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 December 31, 1999
                               -----------------

                                       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 February 4, 2000
------------------------                         -------------------------------
Membership Common Stock,                               99,349 shares
$25 par value per share
                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                                        PAGE NO.
                                                                                                                        --------

PART I.      FINANCIAL INFORMATION
------       ---------------------
<S>          <C>                                                                                                           <C>
             Item 1.  Financial Statements (Unaudited)

             Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 1999.............................   3

             Condensed Consolidated Statements of Operations and Retained Earnings for the three months
             and six months ended December 31, 1999 and December 31, 1998................................................   4

             Consolidated Statements of Comprehensive Income for the three months and six months ended
             December 31, 1999 and December 31, 1998.....................................................................   5

             Condensed Consolidated Cash Flow Statements for the six months ended December 31, 1999
             and December 31, 1998.......................................................................................   6

             Notes to Condensed Consolidated Financial Statements........................................................   7

             Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations..............  15

             Item 3.  Quantitative and Qualitative Disclosures About Market Risk.........................................  22

PART II.     OTHER INFORMATION
--------     -----------------
             Item 4.  Submission of Matters to a Vote of Security Holders................................................  24

             Item 6.  Exhibits and Reports on Form 8-K...................................................................  24

             SIGNATURES..................................................................................................  25

</TABLE>













                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                    December 31,              June 30,
ASSETS                                                                                  1999                   1999
------                                                                             ---------------        --------------
<S>                                                                                <C>                    <C>
Current Assets:
      Trade accounts receivable  (including  notes  receivable  of  $29,498  and
           $45,960, respectively), less allowance for doubtful accounts of
           $7,720 and $7,155, respectively......................................   $      168,001         $      185,536
      Leases receivable, less unearned income of $65,688 and
           $64,330, respectively................................................          132,382                131,431
      Advances and other receivables............................................           33,692                 23,456
      Inventories:
           Raw materials........................................................            7,971                  6,892
           Finished goods.......................................................          160,362                137,348
           Goods in transit and supplies........................................            1,101                  1,826
                                                                                   --------------         --------------
                Total inventories...............................................          169,434                146,066
      Prepaid expenses and other assets.........................................           57,010                 52,341
                                                                                   --------------         --------------
           Total current assets.................................................          560,519                538,830

Marketable securities available for sale........................................           36,579                 35,099
Other security investments......................................................           51,318                 51,010
Properties and equipment, net...................................................          218,268                215,425
Long-term leases receivable, less unearned income of $145,977 and
      $134,623, respectively....................................................          443,848                419,444
Net pension asset...............................................................          203,464                198,160
Other assets    ................................................................           19,266                 19,083
                                                                                   --------------         --------------
                Total assets....................................................   $    1,533,262         $    1,477,051
                                                                                   ==============         ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
      Notes payable.............................................................   $      166,602         $       81,800
      Current installments of long-term debt....................................           92,226                 94,699
      Current installments of subordinated debt.................................           72,855                 76,968
      Accounts payable..........................................................          138,217                115,350
      Other current liabilities.................................................          107,763                115,865
                                                                                   --------------         --------------
           Total current liabilities............................................          577,663                484,682

Long-term debt..................................................................          288,785                279,417
Subordinated debt...............................................................          389,033                409,335
Other liabilities...............................................................          107,326                104,670
                                                                                   --------------         --------------
           Total liabilities....................................................        1,362,807              1,278,104
Commitments and contingencies
Shareholders' equity:
      Preferred stock, net......................................................           42,337                 42,917
      Common stock, net.........................................................            2,487                  2,506
      Accumulated other comprehensive income....................................             (778)                  (239)
      Retained earnings.........................................................          126,409                153,763
                                                                                   --------------         --------------
           Total shareholders' equity...........................................          170,455                198,947
                                                                                   --------------         --------------
                Total liabilities and shareholders' equity......................   $    1,533,262         $    1,477,051
                                                                                   ==============         ==============

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



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

Item 1.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (Unaudited)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>

                                                             Three Months Ended                           Six Months Ended
                                                                December 31,                                December 31,
                                                      -----------------------------------         ---------------------------------
                                                            1999                 1998                   1999                1998
                                                      ----------------     --------------         ---------------      ------------
<S>                                                   <C>                  <C>                    <C>                  <C>
Net sales and revenues from:
      Product sales (including excise taxes)........  $       340,534      $      292,398         $       632,144      $    571,359
      Leasing operations............................           19,056              17,583                  37,327            34,496
      Insurance operations..........................            6,980               7,597                  13,960            14,563
                                                      ----------------     ---------------        ----------------     ------------
           Total net sales and revenues.............          366,570             317,578                 683,431           620,418

Cost and expenses from:
      Products and plant operations.................          321,400             272,905                 610,239           543,617
      Leasing operations............................            8,179               7,188                  15,880            14,554
      Insurance operations..........................            4,192               4,824                   8,344             9,457
      Selling, general and administrative...........
          activities................................           41,216              38,473                  78,798            73,882
                                                      ----------------     ---------------        ----------------     ------------
           Total operating costs and expenses                 374,987             323,390                 713,261           641,510



Operating loss......................................           (8,417)             (5,812)                (29,830)          (21,092)

Interest expense, net...............................           (8,897)             (8,214)                (16,584)          (15,737)
Other income, net...................................            4,508               4,037                   7,232            17,290
                                                      ----------------     ---------------        ----------------     ------------
Loss before income taxes............................          (12,806)             (9,989)                (39,182)          (19,539)
Income tax benefit .................................            3,815               3,112                  13,401             6,392
                                                      ----------------     ---------------        ----------------     ------------

Net loss   .........................................           (8,991)             (6,877)                (25,781)          (13,147)

Retained earnings, beginning of period..............          136,973             149,092                 153,763           155,362
      Dividends.....................................           (1,573)             (1,692)                 (1,573)           (1,692)
                                                      ----------------     ---------------        ----------------     ------------
Retained earnings, end of period....................  $       126,409      $      140,523         $       126,409      $    140,523
                                                      ================     ===============        ================     ============

</TABLE>
















     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

        Item 1. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                           Three Months Ended                  Six Months Ended
                                                               December 31,                      December 31,
                                                      -----------------------------       ----------------------------
                                                          1999             1998               1999            1998
                                                      ------------      -----------       ------------     -----------

<S>                                                   <C>               <C>               <C>              <C>
Net loss   .........................................  $     (8,991)     $    (6,877)      $    (25,781)    $   (13,147)

Other comprehensive income, net of tax:
      Unrealized gains (losses) on
           available-for-sale securities:
      Unrealized holding gains (losses)
           arising during period....................          (395)            (243)              (541)            297
       Reclassification adjustment
           for (gains) losses included in
           net earnings.............................             2              (31)                 2              15
                                                      ------------      -----------       ------------     -----------

Other comprehensive income (loss)...................          (393)            (274)              (539)            312
                                                      ------------      -----------       ------------     -----------

Comprehensive loss..................................  $     (9,384)     $    (7,151)      $    (26,320)    $   (12,835)
                                                      ============      ===========       ============     ===========

</TABLE>




























     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



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

               Item 1. CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                                                              Six Months Ended
                                                                                                December 31,
                                                                                   ---------------------------------------
                                                                                        1999                     1998
                                                                                   ---------------           -------------
<S>                                                                                <C>                       <C>
Net cash flows (used in) provided by operating activities.......................   $      (11,783)           $      37,664

