................         28,450                17,071
                                                                                -------------        -------------

Net decrease in cash and equivalents.........................................              0                     0
Cash and equivalents at beginning of period..................................              0                     0
                                                                                -------------        -------------

Cash and equivalents at end of period........................................   $          0         $           0
                                                                                =============        =============
</TABLE>














     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
     Basis of Presentation
     The accompanying  unaudited condensed  consolidated financial statements of
     Agway Inc. (the  "Company") have been prepared in accordance with generally
     accepted accounting  principles for interim financial  information and with
     the   instructions   to  Form  10-Q  and  Article  10  of  Regulation  S-X.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by generally accepted accounting principles for complete financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal recurring  accruals)  considered  necessary for a fair  presentation
     have been included. Operating results for the nine-month period ended March
     31,  1998,  are not  necessarily  indicative  of the  results  that  may be
     expected for the year ending June 30, 1998,  due to the seasonal  nature of
     certain major segments of the Company's business.  For further information,
     refer to the consolidated  financial  statements and notes thereto included
     in the annual report on Form 10-K for the year ended June 30, 1997.

     Reclassifications
     Certain  reclassifications  have been made to conform prior year  financial
     statements with the current year presentation.


2.   AGWAY FINANCIAL CORPORATION
     ---------------------------
     Agway  Financial  Corporation  (AFC) is a wholly  owned  subsidiary  of the
     Company whose principal  business  activity is securing  financing  through
     bank borrowings and issuance of corporate debt instruments to provide funds
     for the Company and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
     (AHI), and AHI's subsidiaries,  for general corporate purposes. The payment
     of principal and interest on this debt is  guaranteed by the Company.  This
     guarantee is full and unconditional, and joint and several. In an exemptive
     relief granted  pursuant to a "no action letter" issued by the staff of the
     Securities  and Exchange  Commission,  AFC, as a separate  company,  is not
     required to file  periodic  reports with respect to these debt  securities.
     However, as required by the 1934 Act, the summarized financial  information
     concerning AFC and consolidated subsidiaries is as follows:
<TABLE>
<CAPTION>
                                                Three Months Ended                  Nine Months Ended
                                                     March 31,                          March 31,
                                          -------------------------------    -------------------------------
                                               1998             1997              1998             1997
                                          -------------     -------------    -------------     -------------
         <S>                                                                 <C>               <C>
         Net sales and revenues.........  $      268,572    $     317,414    $     766,947     $     831,626
         Operating margin...............          20,225           18,757           33,649            22,795
         Net margin (loss)..............             399           (1,212)          (9,335)           (4,482)

                                                                                March 31,         June 30,
                                                                                  1998             1997
                                                                             -------------     -------------
         Current assets....................................................  $     533,820     $     530,509
         Properties and equipment, net.....................................        149,990           154,030
         Noncurrent assets.................................................        439,874           409,670
                                                                             -------------     -------------
         Total assets......................................................  $   1,123,684     $   1,094,209
                                                                             =============     =============

         Current liabilities...............................................  $     312,966     $     270,735
         Long-term debt....................................................        201,469           209,296
         Subordinated debt.................................................        378,563           375,128
         Noncurrent liabilities............................................         17,907            17,813
         Shareholder's equity..............................................        212,779           221,237
                                                                             -------------     -------------
         Total liabilities and shareholder's equity........................  $   1,123,684     $   1,094,209
                                                                             =============     =============

</TABLE>

                                        6

<PAGE>
                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

3.   BORROWING ARRANGEMENTS
     ----------------------
     As of March 31, 1998,  the Company had certain  facilities  available  with
     banking  institutions  whereby  lenders have agreed to provide  funds up to
     $332,000 to  separately  financed  units of the  Company as follows:  AFC -
     $75,000 and Telmark - $257,000. In addition, AFC may issue up to $50,000 of
     commercial  paper  under the  terms of a  separate  agreement,  backed by a
     letter of credit.

     AFC
     As of March 31, 1998, AFC had facilities available which included a $50,000
     short-term  line  of  credit  and  a  $25,000  long-term  revolver.   These
     facilities  and AFC's ability to issue $50,000 of commercial  paper require
     collateralization  using certain of the Company's  accounts  receivable and
     non-petroleum inventories ("collateral").  Amounts which can be drawn under
     these AFC agreements are limited to a specific  calculation  based upon the
     collateral available. Adequate collateral has existed throughout the fiscal
     year to  permit  AFC to borrow  amounts  to meet the  ongoing  needs of the
     Company and is expected to continue to do so. In addition,  the  agreements
     include  certain  covenants,  the most  restrictive  of which  requires the
     Company to maintain  specific  quarterly  levels of interest  coverage  and
     monthly levels of tangible retained margins.  The amounts outstanding as of
     March 31, 1998,  under AFC's short-term line of credit and commercial paper
     program were $0 and $43,100,  respectively,  as compared to $0 and $34,300,
     respectively,  at June 30, 1997.  AFC's  short-term line of credit facility
     was renewed in January 1998 and continues through December 31, 1998. It was
     renewed at $50,000 but provides for an increase to $75,000,  which  becomes
     available  on October 1, 1998,  to assist in paying  maturing  subordinated
     debt. AFC's current commercial paper program continues through December 31,
     1998.  In addition,  effective  January 1, 1998,  the Company has a $25,000
     long-term  revolving line of credit  available  through January 1, 2000, of
     which $0 was  outstanding  at March  31,  1998.  The  Company  has  ongoing
     discussions  with its lenders  and expects to continue to have  appropriate
     and adequate financing to meet its ongoing needs.

