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 September 30, 1997
                               ------------------
                                       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 October 24, 1997
 --------------------------              -------------------------------      
  Membership Common Stock,                     104,488 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 September 30, 1997 and June 30, 1997...................   3

           Condensed Consolidated Statements of Operations and Retained Margin for the three months
           ended September 30, 1997 and September 30, 1996....................................................   4

           Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1997
           and September 30, 1996.............................................................................   5

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

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


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

           Item 6.  Exhibits and Reports on Form 8-K..........................................................  14


           SIGNATURES.........................................................................................  15
</TABLE>














                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                               September 30,          June 30,
                                                                                  1997                  1997
                                                                             ---------------      --------------
ASSETS                                                                         (Unaudited)
------
<S>                                                                          <C>                  <C>    
Current Assets:
     Trade accounts receivable (including notes receivable of
       $41,744 and $44,074, respectively), less allowance for
       doubtful accounts of $8,392 and $7,864, respectively...............   $       179,232      $      209,868
     Leases receivable, less unearned income of $59,988 and
       $58,225, respectively..............................................           123,930             124,552
     Advances and other receivables.......................................            39,804              37,918
     Inventories:
       Raw materials......................................................             3,366               9,396
       Finished goods.....................................................           129,220             134,336
       Goods in transit and supplies......................................            13,778               6,908
                                                                             ---------------      --------------
         Total inventories................................................           146,364             150,640
     Prepaid expenses.....................................................            48,452              52,714
                                                                             ---------------      --------------
         Total current assets.............................................           537,782             575,692

Marketable securities available for sale..................................            35,000              35,586
Other security investments................................................            48,928              49,668
Properties and equipment, net.............................................           212,870             215,095
Long-term leases receivable, less unearned income of  $94,431 and
     $94,366, respectively................................................           342,839             320,809
Net pension asset.........................................................           152,133             100,052
Other assets..............................................................            13,343              11,355
                                                                             ---------------      --------------
         Total assets.....................................................   $     1,342,895      $    1,308,257
                                                                             ===============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable........................................................   $        92,200      $       59,200
     Current installments of long-term debt...............................           113,080             113,720
     Current installments of subordinated debt............................            63,974              62,999
     Accounts payable.....................................................           106,260             121,063
     Other current liabilities............................................           100,588             113,927
                                                                             ---------------      --------------
         Total current liabilities........................................           476,102             470,909

Long-term debt............................................................           195,883             215,975
Subordinated debt.........................................................           392,230             375,128
Other liabilities.........................................................            85,972              68,494
                                                                             ---------------      --------------
     Total liabilities....................................................         1,150,187           1,130,506
Shareholders' equity:
  Preferred stock, net....................................................            50,720              57,541
  Common stock, net.......................................................             2,616               2,639
  Retained margin.........................................................           139,372             117,571
                                                                             ---------------      --------------
     Total shareholders' equity...........................................           192,708             177,751
Commitments and contingencies.............................................
         Total liabilities and shareholders' equity.......................   $     1,342,895      $    1,308,257
                                                                             ===============      ==============

</TABLE>




     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



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


                                                                                     Three Months Ended
                                                                                        September 30,
                                                                             ------------------------------- 
                                                                                  1997             1996
                                                                             -------------     -------------
<S>                                                                          <C>               <C>
Net sales and revenues from:
     Product sales (including excise taxes)................................  $     314,957     $     329,423
     Leasing operations....................................................         15,762            13,317
     Insurance operations..................................................          6,858             6,314
                                                                             -------------     -------------
         Total net sales and revenues......................................        337,577           349,054

Cost and expenses from:
     Products and plant operations.........................................        299,908           315,650
     Leasing operations....................................................          7,049             5,956
     Insurance operations..................................................          4,200             3,952
     Selling, general and administrative activities........................         31,371            32,929
                                                                             -------------     -------------
         Total costs and expenses..........................................        342,528           358,487

Operating margin (loss)....................................................         (4,951)           (9,433)
Interest expense, net......................................................         (6,874)           (6,559)
Other income, net..........................................................          2,123               973
                                                                             -------------     -------------
Loss from operations before income taxes ..................................         (9,702)          (15,019)
Income tax benefit (expense)...............................................          2,078             4,165
                                                                             -------------     -------------
Loss from operations before cumulative effect of an accounting change......         (7,624)          (10,854)
Cumulative effect on prior years (to June 30, 1997) of an accounting
     change, net of tax expense of $16,500.................................         28,956
                                                                             -------------     -------------
Net margin (loss)..........................................................  $      21,332     $     (10,854)