Cash flows provided by (used in) investing activities:
      Purchases of property, plant and equipment................................          (14,056)                 (10,394)
      Proceeds from disposal of property, plant and equipment...................            4,243                    1,544
      Proceeds from sale of business............................................                0                   14,150
      Cash paid for acquisition of business.....................................           (4,950)                  (6,720)
      Leases originated.........................................................         (134,705)                (119,754)
      Leases repaid.............................................................          101,376                   98,362
      Proceeds from sale of marketable securities...............................            1,413                    2,693
      Purchases of marketable securities........................................           (3,431)                  (2,822)
      Net purchase of investments in cooperatives...............................             (518)                    (522)
                                                                                   ---------------           -------------

Net cash flows used in investing activities.....................................          (50,628)                 (23,463)
Cash flows provided by (used in) financing activities:
      Net change in short-term borrowings.......................................           84,802                   11,380
      Proceeds from long-term debt..............................................           11,509                   11,880
      Repayment of long-term debt...............................................           (3,147)                 (42,065)
      Proceeds from sale of subordinated debt...................................           56,056                  102,680
      Maturity and redemption of subordinated debt..............................          (80,470)                 (93,879)
      Payments on capital leases................................................           (4,037)                    (113)
      Redemption of stock, net .................................................             (600)                  (2,243)
      Cash dividends paid.......................................................           (1,702)                  (1,841)
                                                                                   ---------------           -------------

Net cash flows provided by (used in) financing activities.......................           62,411                  (14,201)
                                                                                   ---------------           -------------

Net increase (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.

                                        6

<PAGE>



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

          Item 1. 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  six-month
      period ended  December 31, 1999,  are not  necessarily  indicative  of the
      results that may be expected for the year ending June 30, 2000, due to the
      seasonal  nature of certain major  segments of our  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, 1999.

      Future Accounting Requirements
      The Financial Accounting Standards Board has issued Statement of Financial
      Accounting Standards (SFAS) Nos. 133 and 137 which establish comprehensive
      accounting  and reporting  requirements  for  derivative  instruments  and
      hedging  activities.  They require companies to record  derivatives on the
      balance  sheet as assets  or  liabilities,  measured  at fair  value.  The
      accounting  for gains or losses  resulting  from  changes in the values of
      those  derivatives  is dependent on the use of the derivative and the type
      of risk being  hedged.  The  statements  are effective for all quarters of
      fiscal years beginning after June 15, 2000. At the present time, Agway has
      not completed its  evaluation of the impact that the adoption of these new
      standards will have on its consolidated financial statements.

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





                                        7

<PAGE>



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

          Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)


2.    AGWAY FINANCIAL CORPORATION
      ---------------------------
      Agway Financial  Corporation (AFC), a wholly owned subsidiary of Agway, is
      a  Delaware  corporation  incorporated  in 1986 with  principal  executive
      offices  located  in  Wilmington,   Delaware.   AFC's  principal  business
      activities  consist of securing  financing  through  bank  borrowings  and
      issuance  of  corporate  debt  instruments  to provide  funds for  general
      corporate  purposes  to Agway and AFC's  wholly  owned  subsidiary,  Agway
      Holdings Inc. (AHI), and AHI's subsidiaries.  The payment of principal and
      interest on this AFC debt is guaranteed by Agway.  This  guarantee is full
      and  unconditional,  and joint and several.  Telmark and Insurance finance
      their activities through operations and, in the case of Telmark, also with
      a combination of short- and long-term credit facilities.

      Major  holdings of AHI include Agway Energy  Products LLC and Agway Energy
      Services Inc. (Energy),  Telmark LLC and its subsidiaries  (Leasing),  and
      Agway  Insurance  Company  and  Agway  General  Agency  Inc.  (Insurance).
      Effective  June  26,  1999,  Agway  Consumer  Products  Inc.,  a  Delaware
      corporation  and former  holding of AHI, was merged into Agway Inc.  Agway
      Consumer  Products  Inc.  held the assets and business  operations  of the
      former Retail  segment and certain  assets and business  operations of the
      Country Products Group and Agriculture.  This merger into Agway aligns the
      legal  structure more closely with the  management  structure of Agway and
      facilitates   the   ability  to  manage   these   assets  and   businesses
      prospectively. The December 1998 results as shown below have been restated
      to reflect this merger.

      In exemptive relief granted pursuant to a "no action letter" issued by the
      staff of the SEC,  AFC is not required to file  periodic  reports with the
      SEC for itself but does report summarized financial information in Agway's
      financial statement footnotes. As required by the 1934 Act, the summarized
      financial information  concerning AFC and consolidated  subsidiaries is as
      follows:
<TABLE>
<CAPTION>
                                                         Three Months Ended                       Six Months Ended
                                                            December 31,                            December 31,
                                                 ------------------------------------     ------------------------------------
                                                                          Restated                                 Restated
                                                       1999                 1998                1999                 1998
                                                 ----------------     ---------------     ----------------     ---------------

           <S>                                   <C>                  <C>                 <C>                  <C>
           Net sales and revenues..............  $       196,030      $       150,629     $       328,294      $       269,028
           Operating earnings (loss)...........           11,074                9,974               4,548               11,645
           Net earnings (loss).................            3,190               (1,933)             (5,095)              (5,956)
</TABLE>

<TABLE>
<CAPTION>
                                                                                            December 31,            June 30,
                                                                                                1999                 1999
                                                                                          ----------------     ----------------
           <S>                                                                            <C>                  <C>
           Current assets...............................................................  $       657,116      $       567,602
           Properties and equipment, net................................................           85,084               86,018
           Noncurrent assets............................................................          588,580              557,688
                                                                                          ----------------     ----------------
           Total assets.................................................................  $     1,330,780      $     1,211,308
                                                                                          ================     ================

           Current liabilities..........................................................  $       121,917      $        67,391
           Short-term notes payable.....................................................          166,602               81,800
           Current installments of long-term debt.......................................           89,791               92,268
           Current installments of subordinated debt....................................           72,855               76,968
           Long-term debt...............................................................          276,704              264,021
           Subordinated debt............................................................          389,034              409,335
           Noncurrent liabilities.......................................................           23,248               23,262
           Shareholder's equity.........................................................          190,629              196,263
                                                                                          ----------------     ----------------
           Total liabilities and shareholder's equity...................................  $     1,330,780      $     1,211,308
                                                                                          ================     ================
</TABLE>

                                        8

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.    BORROWING ARRANGEMENTS
      ----------------------
      As of December  31,  1999,  Agway had certain  facilities  available  with
      banking  institutions  whereby  lenders have agreed to provide funds up to
      $396,700 to separately  financed units of Agway as follows:  AFC - $65,000
      and  Telmark -  $331,700.  In  addition,  AFC may issue up to  $50,000  of
      commercial paper under the terms of a separate agreement, backed by a bank
      standby letter of credit.