     Annually, Agway, through AFC, offers subordinated money market certificates
     to the public. Of AFC's  subordinated  debt at March 31, 1998,  $349,300 is
     redeemable  in  whole  or in  part at the  principal  amount  plus  accrued
     interest,  prior to  maturity  dates,  at the  option of the  Company.  The
     foregoing debt bears interest payable semi-annually on January l and July 1
     of each year. The money market certificates bear interest at a rate that is
     the greater of the stated  rate or a rate based upon the  average  discount
     rate for U.S.  Treasury Bills,  with  maturities of 26 weeks.  Subordinated
     money market  certificates due between October 1998 and October 2008 bear a
     weighted average interest rate of 8.1%, while  subordinated  debentures due
     between July 1999 and July 2003 bear a weighted  average  interest  rate of
     7.9%.

     Telmark
     As of March 31, 1998, Telmark had two separate credit facilities  available
     from banks which allow Telmark to borrow up to an aggregate of $257,000. An
     uncommitted  short-term line of credit agreement  permits Telmark to borrow
     up to $7,000 on an unsecured  basis with interest paid upon  maturity.  The
     line bears interest at money market  variable  rates. A committed  $250,000
     revolving  term loan  facility  permits  Telmark to draw  short-term  funds
     bearing  interest at money  market  rates or draw  long-term  debt at rates
     appropriate  for the term of the note  drawn.  The  $7,000  line of  credit
     expires December 31, 1998, and the $250,000  revolving term loan expires on
     February 1, 1999. The total amount  outstanding as of March 31, 1998, under
     the short-term  line of credit was $7,000 and under the revolving term loan
     facility was  $175,000,  of which  $127,000 was  long-term.  As of June 30,
     1997, the total amount  outstanding was $4,000 under the short-term line of
     credit and under the revolving  term loan  facility was $190,900,  of which
     $170,000 was long-term.

     At March 31, 1998,  Telmark had balances  outstanding  on unsecured  senior
     notes from private placements  totaling $148,500 as compared to $119,700 at
     June 30,  1997.  Interest  is payable  semiannually  on each  senior  note.
     Principal  payments are both semiannual and annual. The note agreements are
     similar to one another and each contains specific financial covenants.

     Additionally,  Telmark,  through a wholly owned special purpose subsidiary,
     has two classes of  lease-backed  notes  outstanding  totaling  $18,500 and
     $24,800 at March 31,  1998,  and June 30,  1997,  respectively,  payable to
     insurance companies. Interest rates on these classes of notes are 6.58% and
     7.01%, respectively.  The notes are collateralized by leases, which Telmark
     sold to this subsidiary,  having an aggregate  present value of contractual
     lease payments equal to the principal balance of the notes.

                                        7
<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.   BORROWING ARRANGEMENTS (continued)
     ---------------------------------
     Telmark (continued)
     Annually,  Telmark  offers  subordinated  debentures  to  the  public.  The
     debentures  are unsecured and  subordinated  to all senior debt at Telmark.
     The interest on the debt is payable quarterly on January 1, April 1, July 1
     and  October  1, and the  proceeds  of the  offerings  are used to  provide
     financing for Telmark's leasing activities.

     The Company believes Telmark will continue to have appropriate and adequate
     short-term and long-term financing to meet its ongoing needs.