Retained Margin:
     Balance at beginning of period........................................        117,571           110,714
     Adjustment to unrealized gains (losses) on available-for-sale
         securities, net of tax............................................            469                80
                                                                             -------------     -------------
Balance at end of period...................................................  $     139,372     $      99,940
                                                                             =============     =============

</TABLE>


















     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

<TABLE>
<CAPTION>
                                                                                     Three Months Ended
                                                                                       September 30,
                                                                             --------------------------------
                                                                                  1997              1996
                                                                             ---------------   --------------
<S>                                                                          <C>               <C>
Net cash flows provided by (used in) operating activities.................   $         5,995   $       (7,286)

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment...........................            (8,004)          (1,898)
     Proceeds from disposal of property, plant and equipment..............             3,865            2,948
     Proceeds from disposal of businesses.................................                              5,234
     Cash paid for acquisitions...........................................            (1,458)
     Leases originated....................................................           (60,869)         (46,485)
     Leases repaid........................................................            37,864           34,069
     Proceeds from sale of marketable securities..........................             5,677            2,410
     Purchases of marketable securities...................................            (4,694)          (3,452)
     Net purchase of investments in related cooperatives..................               740           (1,551)
                                                                             ---------------   ---------------

Net cash flows used in investing activities...............................           (26,879)          (8,725)


Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings..................................            32,610           16,900
     Proceeds from long-term debt.........................................               354            7,541
     Repayment of long-term debt..........................................           (21,113)         (17,840)
     Proceeds from sale of subordinated debt..............................            30,416           19,612
     Maturity and redemption of subordinated debt.........................           (12,339)          (6,343)
     Payments on capital leases...........................................               (51)            (221)
     Redemption of stock, net ............................................            (6,844)          (1,428)
     Cash dividends paid..................................................            (2,149)          (2,210)
                                                                             ---------------   ---------------

Net cash flows provided by financing activities...........................            20,884           16,011
                                                                             ---------------   ---------------

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

Cash and equivalents at end of period.....................................   $             0   $            0
                                                                             ===============   ===============

</TABLE>













     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



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

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


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

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


2.   AGWAY FINANCIAL CORPORATION
     ---------------------------
     Agway  Financial  Corporation  (AFC) is a wholly  owned  subsidiary  of the
     Company whose principal  business  activity is securing  financing  through
     bank borrowings and issuance of corporate debt instruments to provide funds
     for the Company and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
     (AHI), and AHI's subsidiaries,  for general corporate purposes. The payment
     of principal and interest on this debt is  guaranteed by the Company.  This
     guarantee is full and unconditional, and joint and several. In an exemptive
     relief granted  pursuant to a "no action letter" issued by the staff of the
     Securities  and Exchange  Commission,  AFC, as a separate  company,  is not
     required to file  periodic  reports with respect to these debt  securities.
     However, as required by the 1934 Act, the summarized financial  information
     concerning AFC and consolidated subsidiaries is as follows:
<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                                                                       September 30,
                                                                             --------------    -------------
                                                                                  1997             1996
                                                                             --------------    -------------
         <S>                                                                 <C>               <C>
         Net sales and revenues............................................  $      232,535    $     240,734
         Operating margin (loss)...........................................             275           (1,267)
         Net loss..........................................................          (7,371)          (2,816)


                                                                              September 30,       June 30,
                                                                                  1997              1997
                                                                             --------------    -------------
         Current assets....................................................  $      516,626    $     530,509
         Properties and equipment, net.....................................         152,519          155,969
         Noncurrent assets.................................................         432,543          409,670
                                                                             --------------    -------------
         Total assets......................................................  $    1,101,688    $   1,096,148
                                                                             ==============    =============

         Current liabilities...............................................  $      285,823    $     272,674
         Long-term debt....................................................         192,017          209,296
         Subordinated debt.................................................         392,230          375,128
         Noncurrent liabilities............................................          16,959           17,813
         Shareholder's equity..............................................         214,659          221,237
                                                                             --------------    -------------
         Total liabilities and shareholder's equity........................  $    1,101,688    $   1,096,148
                                                                             ==============    =============

</TABLE>

                                        6

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS
     ----------------------
     Agway and AFC
     As of September 30, 1997, the Company had certain facilities available with
     banking  institutions  whereby  lenders have agreed to provide  funds up to
     $327,000 to  separately  financed  units of the  Company as follows:  AFC -
     $70,000 and Telmark - $257,000. In addition, AFC may issue up to $50,000 of
     commercial  paper  under the  terms of a  separate  agreement,  backed by a
     letter of credit.