      AFC
      As of December 31, 1999,  AFC's available bank  facilities  consisted of a
      short-term  line of  credit.  This  facility  and AFC's  ability  to issue
      commercial paper require  collateralization using certain of the Company's
      accounts  receivable and  non-petroleum  inventories  ("collateral").  The
      maximum  amounts which can be drawn under these AFC agreements are subject
      to a limitation based on a specific calculation relating to the collateral
      available.  Adequate  collateral has existed throughout the fiscal year to
      permit  AFC to borrow  amounts to meet the  ongoing  needs of Agway and is
      expected to continue  to do so. The line of credit also  requires  Agway's
      investment  in bank  stock as  additional  collateral.  In  addition,  the
      agreements  include  certain  covenants,  the  most  restrictive  of which
      require Agway to maintain specific  quarterly levels of interest coverage,
      monthly  levels of tangible  retained  earnings,  and quarterly  levels of
      senior  debt  to  earnings  before  interest,   tax,   depreciation,   and
      amortization.

      The Company's  long-term  revolving line of credit expired on December 31,
      1999.  The  short-term  line of credit and  commercial  paper program were
      renewed  through  December  2000  at  a  level   management   believes  is
      appropriate and adequate to meet the Company's  ongoing  financing  needs.
      Based on  negotiations  with  the  lenders,  the  terms,  conditions,  and
      financial  covenants of these arrangements have been made more restrictive
      and costs have increased. Given the historical volatility of the Company's
      operating   results,   these  more  restrictive   covenants  increase  the
      possibility  of future  covenant  violations.  The  Company  believes  the
      lenders continue to be supportive of the Company,  and the Company expects
      to have ongoing  discussions  with the lenders as management  executes the
      Company's business plans.

      The specifics of the current arrangements are as follows:
<TABLE>
<CAPTION>
                                                                                    Outstanding
                                                             Available     -----------------------------
                                                             12/31/99         12/31/99          6/30/99      Term Expires
                                                         ---------------   --------------   ------------     ------------
<S>                                                      <C>               <C>              <C>                  <C>
      Short-term line of credit*......................   $       75,000    $       39,600   $          0         12/31/00
      Commercial paper................................   $       50,000    $       50,000   $     38,500         12/31/00
</TABLE>
      *AFC's  short-term  line of credit  facility  decreases  to  $65,000  from
      January 1, 2000, through March 31, 2000, and decreases again to $50,000 at
      April 1, 2000,  through  December  31,  2000,  to reflect  the  decline in
      seasonal financing needs and expected future financing requirements.

      In  addition,   Agway,  through  AFC,  offers  subordinated  money  market
      certificates  (and  previously  offered  subordinated  debentures)  to the
      public. AFC's subordinated debt is not redeemable by the holder.  However,
      AFC does have a practice  of  repurchasing  at face value,  plus  interest
      accrued at the stated rate,  certain  subordinated debt whenever presented
      for repurchase. The foregoing debt bears interest payable semi-annually on
      January  l  and  July  1 of  each  year.  The  subordinated  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 2000 and October 2014 bear a weighted average interest
      rate of 7.9%, while subordinated debentures due between July 2001 and July
      2003 bear a weighted average interest rate of 7.7%.


                                                                  9

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.    BORROWING ARRANGEMENTS (continued)
      ----------------------------------
      Telmark
      As of December 31, 1999,  Telmark's available credit facilities from banks
      allow  Telmark  to  borrow up to an  aggregate  of  $331,700.  Uncommitted
      short-term  line of  credit  agreements  permit  Telmark  to  borrow up to
      $81,700 on an uncollateralized basis with interest paid upon maturity. The
      lines bear interest at money market variable  rates. A committed  $250,000
      partially  collateralized revolving line of credit 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 total amount
      outstanding as of December 31, 1999,  under the short-term lines of credit
      was $15,900 and under the revolving  term loan  facility was $246,100,  of
      which  $185,000  was  long-term.  As of June 30,  1999,  the total  amount
      outstanding was $35,000 under the short-term lines of credit and under the
      revolving  term  loan  facility  was  $168,000,   of  which  $148,000  was
      long-term.  The  uncommitted  lines of credit  expire  within  the next 12
      months, and the $250,000 revolving term loan facility is available through
      August 1, 2000.

      Telmark had balances  outstanding  on unsecured  senior notes from private
      placements  totaling  $122,000 at December 31, 1999,  and $146,000 at June
      30, 1999. The principal bears interest at fixed rates ranging from 6.5% to
      7.6%. The principal payments commence November 2000 with final installment
      due in May 2004.  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  several  specific  financial
      covenants.

      Telmark,  through  two wholly  owned  special  purpose  subsidiaries,  has
      lease-backed  notes payable to insurance  companies that total $56,400 and
      $58,800 at December 31 and June 30, 1999, respectively.  Interest rates on
      different  classes of these notes  range from 6.5% to 7.6%.  The notes are
      collateralized by leases, which Telmark sold to these subsidiaries, having
      an aggregate  present value of  contractual  lease  payments  equal to the
      principal  balance of the notes.  The final  scheduled  maturity  of these
      notes is December 2007.

      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 is allowed to be reinvested.

      The Company's  long-term and subordinated debt outstanding at December 31,
      1999, as compared to June 30, 1999, is as follows:
<TABLE>
<CAPTION>
                                                                      AFC
                                           Agway              (excluding Telmark)           Telmark                   Total
                                  -----------------------  -----------------------  ----------------------   ----------------------
                                     12/99        6/99        12/99        6/99        12/99       6/99         12/99        6/99
                                  ----------  ----------   ----------  ----------   ----------  ----------   ----------   ---------
      <S>                         <C>         <C>          <C>         <C>          <C>         <C>          <C>          <C>
      Long-term debt ..........   $   14,516  $   17,827   $    3,077  $    3,488   $  363,418  $  352,801   $  381,011   $ 374,116
      Currently payable........        2,435       2,431          802         807       88,989      91,461       92,226      94,699
                                  ----------  ----------   ----------  ----------   ----------  ----------   ----------   ---------
      Net long-term debt.......   $   12,081  $   15,396   $    2,275  $    2,681   $  274,429  $  261,340   $  288,785   $ 279,417
                                  ==========  ==========   ==========  ==========   ==========  ==========   ==========   =========

      Subordinated debt........   $        0  $        0   $  420,431$    448,670   $   41,457  $   37,633   $  461,888   $ 486,303
      Currently payable........            0           0       54,227      58,768       18,628      18,200       72,855      76,968
                                  ----------  ----------   ----------  ----------   ----------  ----------   ----------   ---------
      Net subordinated debt....   $        0  $        0   $  366,204  $  389,902   $   22,829  $   19,433   $  389,033   $ 409,335
                                  ==========  ==========   ==========  ==========   ==========  ==========   ==========   =========
</TABLE>




                                       10

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


4.    COMMITMENTS AND CONTINGENCIES
      -----------------------------
      Environmental
      Agway and its  subsidiaries  are subject to various laws and  governmental
      regulations concerning  environmental matters. We expect to be required to
      expend funds to participate in the remediation of certain sites, including
      sites where we have 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.  We will also incur other expenses
      associated with environmental compliance.

      Agway is  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 Agway could be required to pay in excess
      of its pro rata share of remediation costs.  Agway's  understanding of the
      financial  strength  of  other  PRPs at  these  Superfund  sites  has been
      considered,   where   appropriate,   in  determination  of  its  estimated
      liability.

      We  continually   monitor  our   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 can be estimated.  Estimates of
      the extent of our degree of  responsibility  of 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. However,
      we believe that past experience provides a reasonable basis for estimating
      our liability. As additional information becomes available,  estimates are
      adjusted as necessary. While we do not anticipate that any such adjustment
      would be material to our 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  liabilities
      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 Agway's liquidity position.