     Long-term and subordinated  debt outstanding at March 31, 1998, as compared
     to June 30, 1997, is as follows:
<TABLE>
<CAPTION>
                                                          AFC
                                     Agway         (excluding Telmark)          Telmark                 Total
                             --------------------  --------------------  --------------------   --------------------
                                3/98       6/97       3/98       6/97       3/98       6/97        3/98       6/97
                             ---------  ---------  ---------  ---------  ---------  ---------   ---------  ---------
     <S>                     <C>        <C>        <C>        <C>        <C>        <C>         <C>        <C> 
     Long-term debt........  $  10,153  $   9,042  $   5,736  $   6,071  $ 294,041  $ 314,582   $ 309,930  $ 329,695
     Currently payable.....      4,532      2,363      3,830      3,158     94,478    108,199     102,840    113,720
                             ---------  ---------  ---------  ---------  ---------  ---------   ---------  ---------
     Net long-term debt....  $   5,621  $   6,679  $   1,906  $   2,913  $ 199,563  $ 206,383   $ 207,090  $ 215,975
                             =========  =========  =========  =========  =========  =========   =========  =========

     Subordinated debt.....  $       0  $       0  $ 423,342  $ 407,083  $  37,862  $  31,044   $ 461,204  $ 438,127
     Currently payable.....          0          0     76,214     51,980      6,427     11,019      82,641     62,999
                             ---------  ---------  ---------  ---------  ---------  ---------   ---------  ---------
     Net subordinated debt.  $       0  $       0  $ 347,128  $ 355,103  $  31,435  $  20,025   $ 378,563  $ 375,128
                             =========  =========  =========  =========  =========  =========   =========  =========
</TABLE>

4.   RETIREMENT BENEFITS
     -------------------
     Pension Plan
     Effective July 1, 1997, the Company  changed its method of determining  the
     market-related   value  of  its  plan  assets  under  Financial  Accounting
     Standards No. 87,  "Accounting for Pensions," from a calculated  value (one
     that  recognizes  changes in fair  market  value of assets over a number of
     years) to a fair market value method.  The cumulative effect of this change
     in accounting principle,  net of tax, was $29,000. Had the Company remained
     on its previous method of determining the market-related  value, the margin
     from  operations  before  income  taxes for the three  months and loss from
     operations  before  income  taxes for the nine months ended March 31, 1998,
     would  have  been   approximately   $5,400   lower  and   $10,300   higher,
     respectively.

     Pro forma amounts  (unaudited),  assuming the new accounting  principle was
     applied  during all periods  presented,  follow with a comparison to actual
     results:
<TABLE>
<CAPTION>
                                                      Three Months Ended                   Nine Months Ended
                                                           March 31,                           March 31,
                                                 ------------------------------     -------------------------------
                                                     1998               1997            1998              1997
                                                 -------------    -------------     -------------    --------------
     <S>                                         <C>              <C>               <C>              <C>  
     MARGIN (LOSS) FROM  OPERATIONS  BEFORE
      CUMULATIVE  EFFECT OF AN ACCOUNTING
       CHANGE:
         As  reported .........................  $       4,050    $       6,015     $     (7,236)    $     (11,480)
         Pro Forma.............................  $       4,050    $       7,950     $     (7,236)    $      (5,675)

     NET MARGIN (LOSS):
         As  reported..........................  $       4,050    $       6,015     $     21,720     $     (11,480)
         Pro Forma.............................  $       4,050    $       7,950     $     (7,236)    $      (5,675)
</TABLE>


                                        8

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


5.   COMMITMENTS AND CONTINGENCIES
     -----------------------------
     Environmental
     The Company is subject to a number of governmental  regulations  concerning
     environmental matters,  either directly or as a result of the operations of
     its  subsidiaries.  The Company  expects that it will be required to expend
     funds to participate in the  remediation of certain sites,  including sites
     where the  Company  has been  designated  by the  Environmental  Protection
     Agency  (EPA)  as  a   potentially   responsible   party  (PRP)  under  the
     Comprehensive  Environmental  Response,   Compensation  and  Liability  Act
     (CERCLA)  and sites with  underground  fuel storage  tanks,  and will incur
     other expenses associated with environmental compliance.

     The Company  continually  monitors its operations with respect to potential
     environmental  issues,  including changes in legally mandated standards and
     remediation   technologies.   Agway's  recorded  liability  reflects  those
     specific  issues where  remediation  activities are currently  deemed to be
     probable and where the cost of remediation  is estimable.  Estimates of the
     extent of the Company's degree of  responsibility  relating to a particular
     site and the method and ultimate  cost of  remediation  require a number of
     assumptions  for  which  the  ultimate  outcome  may  differ  from  current
     estimates.  At March 31,  1998,  the Company had been  designated  as a PRP
     under CERCLA or as a third party to the original PRPs in several  Superfund
     sites.  The liability  under CERCLA is joint and several,  meaning that the
     Company  could  be  required  to pay in  excess  of its pro  rata  share of
     remediation   costs.   The  Company  is  not   indemnified   for   existing
     environmental  cleanup  liability.   The  Company's  understanding  of  the
     financial  strength  of  other  PRPs at  these  Superfund  sites  has  been
     considered,  where  appropriate,  in  the  Company's  determination  of its
     estimated liability. The Company believes that its past experience provides
     a reasonable basis for estimating its liability.  As additional information
     becomes available,  estimates are adjusted as necessary.  While the Company
     does not  anticipate  that any such  adjustment  would be  material  to its
     financial statements,  it is reasonably possible that the result of ongoing
     and/or  future  environmental  studies or other  factors  could  alter this
     expectation and require the recording of additional liabilities. The extent
     or amount of such events,  if any,  cannot be  estimated at this time.  The
     settlement of the reserves  established will cause future cash outlays over
     approximately  five  years  based  upon  current  estimates,  and it is not
     expected that such outlays will materially  impact the Company's  liquidity
     position.