     The  $70,000  line of  credit  available  to AFC and its  ability  to issue
     $50,000 of commercial paper require  collateralization using certain of the
     Company's accounts receivable and non-petroleum inventories ("collateral").
     Amounts which can be drawn under the AFC short-term  agreements are limited
     to a specific  calculation  based upon the collateral  available.  Adequate
     collateral  has existed  throughout the fiscal year to permit AFC to borrow
     amounts  to meet  the  ongoing  needs of the  Company  and is  expected  to
     continue to do so. In addition,  the agreements  include certain covenants,
     the most  restrictive  of which  requires the Company to maintain  specific
     quarterly  levels of  interest  coverage  and  monthly  levels of  tangible
     retained  margins.  The amounts  outstanding as of September 30, 1997 under
     AFC's  $70,000  line of credit  and  $50,000  commercial  paper were $0 and
     $37,200,  respectively.  The  Company's  current  line of  credit  facility
     continues  through  January 1, 1998 and  provides a  seasonal  increase  to
     $100,000,  which becomes  effective  October 1, 1997. The Company's current
     commercial paper program  continues  through December 31, 1997. The Company
     has  ongoing  discussions  with its lenders and expects to continue to have
     appropriate and adequate financing to meet its ongoing needs.

     Annually, Agway, through AFC, offers subordinated money market certificates
     to the public. Of AFC's  subordinated debt at September 30, 1997,  $350,118
     is  redeemable  in whole or in part at the  principal  amount plus  accrued
     interest,  prior to  maturity  dates,  at the  option of the  Company.  The
     foregoing debt bears interest payable semi-annually on January l and July 1
     of each  year.  The  money  market  certificates'  interest  rate is at 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.

     Telmark
     As of  September  30,  1997,  Telmark had two  separate  credit  facilities
     available  from banks which allow  Telmark to borrow up to an  aggregate of
     $257,000.  An  uncommitted  short-term  line of  credit  agreement  permits
     Telmark to borrow up to $7,000 on an  unsecured  basis with  interest  paid
     upon maturity.  The line bears interest at money market  variable  rates. A
     committed  $250,000  revolving term loan facility  permits  Telmark to draw
     short-term  funds bearing  interest at money market rates or draw long-term
     debt at rates  appropriate for the term of the note drawn.  The $7,000 line
     was increased from $4,000 on August 19, 1997 and expires December 31, 1997,
     and the $250,000 line was increased from $200,000 on September 22, 1997 and
     expires on July 31, 1998. The total amount  outstanding as of September 30,
     1997 under the short-term line of credit was $7,000 and under the revolving
     term loan facility was $200,000, of which $152,000 is long-term.

     At September 30, 1997, Telmark had balances outstanding on unsecured senior
     notes  from  private  placements  totaling  $118,611.  Interest  is payable
     semiannually  on each senior note.  Principal  payments are both semiannual
     and  annual.  The note  agreements  are  similar  to one  another  and each
     contains specific financial covenants.

     Additionally,  as of September  30, 1997,  Telmark,  through a wholly owned
     special  purpose  subsidiary,  has two classes  outstanding of lease-backed
     notes payable to insurance  companies  totaling $23,299.  Interest on these
     notes is 6.58% or  7.01%.  The  notes are  collateralized  by 1,165  leases
     having an aggregate  present value of  contractual  lease payments equal to
     the principal balance of the notes.



                                        7

<PAGE>



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

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


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

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

     Long-term  and  subordinated  debt  outstanding  at September  30, 1997, as
     compared to June 30, 1997, amounted to:
<TABLE>
<CAPTION>
                                                           AFC
                                     Agway          (excluding Telmark)         Telmark               Total
                             --------------------  --------------------  --------------------  -------------------
                                9/97       6/97       9/97       6/97       9/97       6/97      9/97         6/97
                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
     <S>                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
     Long-term debt........  $   9,414  $   9,042  $   5,567  $   6,071  $ 293,982  $ 314,582  $ 308,963  $ 329,695
     Currently payable.....      5,548      2,363      3,137      3,158    104,395    108,199    113,080    113,720
                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
     Net long-term debt....  $   3,866  $   6,679  $   2,430  $   2,913  $ 189,587  $ 206,383  $ 195,883  $ 215,975
                             =========  =========  =========  =========  =========  =========  =========  =========