      Other
      Agway  is also  subject  to  various  investigations,  claims,  and  legal
      proceedings  covering a wide range of matters  that arise in the  ordinary
      course of our  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 Agway. We have 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 Agway.



                                       11

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


5.    FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
      --------------------------------------------------
      Agway is an agricultural  cooperative  directly engaged in  manufacturing,
      processing, distribution, and marketing of agricultural feed and agronomic
      products  and  services  for  its   farmer-members  and  other  customers,
      primarily in the  northeastern  United States and Ohio.  Agway reports its
      operations principally in five business segments. Total sales and revenues
      of each  industry  segment  includes  the sale of products and services to
      unaffiliated  customers,  as reported in the Agway consolidated statements
      of  operations,  as well as sales to other  segments  of Agway  which  are
      competitively priced.

      The Other  category  within the  summary  of  business  segments  includes
      intersegment  eliminations  and  interest.  The category also includes net
      corporate  expenses and pension income.  Finally,  interest income for the
      Leasing segment is reported as "Net Sales and Revenues."
<TABLE>
<CAPTION>
                                                           Three Months Ended December 31, 1999
                               -------------------------------------------------------------------------------------------
                                               Country
                                               Products
                               Agriculture      Group         Energy      Leasing    Insurance     Other(a)   Consolidated
                               -----------   ------------   -----------  ---------   ----------   ---------   ------------
<S>                            <C>           <C>            <C>          <C>         <C>          <C>         <C>
Net sales and revenues to
  unaffiliated customers.....  $   138,626   $     42,549   $   159,366  $  19,051   $    6,980   $     (2)   $   366,570
Intersegment sales and
  revenues...................          464          4,194           100          5            0     (4,763)             0
                               -----------   ------------   -----------  ---------   ----------   ---------   ------------
    Total sales and revenues   $   139,090   $     46,743   $   159,466  $  19,056   $    6,980   $  (4,765)  $    366,570
                               ===========   ============   ===========  =========   ==========   =========   ============

Earnings (loss) before
   income taxes..............  $   (15,036)  $       (893)  $     6,129  $   4,556   $      (42)  $  (7,520)  $    (12,806)
                               ===========   ============   ===========  =========   ==========   =========   ============

Total assets.................  $   341,437   $     78,079   $   176,147  $ 629,642   $   55,641   $ 252,316   $  1,533,262
                               ===========   ============   ===========  =========   ==========   =========   ============

<CAPTION>
                                                            Three Months Ended December 31, 1998
                               -------------------------------------------------------------------------------------------
                                                Country
                                                Products
                               Agriculture       Group        Energy      Leasing    Insurance     Other(a)   Consolidated
                               -----------   ------------   -----------  ---------   ----------   ---------   ------------
<S>                            <C>           <C>            <C>          <C>         <C>          <C>         <C>
Net sales and revenues to
  unaffiliated customers.....  $   136,582   $     37,372   $   118,440  $  17,576   $    7,597   $      11   $    317,578
Intersegment sales and
  revenues...................           22          4,193           136          7            0      (4,358)             0
                               -----------   ------------   -----------  ---------   ----------   ---------   ------------
   Total sales and revenues    $   136,604   $     41,565   $   118,576  $  17,583   $    7,597   $  (4,347)  $    317,578
                               ===========   ============   ===========  =========   ==========   ==========  ============

Earnings (loss) before
   income taxes..............  $   (15,714)  $      1,813   $     2,875  $   4,020   $     (194)  $  (2,789)  $     (9,989)
                               ===========   ============   ===========  =========   ==========   =========   ============

Total assets.................  $   345,595   $     60,996   $   131,847  $ 554,995   $   56,673   $ 237,317   $  1,387,423
                               ===========   ============   ===========  =========   ==========   =========   ============

</TABLE>

(a)    Represents unallocated net corporate items and intersegment eliminations.


                                       12

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
5.             FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (continued)
               --------------------------------------------------------------


                                                              Six Months Ended December 31, 1999
                               ---------------------------------------------------------------------------------------
                                               Country
                                               Products
                               Agriculture      Group       Energy      Leasing    Insurance    Other(a)   Consolidated
                               -----------   -----------  ----------   ---------   ---------   ---------   ------------
<S>                            <C>           <C>          <C>          <C>         <C>         <C>         <C>
Net sales and revenues to
  unaffiliated customers.....  $   290,280   $    85,816  $  256,055   $  37,317   $  13,960   $       3   $    683,431
Intersegment sales and
  revenues...................          689         7,116         200          10           0      (8,015)             0
                               -----------   -----------  ----------   ---------   ---------   ----------  ------------
    Total sales and revenues   $   290,969   $    92,932  $  256,255   $  37,327   $  13,960   $  (8,012)  $    683,431
                               ===========   ===========  ==========   =========   =========   =========   ============

Earnings (loss) before
   income taxes..............  $   (31,282)  $      (690) $   (5,891)  $   8,399   $      (7)  $  (9,711)  $    (39,182)
                               ===========   ===========  ==========   =========   =========   =========   ============

Total assets.................  $   341,437   $    78,079  $  176,147   $ 629,642   $  55,641   $ 252,316   $  1,533,262
                               ===========   ===========  ==========   =========   =========   =========   ============

<CAPTION>
                                                              Six Months Ended December 31, 1998
                               ----------------------------------------------------------------------------------------
                                               Country
                                               Products
                               Agriculture       Group      Energy      Leasing    Insurance    Other(a)   Consolidated
                               -----------   -----------  ----------   ---------   ---------   ---------   ------------
<S>                            <C>           <C>          <C>          <C>         <C>         <C>         <C>
Net sales and revenues to
  unaffiliated customers.....  $   293,639   $    73,493  $  204,180   $  34,483   $  14,563   $      60   $    620,418
Intersegment sales and
  revenues...................           49         6,557         247          13           0      (6,866)             0
                               -----------   -----------  ----------   ---------   ---------   ---------   ------------
   Total sales and revenues    $   293,688   $    80,050  $  204,427   $  34,496   $  14,563   $  (6,806)  $    620,418
                               ===========   ===========  ==========   =========   =========   =========   ============

Earnings (loss) before
   income taxes..............  $   (33,746)  $    13,335  $   (2,440)  $   7,441   $    (188)  $  (3,941)  $    (19,539)
                               ===========   ===========  ==========   =========   ==========  =========   ============

Total assets.................  $   345,595   $    60,996  $  131,847   $ 554,995   $   56,673  $ 237,317   $  1,387,423
                               ===========   ===========  ==========   =========   ==========  =========   ============

</TABLE>

(a)    Represents unallocated net corporate items and intersegment eliminations.