     Other
     The Company is also subject to various  investigations,  claims,  and legal
     proceedings  covering a wide range of  matters  that arise in the  ordinary
     course of its  business  activities.  Each of these  matters  is subject to
     various uncertainties, and it is possible that some of these matters may be
     resolved  unfavorably to the Company.  The Company has established accruals
     for matters for which payment is probable and amounts reasonably estimable.
     Management  believes  any  liability  that may  ultimately  result from the
     resolution of these matters in excess of amounts  provided  under the above
     stated  policy  will not have a material  adverse  effect on the  financial
     position, results of operations or liquidity of the Company.

     As  previously  reported in the second  quarter  financial  information,  a
     severe  ice  storm  affected  many of the  Company's  customers  in the far
     northern  parts of New York and portions of New  England.  During the third
     quarter,  the Company  assessed the storm's impact on current year sales in
     its agricultural feed and energy businesses, underwriting experience in its
     insurance  business,  and  collections  of receivables in many of its other
     businesses.  Based on the  results  of this  assessment,  the impact of the
     storm was determined not to be material to the Company.

                                        9

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)


RESULTS OF OPERATIONS
---------------------
The Company is including the following cautionary statement in this Form 10-Q to
make  applicable  and take  advantage  of the "safe  harbor"  provisions  of the
Private  Securities  Litigation  Reform  Act  of  1995  for  any  forwardlooking
statement made by, or on behalf of, the Company.  Where any such forward-looking
statement  includes a statement  of the  assumptions  or basis  underlying  such
forward-looking  statement,  the Company  cautions that,  while it believes such
assumptions  or basis to be  reasonable  and makes them in good  faith,  assumed
facts or basis  almost  always vary from  actual  results,  and the  differences
between  assumed  facts or basis and actual  results can be material,  depending
upon the circumstances. Where, in any forward-looking statement, the Company, or
its management,  expresses an expectation or belief as to future  results,  such
expectation  or  belief  is  expressed  in good  faith  and  believed  to have a
reasonable  basis,  but  there  can  be  no  assurance  that  the  statement  of
expectation  or belief will result or be  achieved  or  accomplished.  The words
"believe,"   "expect,"  and  "anticipate"  and  similar   expressions   identify
forward-looking statements.

The  Company's net sales and revenues and  operating  results are  significantly
impacted by seasonal  fluctuations  due to the nature of its  operations and the
geographic  location of its service area,  which is primarily  the  Northeastern
United States.  Agriculture and Retail net sales and revenues are  traditionally
higher in the spring as  customers  acquire  products  to  initiate  the growing
season. Energy generally realizes significantly higher net sales and revenues in
the winter months due to cold winter  conditions.  Leasing and Insurance are not
materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
                                                              Results by Operating Segment
                               -----------------------------------------------------------------------------------
                                      Three Months Ended                             Nine Months Ended
                               --------------------------------------    ------------------------------------------
                                                           $ Increase                                   $ Increase
                                  3/31/98      3/31/97     (Decrease)       3/31/98        3/31/97       (Decrease)
                               -----------   -----------   ----------    -----------    -----------    ------------
<S>                            <C>           <C>           <C>           <C>            <C>            <C>
Net Sales and Revenues
----------------------
Agriculture..................  $   166,688   $   156,657   $   10,031    $   471,333    $   473,978    $    (2,645)
Retail.......................       47,934        50,379       (2,445)       160,950        172,304        (11,354)
Energy.......................      155,632       212,372      (56,740)       410,477        487,882        (77,405)
Leasing......................       16,210        14,290        1,920         48,318         41,748          6,570
Insurance....................        6,659         6,834         (175)        20,482         19,883            599
Other (a)....................      (10,490)      (12,661)       2,171        (38,421)       (42,434)         4,013
                               ------------  -----------   ----------    -----------    -----------    -----------
                               $   382,633   $   427,871   $  (45,238)   $ 1,073,139    $ 1,153,361    $   (80,222)   
                               ============  ===========   ==========    ===========    ===========    ===========
Margin (Loss) from Operations
-----------------------------
 before Income Taxes
 -------------------
Agriculture..................  $    (1,305)  $    (1,791)  $      486    $   (17,260)   $   (18,074)   $      814
Retail.......................       (4,627)       (3,346)      (1,281)        (8,063)        (3,942)       (4,121)
Energy.......................       15,513        19,931       (4,418)        17,890         20,205        (2,315)
Leasing......................        4,568         3,745          823         11,231          9,788         1,443
Insurance....................         (107)           75         (182)            60            327          (267)
Other (a)....................        4,295         1,159        3,136         12,619          4,106         8,513
                               -----------   -----------   ----------    -----------    -----------    ----------
Operating margin (loss),
   plus other income, net....       18,337        19,773       (1,436)        16,477         12,410         4,067
Interest (expense), net of
   interest income...........       (8,824)       (8,902)          78        (22,835)       (23,491)          656
                               -----------   -----------   ----------    -----------    -----------    ----------
                               $     9,513   $    10,871   $   (1,358)   $    (6,358)   $   (11,081)   $    4,723
                               ===========   ===========   ==========    ===========    ===========    ==========
</TABLE>
(a) Represents unallocated corporate items and intersegment eliminations.



                                       10

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Numbers in the  following  narrative  have been  rounded to the nearest  hundred
thousand.

Consolidated Results
--------------------
Consolidated net sales and revenues of $382,600 and $1,073,100 for the three and
nine months  ended March 31, 1998,  decreased  $45,200  (11%) and $80,200  (7%),
respectively, as compared to the same periods in the prior year. The decrease in
the three  months  ended March 31,  1998,  as compared to the same period in the
prior year, was the result of a decline in sales in Energy,  principally  due to
decreases in volume and pricing level of petroleum products. The decrease in the
nine months  ended March 31,  1998,  as compared to the same period in the prior
year, was the result of a decline in sales in Energy, as noted above, a decrease
in the pricing  level of  Agriculture  feed  products,  and  planned  changes in
product mix in Retail.  The overall  decreases in both the three- and nine-month
periods  were  partially  offset  by a strong  growth  in  sales at the  Country
Products Group and from increased leasing revenues at Telmark as compared to the
same periods in the prior year.

Net margin from  operations  before incomes taxes of $9,500 for the three months
ended March 31, 1998,  decreased  $1,400 (13%) as compared to the same period in
the prior year.  Net loss from  operations  of $6,400 for the nine months  ended
March 31,  1998,  improved by $4,700 (43%) as compared to the same period in the
prior year. For the three and nine months ended March 31, 1998, a decline in net
business unit operating results of $4,600 (25%) and $4,400 (54%) was experienced
and is  discussed  by business  segment  below.  Additionally,  increases in net
corporate costs were experienced and decreased  operating  results by $3,200 and
$4,600 for the three- and  nine-month  periods ended March 31, 1998, as compared
to the same periods in the prior year.  The increase of net  corporate  costs in
the  three-month  period was  principally  due to a  strengthening  of corporate
self-insurance  reserves for property and casualty claims ($1,500). The increase
in net corporate  costs for the nine-month  period was due to the combination of
the above and  employee  compensation  and  benefit  accruals  based on expected
results from operations for the year ($2,100). The declines in operating results
noted above were  partially  offset in the three  months and more than offset in
the nine-month  period by the growth of the net pension asset  recognized in the
income statement,  which was higher by $6,400 in the three months and $13,100 in
the  nine  months  ended  March  31,  1998,  than in the  prior  year.  Of these
pension-related  increases,  $5,400 and $10,300 for the respective  periods were
due to the change in accounting discussed in the retirement benefits footnote.

Agriculture
-----------
Agriculture  consists  of Agway  Agricultural  Products  (AAP)  and the  Country
Products Group (CPG).  Total  Agriculture net sales and revenues of $166,700 and
$471,300 for the three and nine months ended March 31, 1998,  increased  $10,000
(6%) for the  three-month  period and decreased  $2,600 (1%) for the  nine-month
period as  compared  to the same  periods  in the prior  year.  The  Agriculture
operating  loss of $1,300 and $17,300 for the three and nine months  ended March
31, 1998, decreased $500 (28%) and $800 (5%),  respectively,  as compared to the
same periods in the prior year.

AAP net sales and  revenues  of  $117,800  and  $338,000  for the three and nine
months  ended  March  31,  1998,   decreased   $1,100  (1%)  and  $20,100  (6%),
respectively,  as  compared  to the same  periods in the prior  year.  AAP sales
decreases for the three- and nine-month  periods ended March 31, 1998,  resulted
principally  from the feed and crops  businesses.  Despite an  increase in total
feed volume in both the three- and nine-month periods, a decrease in the pricing
level of feed products over the past nine months has decreased  total feed sales
in both  periods as  compared to the same  periods in the prior  year.  The crop
business declined in the three- and nine-month periods ending March 31, 1998, as
compared to the prior year,  largely due to a similar  decrease in pricing level
of  products as in feed and to sales of  crop-related  services  that  typically
occur in the fourth quarter actually occurring in the first quarter of the prior
fiscal year,  resulting in higher than normal sales in the first  quarter of the
prior year.