                                       13

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


6.    RETAIL RESTRUCTURING PLAN
      -------------------------
      On October 19, 1999, the Board of Directors approved a plan to restructure
      the retail  operations  within Agway's  Agriculture  segment.  The plan is
      intended to improve the  operating  results in our retail  operations  and
      provide a greater  opportunity  to meet  customer  needs with  products we
      manufacture and sell. The restructuring  will focus on converting  Agway's
      retail distribution into a dealer-based system by converting a majority of
      the Agway-operated retail stores into dealer-operated stores and by adding
      additional retail dealer-operated stores to the currently operating retail
      dealer system.  As of the beginning of the current fiscal year, there were
      approximately 160  Agway-operated  stores and 300 retail dealer stores. It
      is expected that this conversion of Agway-operated  stores will take place
      in a series of transactions  with numerous  counter- parties over the next
      two fiscal years and that certain  locations will be sold for  alternative
      uses. During this transition period, we expect continued  operating losses
      from our retail  operations,  but at a reduced  level as  compared  to the
      prior  year.  It is  probable  that  there will be costs for such items as
      severance  pay and  inventory  liquidation.  Further,  it is expected that
      there  will be gains,  and it is  possible  that  there  could be  losses,
      related to the sale or conversion of these retail business locations.  The
      level of gain or loss will be determined  on a  transaction-by-transaction
      basis  over the  transition  period  and cannot  presently  be  reasonably
      estimated for all locations.  As costs associated with these restructuring
      transactions become probable and can be reasonably estimated, they will be
      accrued.  The  estimated  losses  accrued as of  December  31,  1999,  for
      business  locations where  transactions are probable and can be reasonably
      estimated  totaled $300.  Additionally,  one cost that has been  estimated
      currently and recorded in the second quarter is a $5,800  non-cash  charge
      to earnings to currently recognize the effect of the retail  restructuring
      plan  on  the  Company's  retirement  benefit  plans  in  accordance  with
      curtailment accounting requirements.

      As of December 31, 1999, the retail restructuring efforts have resulted in
      11 stores being converted to dealers, 12 stores/properties being sold, and
      10  stores  being  closed.  Additionally,   several  other  locations  are
      currently  under  negotiations,  some of which have a commitment in place.
      This activity has generated approximately $5,400 in net cash from the sale
      of fixed assets and inventory.  To date, the following represents the gain
      or loss from the retail restructuring:

           Net gain on sale of assets.......................   $      1,900
           Loss of sale/liquidation of inventory............           (800)
           Severance costs..................................           (100)
           Other transaction costs(1).......................           (400)
                                                               -------------
                Net gain (loss) on restructuring activity...   $        600
                                                               =============

           (1) Other  transaction  costs  include  items  such  as  professional
           services fees, environmental surveys and advertising.



                                       14

<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
---------------------
Agway 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 forward-looking  statement made
by, or on behalf of, Agway. Where any such forward-looking  statement includes a
statement of the assumptions or basis underlying such forward-looking statement,
Agway  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, Agway, 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 "intend,"  "believe,"  "expect," and  "anticipate"  and
phrases  "it is  probable"  and "it is  possible"  or  similar  words or phrases
identify forward-looking statements.

Agway'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  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.  Country Products Group,  Leasing, and Insurance are not
materially impacted by seasonal fluctuations.

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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of $366,600 and $683,400 for the three and
six months ended December 31, 1999,  increased  $49,000 (15%) and $63,000 (10%),
respectively,  as compared to the same periods in the prior year.  The increases
were substantially the result of increased sales in the Energy, Country Products
Group,  and Leasing  segments.  The  increase in Energy was  principally  due to
increases in the cost of petroleum  products  over the prior year  combined with
volume improvements.  The increase in Country Products Group sales resulted from
new  acquisitions  in the current year in its Produce  Group's  operations.  The
Leasing improvement was from continued growth of the lease portfolio.  The sales
increases during the three months ended December 31, 1999, were further enhanced
by increased sales in the Agriculture segment from a growth in the feed business
and from improved  wholesale  dealer sales,  a direct result of the  Agriculture
segment concentrating on enhancing its relationship with these dealers. However,
the Company's sales  increases in the six-month  period ended December 31, 1999,
were partially offset by lower agronomy sales,  which resulted primarily from an
industry-wide  decline in commodity pricing and drought  conditions in the first
quarter of this year,  and reduced retail sales,  which resulted  primarily from
planned store  closings as part of the retail  restructuring,  the net effect of
which was a sales decline for  Agriculture  in the first six months of this year
(see  Note  6 of  the  Condensed  Consolidated  Financial  Statements  for  more
discussion on the retail restructuring).



                                       15

<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)


Consolidated Results (continued)
--------------------------------
Consolidated  pre-tax loss from  operations of $12,800 and $39,200 for the three
and six months  ended  December  31,  1999,  increased  $2,800 (28%) and $19,600
(100%), respectively, as compared to the same periods in the prior year. The two
principal  reasons for the  difference  in operating  results are a $10,700 gain
recorded  in the first  quarter  of last  year on the sale of Allied  Seed and a
$5,800  non-cash charge to earnings in the three months ended December 31, 1999,
to  currently  recognize  the  effect of the  retail  restructuring  plan on the
Company's  retirement  benefit plans in accordance with  curtailment  accounting
requirements.  From  operations,  the three  months  ended  December  31,  1999,
improved  $3,000  over  the  prior  year.   Improvements  in  Energy,   Leasing,
Agriculture,  and  Insurance  were offset by the  decreases in Country  Products
Group.  For the six months  ended  December 31, 1999,  business  unit  operating
results declined  $3,100.  Improvements in Agriculture,  Leasing,  and Insurance
were more than offset by reduced earnings in Country Products Group and Energy.

See the detailed business segment discussion below.

Agriculture
-----------
Total  Agriculture sales and revenues of $139,100 and $291,000 for the three and
six months ended December 31, 1999,  increased  $2,500 (2%) and decreased $2,700
(1%), respectively, as compared to the same periods in the prior year.

The increase in sales for the three-month period was due principally from growth
in the enterprise feed business and increases in wholesale  dealer sales,  which
were  partially  offset by  decreases  in  enterprise  retail  sales and  direct
marketing sales.  Enterprise feed sales increased $2,700 (5%) on the strength of
a unit volume increase over the same period in the prior year.  Wholesale dealer
sales improved $3,300 (28%) in the second quarter as compared to the same period
in the prior year,  principally  from the efforts made in the fourth  quarter of
fiscal 1999 to improve  existing  dealer  relationships  and  partially  from an
increase  in new  dealers as part of the  retail  restructuring  plan  initiated
during  the  second  quarter  of  this  year.  (See  Note  6  of  the  Condensed
Consolidated   Financial   Statements   for  more   discussion   on  the  retail
restructuring  plan.) These sales  improvements  were partially offset by a $900
(2%) decline in  enterprise  retail  sales,  where retail  sales  declined  from
planned store  closings  associated  with the retail  restructuring  plan, and a
$2,100 (19%) decline in direct marketing sales,  substantially  due to a planned
reduction  of grain  marketing  operations  during  the first six months of this
year.

For the six-month period, we experienced  declines in enterprise  agronomy sales
of $4,900  (11%),  enterprise  retail  sales from  planned  store  closings  and
conversions of $4,300 (5%), and direct  marketing  sales of $1,500,  principally
from planned  reduced grain  marketing  sales.  These  reductions were partially
offset by increases in enterprise feed sales,  $3,500 (3%), and wholesale dealer
sales,  $4,800 (18%).  The agronomy decline was principally in the first quarter
due to  industry-wide  low  commodity  prices of nitrogen  products  and drought
conditions  in parts of our service  area during that  quarter.  The other sales
fluctuations  were for the same reasons as in the three-month  period  described
above.





                                       16

<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)
-----------------------
Agriculture  pre-tax  loss of $15,000  and  $31,300 for the three and six months
ended December 31, 1999, decreased $700 (4%) and $2,500 (7%),  respectively,  as
compared to the same periods in the prior year.