                                       11

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Agriculture (continued)
-----------------------
CPG net sales and revenues of $48,900 and $133,300 for the three and nine months
ended March 31, 1998,  increased $11,100 (29%) and $17,500 (15%),  respectively,
as compared to the same periods in the prior year. The increase in CPG sales for
the three- and  nine-month  periods  ended March 31, 1998,  resulted from strong
sales  growth in its produce  operations  of $10,100  (52%) and  $26,100  (48%),
respectively.  This growth in produce resulted substantially from an acquisition
of a business and the formation of a new  operation  during the first quarter of
1998 and stronger sales over the first nine months of the year than in the prior
year.  Additionally,  an  increasing  customer  base at the seed  operation  has
increased  sales during the three- and nine-month  periods by $3,800 and $6,000,
respectively, as compared to the same periods in the prior year. Sales growth at
CPG for the nine-month  period has been partially  offset by the  elimination of
sales from the pet food business ($11,500) which was sold in the prior year.

AAP's  operating  loss of $3,600 and $23,900 for the three and nine months ended
March 31, 1998, increased $100 (3%) and $2,500 (12%), respectively,  as compared
to the same  periods in the prior year.  The  increased  loss for the three- and
nine-month  periods,  as compared to the prior year, resulted from (1) increased
losses  in  Enterprise  operations  of  $2,600  and  $6,300,  respectively,  due
principally  to declining  feed and crop sales noted above and (2) increased net
support  costs of $4,200 and $600,  respectively.  These  increased  losses were
partially offset by improved operating results in Direct Marketing of $6,700 and
$4,500,  respectively.  Increased net support costs are due to reduced patronage
income, due principally to lower CF Industries earnings,  reflected in the third
quarter,  offset by slightly  reduced selling and  administrative  expense and a
charge  incurred  in the  first  quarter  last  year for the  adoption  of a new
accounting   policy  regarding  the  improvement  of  long-lived   assets.   The
improvements  in Direct  Marketing are principally in gross margins due to lower
unfavorable  experience with  exchange-traded  futures and improvements in gross
margin in the seed business as the result of earlier shipments than in the prior
year.

The CPG  operating  margin of $2,300 and  $6,600  for the three and nine  months
ended March 31, 1998, increased $600 (33%) and $3,300 (100%),  respectively,  as
compared to the same periods in the prior year. The operating margin improvement
in the third quarter is principally  from improved margins in the seed operation
($500).  The  operating  improvements  in the  nine-month  period  resulted from
improved produce  operation  results  ($1,400),  improved seed operation results
($900) and the fact that prior year  earnings  absorbed a net $1,000 charge from
the sale of CPG's pet food business.

Retail
------
Total net sales and  revenues  of $47,900  and  $161,000  for the three and nine
months  ended  March  31,  1998,   decreased   $2,400  (5%)  and  $11,400  (7%),
respectively, as compared to the same periods in the prior year. The decrease in
sales and revenues for the three- and  nine-month  periods ended March 31, 1998,
were principally the result of planned reduction of the power equipment business
at  most  retail   locations   ($1,000  and   $5,600,   respectively)   and  the
discontinuation of the frozen food product line ($800 and $3,700, respectively).
Additionally,  for the threeand  nine-month  periods,  sales associated with bag
feed and fertilizers and farm supplies declined ($700 and $3,800, respectively).
These sales declines were partially offset by overall improvements in the three-
and  nine-month  periods ended March 31, 1998, as compared to the prior year, in
the seasonal, lawn and garden and nursery-related businesses ($1,200 and $3,300,
respectively)  principally due to new nursery  acquisitions  and favorable early
spring weather.

Retail's operating loss of $4,600 and $8,100 for the three and nine months ended
March 31, 1998,  increased  $1,300  (38%) and $4,100  (105%),  respectively,  as
compared  to the same  periods in the prior  year.  Gross  margin  dollars  have
declined $500 in the third quarter and $1,100 for the  nine-month  period due to
planned product line reductions.  However,  gross margin percentage has improved
1% overall for the nine-month period.  Total expenses have increased $400 in the
third  quarter  and $1,800 over the  nine-month  period as compared to the prior
year.  This increase is  substantially  due to increased costs from new business
locations.  In addition,  other revenues,  principally  from the sale of surplus
properties, declined $300 and $1,000 for the three- and nine-month periods ended
March 31, 1998, respectively, as compared to the same periods in the prior year.

                                       12

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Energy
------
Net sales and  revenues of $155,600  and  $410,500 for the three and nine months
ended March 31, 1998,  decreased $56,700 (27%) and $77,400 (16%),  respectively,
as compared to the same periods in the prior year.  Reduced  commodity  cost for
petroleum  products in the current  year  allowed for reduced  selling  price to
customers.  The lower selling prices  decreased sales by $17,700 and $40,100 for
the  three-  and  nine-month   periods  ended  March  31,  1998,   respectively.
Additionally,  the sales decreases were due to a reduction in heating oil sales,
which were down $40,000 and $41,000, respectively, for the three- and nine-month
periods as  compared  to the same  periods in the prior  year.  The  heating oil
decline was in residential  sales,  due principally  from warmer weather than in
the same period in the prior year, and in wholesale sales, which declined due to
lower available product to sell to the market as compared to the prior year.

Energy  operating  margin of $15,500  and  $17,900 for the three and nine months
ended March 31, 1998, decreased $4,400 (22%) and $2,300 (12%), respectively,  as
compared to the same  periods in the prior year.  The lower  sales  dollars,  as
noted above,  partially  offset by stronger gross margin rates,  reduced overall
gross  margin  dollars on all products by $5,100 for the three months and $3,400
for the nine months ended March 31, 1998, as compared to the same periods in the
prior year.  Operating expenses decreased for the third quarter by $800 and $600
for the nine-month  period ended March 31, 1998, as compared to the same periods
in the prior year.

Leasing
-------
Telmark  total  revenues  of $16,200  and  $48,300 for the three and nine months
ended March 31, 1998, increased $1,900 (13%) and $6,600 (16%), respectively,  as
compared to the same periods in the prior year.  The Company's net investment in
leases and notes increased by $32,000 (7%) to $501,800 for the nine-month period
ended March 31,  1998,  as compared to an increase of $41,400  (11%) to $435,800
for the  corresponding  period in the prior year.  Increased  revenues  were the
result of a higher average net  investment in the three- and nine-month  periods
ended March 31, 1998.

Operating margin of $4,600 and $11,200 for the three and nine months ended March
31, 1998,  increased $800 (22%) and $1,400 (15%),  respectively,  as compared to
the same periods in the prior year.  Total  revenue  increases  noted above were
partially  offset by an  increase in total  expenses of $1,100  (10%) and $5,100
(16%) for the threeand  nine-month  periods ended March 31, 1998, as compared to
the same  periods in the prior  year.  The  larger  amount of debt  required  to
finance the increased net investment  during the three- and nine-month  periods,
as  compared  to the same  periods in the prior  year,  has  increased  interest
expense  $700 (14%) and  $2,900  (17%),  respectively,  and  increased  selling,
general and administrative  expenses $700 (20%) and $2,400 (25%),  respectively,
in the three- and nine-month periods ended March 31, 1998.

Insurance
---------
Insurance consists of Agway Insurance Company, a property and casualty insurance
subsidiary,  and Agway General Agency,  a subsidiary  which markets accident and
health insurance and long-term care products.

Insurance net revenues of $6,700 and $20,500 for the three and nine months ended
March 31, 1998, decreased $200 (3%) for the three months and increased $600 (3%)
for the nine  months as  compared  to the same  periods in the prior  year.  The
decrease for the  three-month  period is the result of lower  investment  income
($100) and lower agency income ($100). The increase for the nine-month period is
the result of a  combination  of higher  direct  earned  premiums and  decreased
reinsurance premium costs ($900) which were partially offset by lower investment
income ($100) and lower agency income ($200).

Operating loss of $100 for the three months ended March 31, 1998,  declined $200
as compared to an operating margin of $100 in the same period in the prior year.
Operating  margin of $100 for the nine months  ended March 31,  1998,  decreased
$300 as compared to the same period in the prior year.  The  decreases  were the
result of increased losses and expenses and lower  investment  income which were
partially offset by increased direct earned premiums, as noted above.

                                       13

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash Flows from Operating Activities
Cash  generated  from  operations  and external  borrowings  continues to be the
Company's  major ongoing  source of funds.  Net cash flows provided by operating
activities  of $27,400 for the nine months ended March 31, 1998,  were  slightly
lower than the $28,700  generated  over the same period in the prior year.  Cash
provided from earnings (net margin (loss) adjusted for non-cash items) decreased
$17,100,  and cash provided by working capital changes  increased $15,900 in the
nine-month  period ended March 31,  1998,  as compared to the same period in the
prior year.