The improvement to pre-tax results in the three-month  period as compared to the
same  period  in the  prior  year  resulted  from  lower  costs,  $900  (17%) in
enterprise agronomy operations, $1,400 (79%) in wholesale operations, and $1,400
in retail support costs,  all of which were partially  offset by increased costs
($1,300  (23%)) in the  enterprise  feed  operations,  $800 from  lower  product
rebates,  and $900 from direct  marketing.  The reduced costs in both  wholesale
operations  and  retail  support  result  from the  consolidation  of the retail
structure  and  management  into the  enterprises  and the  wholesale  operation
restructuring  which took place in April 1999.  The decline in direct  marketing
earnings is principally  related to grain  marketing  earnings of $700 last year
from unauthorized speculative transactions.

The  improvements to pre-tax results for the six-month period ended December 31,
1999,  as compared to the same period in the prior year,  resulted from improved
results, $2,200 (22%) in direct marketing, $1,500 (77%) in wholesale operations,
and a $3,000 decline in retail and  administrative  support costs,  all of which
were partially offset by declines, $1,900 (19%) in enterprise feed, $500 (8%) in
enterprise  agronomy,  $600 (9%) in enterprise  retail  operating  results,  and
$1,000 less in product rebates.  Direct marketing improved  substantially due to
lower losses in the grain  marketing  operations as operating  losses  decreased
from  $5,200 in the first six  months of the prior  year to $1,900  for the same
period in the current  year.  As  disclosed in the  Company's  Form 10-K for the
fiscal  year ended June 30,  1999,  net  pre-tax  losses  totaling  $5,000  from
unauthorized  speculative  activity occurred in the first half of fiscal 1999 as
compared  to the  current  year loss,  where  $1,300 of costs were  incurred  in
closing the unauthorized speculative positions that were outstanding at June 30,
1999.  The direct  marketing  improvements  to  results  over last year in grain
marketing  were  partially  reduced in the current year by lower earnings in the
seed business, as major changes in this industry have reduced these results, and
from increased  costs  associated  with the  acquisition and operations of a new
consulting operation. The reduced results in agronomy for the six months reflect
the decreased earnings in the first quarter from low gross margins brought about
by  industry-wide  conditions and drought in specific parts of our service area.
The earnings  fluctuations in wholesale  operations,  retail support costs, feed
enterprise  operations,  and  retail  enterprise  operations  were  for the same
reasons as in the three-month period described above.



                                       17

<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)

Country Products Group
----------------------
Country Products Group (CPG) total sales and revenues of $46,700 and $92,900 for
the three and six months ended  December 31,  1999,  increased  $5,200 (13%) and
$12,900 (16%), respectively,  as compared to the same periods in the prior year.
The growth in sales over the prior year in the three- and six-month  periods was
substantially  in the Produce  Group,  where sales  increased  $7,200  (30%) and
$13,600  (28%),  respectively.  The Produce Group sales growth in the three- and
six-month  periods  of  $8,700  and  $13,400,   respectively,  was  due  to  the
acquisition  of new produce  businesses in the second half of the prior year and
in the first quarter of the current year.  The sales growth in the Produce Group
was partially  offset by declines in sales in the Business Group of $3,200 (18%)
for the three-month  period and $600 (2%) for the six-month period. The Business
Group sales decline  resulted  principally  from a poor sunflower seed crop this
year.

CPG pre-tax  losses of $900 and $700 for the three and six months ended December
31, 1999,  are  compared to pre-tax  earnings of $1,800 and $13,300 for the same
periods in the prior  year.  The prior year first  quarter  earnings  included a
$10,700 net improvement in results relating to the sale of Allied seed business.
CPG earnings from ongoing  operations  declined  $2,700 (150%) and $3,300 (127%)
for the three- and  six-month  periods,  respectively,  as  compared to the same
periods in the prior year. In the three-month  period,  pre-tax earnings related
to the Business Group declined $1,700. The Business Group's sunflower operations
experienced  lower  margins due to high product  costs in the first  quarter and
increased  production  costs  in  the  second  quarter  associated  with  a poor
sunflower  crop this fall that was  widespread  in its  territory due to adverse
growing conditions. For the Produce Group, gross margin from increased sales was
at a lower  percent  than the prior year and was more than offset by  additional
costs,  principally from the new produce operations.  Consequently,  the Produce
Group's pre-tax earnings  decreased $600 and $1,200 for the three- and six-month
periods,  respectively.  CPG's  Investment  Group  experienced  an increase in a
pre-tax  loss  of  $700  and  $1,900  for  the  three-  and  six-month  periods,
respectively,  as it  continues  to  incur  costs  related  to  several  of  its
initiatives for future growth.

Energy
------
Energy  sales and revenues of $159,500 and $256,300 for the three and six months
ended   December  31,  1999,   increased   $40,900  (35%)  and  $51,800   (25%),
respectively,  as compared to the same periods in the prior year. Overall, sales
dollar  increases  from  product  volume  increases  were $7,900 (7%) during the
three-month period and $8,400 (4%) during the six-month period, respectively, as
compared to the same  periods in the prior year.  Increased  cost of  underlying
commodities  caused  sales  prices to  increase  this year.  As  compared to the
respective  periods in the prior year, sales dollars increased $28,400 (24%) for
the   three-month   period  and  $35,200  (17  %)  for  the  six-month   period.
Additionally,  sales  increases in the three and six months  ended  December 31,
1999, of $4,600 and $8,200, respectively,  resulted from the continued growth of
revenues in heating,  ventilation and air-conditioning  installation and service
sales and  continued  sales  growth in the  electric  and natural gas  marketing
business.

                                       18

<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 (continued)
------------------
Energy pre-tax  earnings of $6,100 for the three months ended December 31, 1999,
increased $3,300 (113%) over the same period in the prior year. The pre-tax loss
of $5,900 for the six  months  ended  December  31,  1999,  was higher by $3,500
(141%)  than the same  period in the prior  year.  In the three-  and  six-month
periods,  overall gross margin dollars  increased  $4,700 (11%) and $2,800 (4%),
respectively,  over the same  periods in the prior  year and were  driven by the
continued growth in heating, ventilation and air-conditioning sales and services
and the increase in liquid product volume with margins comparable with the prior
year. The improved gross margin dollars,  however,  were partially offset in the
three months and more than offset in the six-month  period by increases in total
operating expenses of $1,100 (3%) and $5,700 (8%), respectively,  as compared to
the same periods in the prior year.  Payroll costs associated with the increased
service  sales  and  unit  volume  as well as  increased  administrative  costs,
principally  information  systems cost from  implementation  of a new  operating
system, increased overall operating costs from the prior year.

Leasing
-------
Total revenue of $19,100 and $37,300 for the three and six months ended December
31, 1999,  increased $1,500 (8%) and $2,800 (8%),  respectively,  as compared to
the same periods in the prior year.  These  increases  were  primarily  due to a
higher  average  investment  in leases which was partly offset by a lower income
rate on new and replacement  leases.  Telmark's average net investment in leases
increased  $63,300  (12%) in the  three-month  period and  $61,900  (12%) in the
six-month period as compared to the same periods in the prior year.

Pre-tax  earnings  from  operations  of $4,600  and $8,400 for the three and six
months  ended  December  31,  1999,  increased  $500  (13%)  and  $1,000  (13%),
respectively,  as  compared  to the same  periods in the prior  year.  The total
revenue  increases  noted  above were  partially  offset by an increase in total
expenses  of $900 (7%) for the three  months and $1,800  (7%) for the six months
ended  December 31, 1999, as compared to the same periods in the prior year. The
increase in total expenses for both periods was  substantially  due to increased
interest  expense.  The increased  interest expense is due to an increase in the
amount of debt  required  to finance  the  increase  in the lease  portfolio  as
compared  to the same  periods  in the  prior  year,  partially  offset by lower
interest rates on new and replacement debt.

Insurance
---------
Insurance  net revenues of $7,000 and $14,000 for the three and six months ended
December 31, 1999, decreased $600 (8%) and $600 (4%), respectively,  as compared
to the same periods in the prior year.  These decreases were  experienced in net
earned premiums of Agway Insurance Company.  Reinsurance premiums,  which reduce
earned revenues,  were higher in the three- and six-month periods of the current
year as compared to the same periods in the prior year due to  favorable  claims
development  during  the  prior  year in the 1995  experience-rated  reinsurance
contract,  which  resulted in lower  reinsurance  premium  cost  incurred by the
Insurance Company.

Pre-tax earnings of the Insurance Company of $100 and $300 for the three and six
months ended  December  31,  1999,  increased  $200 and $300,  respectively,  as
compared  to the same  periods in the prior  year.  The  improvement  in pre-tax
earnings for both periods resulted substantially from improved claim experience.
The  Agency  experienced  pre-tax  losses of $100 and $300 for the three and six
months ended December 31, 1999,  which  represent the same results for the three
months  ended and an  increased  loss of $100 (30%) for the six months  ended as
compared to the same periods in the prior year.


                                       19

<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  generated  from external  borrowings  and/or  operations are Agway's major
ongoing sources of funds to finance capital improvements, business acquisitions,
shareholder  dividends,  and a growing lease portfolio at Telmark. The following
is a summary of net cash flows for the six months ended December 31:
<TABLE>
<CAPTION>
                                                                                                                  Increase
                                                                                     1999            1998        (Decrease)
                                                                                  ------------   ------------   ------------
<S>                                                                               <C>            <C>            <C>
Net cash flows provided by (used in):
      Operating activities......................................................  $    (11,783)  $     37,664   $   (49,447)
      Investing activities......................................................       (50,628)       (23,463)      (27,165)
      Financing activities......................................................        62,411        (14,201)       76,612
                                                                                  ------------   ------------   ------------
Net increase (decrease) in cash and equivalents.................................  $          0   $          0   $         0
                                                                                  ============   ============   ============
</TABLE>
Cash Flows Provided By Operating Activities
The decrease in cash flows  provided by operating  activities for the six months
ended December 31, 1999, of $49,400 is  substantially  due to changes in working
capital. In the first six months of this year, working capital generated cash of
$9,400,  while for the same  time  period in the  prior  year,  working  capital
generated cash of $60,500. The Energy business is the reason for the significant
decrease in cash  generated from working  capital  activities.  The  significant
increase  of cost of  energy  commodities  in the  first  half of this  year has
increased  the cash  needs for  inventory  by $10,400 in the first six months of
this year as  compared  to  inventory  balances  declining  $3,100 over the same
period in the prior year. Also,  receivable balances increased by $29,700 in the
first six  months of this year as  compared  to  receivable  balances  declining
$3,100 over the same period in the prior year.

Cash Flows Used In Investing Activities
The net cash  flows  used in  investing  activities  increased  in the first six
months of this year by $27,200 as  compared to the first six months of the prior
year.  Cash of $14,200 was generated  during the first quarter of the prior year
from the sale of the Allied Seed business,  where no comparable sale occurred in
the current  year,  and there was a $12,000  greater net  investment  in Telmark
leases in the first six months of this year compared to last year.

Cash Flows Provided By (Used In) Financing Activities
Financing  activities for the six months ended December 31, 1999,  provided cash
of $62,400  compared  to net cash used to pay down debt of $14,200  for the same
period in the prior  year.  This  $76,600  change in cash  related to  financing
activity was  substantially  from increased  short-term  borrowings to cover the
changed requirements for cash for operations and investing activities.

The Company  finances its  operations  and the  operations of all its continuing
business and subsidiaries, except Insurance and Telmark, through Agway Financial
Corporation  (AFC).  External sources of short-term  financing for Agway and all
its other  continuing  operations  include  revolving  credit lines,  letters of
credit,  and a commercial  paper  program.  Insurance  finances  its  activities
through operations. Telmark's finance arrangements are explained below.



                                       20

<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 (continued)
-------------------------------------------
Sources of longer-term financing include the following as of December 31, 1999:
<TABLE>
<CAPTION>
                                                                                              AFC
                                                                              Agway       (excluding
Source of debt                                                                 Inc.        Telmark)        Telmark       Total
--------------                                                             -----------    ----------      ----------   ----------
<S>                                                                        <C>            <C>             <C>          <C>
Banks - due 2/00 to 5/04, interest at a weighted average
   rate of 6.8% with a range of 5.6% - 8.2%.............................   $         0    $      875      $  185,000   $  185,875
Insurance companies - due 1/00 to 3/07, interest at a
   weighted average rate of 6.8% with a range of
   6.9% - 7.5%..........................................................             0             0         178,418      178,418
Capital leases and other - due 2000 to 2018, interest at a
   weighted average rate of 9.3% with a range of 6% to 12%..............        14,516         2,202               0       16,718
                                                                           -----------    ----------      ----------   ----------
      Long-term debt....................................................        14,516         3,077         363,418      381,011
Subordinated  money  market  certificates  - due 10/00 to 10/14,
   interest  at a  weighted average rate of 7.9% with a range of
   4.5% - 9.5%..........................................................             0       412,585               0      412,585
Subordinated debentures - due 3/00 to 7/03, interest at a
   weighted average rate of 8.0% with a range of 6.0%
   to 8.5%..............................................................             0         7,846          41,457       49,303
                                                                           -----------    ----------     -----------   ----------
      Total debt........................................................   $    14,516    $  423,508     $   404,875   $  842,899
                                                                           ===========    ==========     ===========   ==========
</TABLE>
For a further  description  of the  Company's  credit  facilities  available  at
December  31,  1999,  see  Note  3  to  the  Condensed   Consolidated  Financial
Statements.

OTHER MATTERS
-------------
Year 2000
As previously  disclosed,  Agway initiated its year 2000 efforts in January 1996
and completed  extensive work to assure that the Company's  operations  were not
impacted by the century date change as of January 1, 2000.

Our efforts focused on information system  modification or replacement,  as well
as a review of all other areas  within the Company  that may be impacted by this
event.  Business contingency and continuity plans were developed,  and a command
center was established to monitor and react to critical business  interruptions,
if any, either prior or subsequent to the millennium date change.

The Company  reports it had no material  issues  relating to the millennium date
change on January 1, 2000.  Based on this  experience and the amount of work and
testing we have previously  performed,  we believe the likelihood of a year 2000
issue that would have a material effect on the results of operations, liquidity,
or financial  condition  continues to be remote as we run month-end,  leap year,
quarter-end, and year-end programs.

The Company's cost estimates  relating to year 2000 efforts have been revised in
light of the fact that no issues have arisen to date. The conversion and testing
of existing  systems and the  replacement  of systems are  estimated to cost the
Company approximately $15,900, of which 85% has been capitalized.  Additionally,
the cost to have  remediated  all other areas of the  Company was  approximately
$2,500.