Cash Flows from Investing Activities
Net cash flows used in the Company's investing activities totaled  approximately
$55,800 for the nine months ended March 31, 1998, as compared to $45,800 for the
nine months ended March 31, 1997,  representing  an increase in net cash outflow
of $10,000. With reduced divestiture  activity,  principally at CPG, proceeds of
$7,200 from  businesses and fixed assets sold during the nine months ended March
31,  1998,  were  $21,000 less than the cash  generated  from the same  activity
during the corresponding period in the prior year.  Acquisition of businesses in
the current year has resulted in cash paid for businesses and fixed assets being
$1,700  higher in the nine months ended March 31, 1998,  as compared to the same
period in the prior  year.  The  foregoing  were  offset by several  items,  the
largest of which was  activity  in  investments  in related  cooperatives  which
required  cash of $3,000 in the nine months ended March 31, 1998,  as opposed to
requiring cash of $12,100 in the nine months ended March 31, 1997, a comparative
cash increase of $9,100.

Cash Flows from Financing Activities
Cash of $9,400 used to redeem  stock  represents  an increase of $7,600 over the
corresponding period in the prior year.  Effective July 1, 1997,  restriction on
the redemption of $16,700 of preferred  stock expired,  of which $7,100 has been
redeemed as of March 31, 1998.  Net borrowings in the first nine months of 1998,
as explained in detail below,  increased  $37,800 as compared to the  comparable
period in the prior year due  primarily  to the need to finance  the above stock
redemptions and investing activities not financed through operating activities.

The Company  borrows money to finance its  operations  and the operations of all
its continuing  businesses and subsidiaries,  except Telmark and Agway Insurance
Company,   through  Agway  Financial  Corporation  (AFC).  External  sources  of
short-term  financing  for the Company and all its other  continuing  operations
include  revolving  credit  lines,  letters  of  credit,  and  commercial  paper
programs.  Telmark  and  Agway  Insurance  Company  finance  themselves  through
operations  or  direct  borrowing  arrangements.  Telmark  is  financed  with  a
combination of short-and long-term credit facilities.  In addition,  Telmark has
occasionally  sold  blocks  of  its  lease  portfolio.  Sources  of  longer-term
financing include the following as of March 31, 1998:
<TABLE>
<CAPTION>
                                                                             Agway & AFC
                                                                              (excluding
   Source of debt                                                              Telmark)     Telmark        Total
   --------------                                                            -----------  -----------   ------------
   <S>                                                                       <C>          <C>           <C>

   Banks - due 4/98 to 2/01, interest at a weighted average
     rate of 7.2% with a range of 6.0% - 8.4%..............................  $     2,100  $   127,000   $    129,100
   Insurance companies - due 5/98 to 4/04, interest at a weighted
     average rate of 7.2% with a range of 5.9% - 8.9%......................            0      167,005        167,005
   Capital leases and other - due 1998 to 2007, interest at a
     weighted average rate of 9.3% with a range of 6% to 12%...............       13,788           36         13,824
                                                                             -----------  -----------   ------------
       Long-term debt......................................................       15,888      294,041        309,929
   Subordinated money market certificates - due 10/98 to 10/08, interest
     at a weighted average rate of 8.2% with a range of 4.5% - 9.5%........      402,347            0        402,347
   Subordinated debentures - due 7/99 to 7/03, interest at a weighted
     average rate of 8.1% with a range of 6.0% to 8.5%.....................       20,995       37,862         58,857
                                                                             -----------  -----------   ------------
       Total debt..........................................................  $   439,230  $   331,903   $    771,133
                                                                             ===========  ===========   ============
</TABLE>
For a complete description of the Company's credit facilities available at March
31, 1998, see Footnote 3 to the condensed consolidated financial statements.

                                       14

<PAGE>



                           PART II. OTHER INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                             (Thousands of Dollars)


Item 1.  Legal Proceedings
--------------------------
As previously  reported in its Form 10-K,  the Company  submitted  drafts of its
risk  characterization and remedial action plan reports on certain real property
located in Acton,  Massachusetts,  for public  comment in July 1997. The Company
submitted  final  versions  of  those  reports  in April  1998  and  anticipates
submitting a draft of its remedy  implementation  plan report for public comment
in June 1998.  The Company  currently has accrued its best estimate  relative to
the cost of any  additional  assessment,  containment,  removal  or  remediation
actions  regarding the  property.  However,  it is reasonably  possible that the
results of ongoing  and/or future  environmental  studies or other factors could
alter this  estimate and require the recording of  additional  liabilities.  The
extent or amount of such events cannot be estimated at this time. However, Agway
believes that its past experience  provides a reasonable basis for its estimates
recorded for this matter.

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
There were no reports on Form 8-K  required to be filed  during the three months
ended March 31, 1998.




                                       15

<PAGE>


SIGNATURES
----------

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                                     AGWAY INC.
                                        ---------------------------------------
                                                    (Registrant)





Date            May 1, 1998                     /s/ PETER J. O'NEILL
         --------------------------    ----------------------------------------
                                                    Peter J. O'Neill
                                                 Senior Vice President,
                                                   Finance & Control,
                                                Treasurer and Controller
                                           (Principal Financial Officer and
                                               Chief Accounting Officer)

                                       16