The year 2000  statements set forth above are designated as "Year 2000 Readiness
Disclosures"  pursuant to the Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271).

FUTURE ACCOUNTING REQUIREMENTS
------------------------------
See Note 1 to the Condensed Consolidated Financial Statements.

                                       21

<PAGE>



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

       Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                   (Unaudited)
                             (Thousands of Dollars)


COMMODITY PRICE EXPOSURE
------------------------
In its normal course of operations, Agway has exposure to market risk from price
fluctuations  associated with commodity inventories,  product gross margins, and
anticipated transactions in its Agriculture and Energy businesses. To manage the
risk of market price fluctuations,  Agway uses commodity derivative instruments,
including   exchange-traded   futures  and  option  contracts  and,  in  limited
circumstances,   over-the-counter   contracts  with  third  parties   (commodity
instruments).  Agway has  policies  with  respect to the use of these  commodity
instruments  that  specify  what  they are to be used for and set  limits on the
maturity of contracts entered into and the level of exposure to be hedged.

In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally for gasoline,  distillate,  and propane.  They are entered into as a
hedge  against the price risk  associated  with Energy's  inventories  or future
purchases and sales of the commodities  used in its operations.  Generally,  the
price risk extends for a period of one year or less. A sensitivity  analysis has
been   prepared   to   estimate   Energy's   exposure  to  market  risk  of  its
exchange-traded  and  over-the-counter   commodity  instrument  position  as  of
December  31,  1999 and June 30,  1999.  The fair  value of such  position  is a
summation of the fair values calculated for each commodity instrument by valuing
each  position  at  quoted  futures  prices  or,  in  the  case  of  options,  a
delta-adjusted  calculated  price. The market risk of the commodity  position is
estimated as the potential loss in fair value resulting from a hypothetical  10%
change in market prices of the  underlying  commodities.  This estimated loss in
fair value does not reflect the offsetting impact of market price changes to the
underlying  commodities  that  the  commodity  instruments  are  hedging.  As of
December  31 and  June 30,  1999,  assuming  a 10%  hypothetical  change  in the
underlying  commodity  price,  the  potential  change in fair value of  Energy's
commodity instruments was $700 and $1,100, respectively.

In  the   Agriculture   segment's  feed  business,   exchange-traded   commodity
instruments are used principally to hedge corn, soy complex, and oats, which can
be sold directly as  ingredients  or included in feed  products.  Since November
1997, all transactions  involving derivative  financial  instruments in the feed
business are required to have a direct relationship to the price risk associated
with  existing  inventories  or  future  purchase  or  sale of its  products.  A
sensitivity  analysis has been prepared to estimate  Agriculture's feed business
exposure  to  market  risk  of its  exchange-traded  instrument  position  as of
December  31,  1999 and June 30,  1999.  The fair  value of such  position  is a
summation of the fair values calculated for each commodity instrument by valuing
each  position  at  quoted  futures  prices  or,  in  the  case  of  options,  a
delta-adjusted  calculated  price. The market risk of the commodity  position is
estimated as the potential loss in fair value resulting from a hypothetical  10%
change in market prices of the  underlying  commodities.  This estimated loss in
fair value does not reflect the offsetting impact of market price changes to the
underlying  commodities  that  the  commodity  instruments  are  hedging.  As of
December  31 and  June 30,  1999,  assuming  a 10%  hypothetical  change  in the
underlying  commodity price, the potential change in fair value of Agriculture's
feed business commodity instruments was not material.

In the Agriculture segment's grain marketing business, exchange-traded commodity
instruments are used to hedge inventory and forward purchase and sales contracts
for grains,  principally corn, soy complex, oats, and wheat, which are purchased
and sold by the grain  marketing  department  (the  department).  The department
historically  entered into both forward  purchase  contracts  and forward  sales
contracts  (forward  contracts)  with  farmers  and others on a variety of grain
products.  Agway's  policy  requires that the  department  enter into  generally
matched  transactions  (in both  maturity and amount) using  offsetting  forward
contracts or commodity  instruments to hedge against price  fluctuations  in the
market price of grains.  Agway  records the grain  marketing  program on a mark-
to-market  basis by  adjusting  all  outstanding  forward  contracts,  commodity
instruments, and inventory values to market value.



                                       22

<PAGE>



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

       Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
       -------------------------------------------------------------------
                                   (Unaudited)
                             (Thousands of Dollars)


COMMODITY PRICE EXPOSURE (continued)
------------------------------------
A sensitivity  analysis has been prepared to estimate the department's  exposure
to market  risk of its  exchange-  traded  commodity  instrument  position as of
December 31 and June 30, 1999. The fair value of such position is a summation of
the fair  values  calculated  for each  commodity  instrument  by  valuing  each
position at quoted futures prices or, in the case of options,  a  delta-adjusted
calculated price. The market risk of the commodity  position is estimated as the
potential loss in fair value resulting from a hypothetical  10% change in market
prices  of  the  underlying   commodities.   As  noted  above,  grain  marketing
historically  enters into generally matched  transactions to hedge against price
fluctuations.  However,  as  discussed  in prior  filings,  as of June 30, 1999,
unauthorized  speculative  positions  had  been  taken  so  that  the  commodity
instrument  activity of the department at that date was not effectively  hedging
the underlying commodities and forward contracts. As of December 31 and June 30,
1999, assuming a 10% hypothetical change in the underlying  commodity price, the
potential  change in fair value of the  department's  commodity  instruments was
$100 and $2,900, respectively.


                                       23

<PAGE>



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


Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company  held its annual  meeting of  shareholders  on November 5, 1999,  at
which a quorum was present in person or by proxy.  The following  Directors were
elected to three-year terms through November 2002:



     Nominee                 In Favor          Opposed
--------------------     ---------------     ------------
Kevin B. Barrett             54,353             2,076
Robert L. Marshman           54,353             2,076
Richard H. Skellie           54,353             2,076
Carl D. Smith                54,353             2,076
Joel L. Wenger               54.353             2,076

Eligible  additional  votes totaling 14,441 were not received at the time of the
annual  meeting  and are not  included  as  either  votes in  favor or  opposed.
Additionally,   these  14,441  eligible   additional  votes  may  be  considered
abstentions  and were not included for purposes of  determining  a quorum at the
annual meeting.

The following is a list of Directors  whose terms as Directors  continued  after
the November 5, 1999, Annual Meeting:

   Gary K. Van Slyke             - Chairman of the Board and Director
   Andrew J. Gilbert             - Vice Chairman of the Board and Director
   Kevin B. Barrett              - Director
   Keith H. Carlisle             - Director
   D. Gilbert Couser             - Director
   Ralph H. Heffner              - Director
   Robert L. Marshman            - Director
   Jeffrey B. Martin             - Director
   Samuel F. Minor               - Director
   Richard H. Skellie            - Director
   Carl D. Smith                 - Director
   Thomas E. Smith               - Director
   Joel L. Wenger                - Director
   Edwin C. Whitehead            - Director
   William W. Young              - Director


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 December 31, 1999.

                                       24

<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     February 4, 2000                    /s/ PETER J. O'NEILL
      -----------------------     ----------------------------------------------
                                                Peter J. O'Neill
                                             Senior Vice President,
                                                Finance & Control,
                                         (Principal Financial Officer and
                                              Chief Accounting Officer)










                                       25