     Subordinated debt.....  $          $          $ 424,547  $ 407,083  $  31,657  $  31,044  $ 456,204  $ 438,127
     Currently payable.....                           52,902     51,980     11,072     11,019     63,974     62,999
                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
     Net subordinated debt.  $          $          $ 371,645  $ 355,103  $  20,585  $  20,025  $ 392,230  $ 375,128
                             =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>


4.   RETIREMENT BENEFITS
     -------------------
     Pension Plan
     Effective July 1, 1997, the Company  changed its method of determining  the
     market-related   value  of  its  plan  assets  under  Financial  Accounting
     Standards No. 87,  "Accounting for Pensions," from a calculated  value (one
     that  recognizes  changes in fair  market  value of assets over a number of
     years) to a fair market value method.  The cumulative effect of this change
     in accounting principle,  net of tax, was $29,000. Had the Company remained
     on its previous method of determining the  market-related  value, loss from
     operations before income taxes for the first quarter would have been higher
     by approximately $2,400.

     Pro forma amounts  (unaudited),  assuming the new accounting  principle was
     applied  during all periods  presented,  follow with a comparison to actual
     results:
<TABLE>
<CAPTION>
                                                                                            Quarter Ended
                                                                                            September 30,
                                                                                    ------------------------------
                                                                                        1997              1996
                                                                                    ------------     -------------
     <S>                                                                            <C>              <C>
     LOSS FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE:
         As  reported ............................................................  $     (7,624)    $     (10,854)
         Pro Forma................................................................  $     (7,624)    $      (8,919)

     NET MARGIN (LOSS):
         As  reported.............................................................  $     21,332     $     (10,854)
         Pro Forma................................................................  $     (7,624)    $      (8,919)

</TABLE>




                                        8

<PAGE>



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

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


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

     The Company  continually  monitors its operations with respect to potential
     environmental  issues,  including changes in legally mandated standards and
     remediation   technologies.   Agway's  recorded  liability  reflects  those
     specific  issues where  remediation  activities are currently  deemed to be
     probable and where the cost of remediation  is estimable.  Estimates of the
     extent of the Company's degree of  responsibility  relating to a particular
     site and the method and ultimate  cost of  remediation  require a number of
     assumptions  for  which  the  ultimate  outcome  may  differ  from  current
     estimates.  At September 30, 1997, the Company had been designated as a PRP
     under CERCLA or as a third party to the original PRPs in several  Superfund
     sites.  The liability  under CERCLA is joint and several,  meaning that the
     Company  could  be  required  to pay in  excess  of its pro  rata  share of
     remediation   costs.   The  Company  is  not   indemnified   for   existing
     environmental  cleanup  liability.   The  Company's  understanding  of  the
     financial  strength  of  other  PRPs at  these  Superfund  sites  has  been
     considered,  where  appropriate,  in  the  Company's  determination  of its
     estimated liability. The Company believes that its past experience provides
     a reasonable basis for estimating its liability.  As additional information
     becomes available,  estimates are adjusted as necessary.  While the Company
     does not  anticipate  that any such  adjustment  would be  material  to its
     financial statements,  it is reasonably possible that the result of ongoing
     and/or  future  environmental  studies or other  factors  could  alter this
     expectation and require the recording of additional liabilities. The extent
     or amount of such events,  if any,  cannot be  estimated at this time.  The
     settlement of the reserves  established will cause future cash outlays over
     approximately  five  years  based  upon  current  estimates,  and it is not
     expected that such outlays will materially  impact the Company's  liquidity
     position.

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



                                        9

<PAGE>



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

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


RESULTS OF OPERATIONS
---------------------
The  Company's net sales and revenues and  operating  results are  significantly
impacted by seasonal  fluctuations  due to the nature of its  operations and the
geographic  location of its service area,  which is primarily  the  Northeastern
United States.  Agriculture and Retail net sales and revenues are  traditionally
higher in the spring as  customers  acquire  products  to  initiate  the growing
season. Energy generally realizes significantly higher net sales and revenues in
the winter months due to cold winter  conditions.  Leasing and Insurance are not
materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
                                                                               Results by Operating Segment
                                                                       --------------------------------------------
                                                                                      Three Months Ended
                                                                       --------------------------------------------
                                                                                                       $ Increase
                                                                          9/30/97         9/30/96       (Decrease)
                                                                       -------------   -------------   ------------  
<S>                                                                    <C>             <C>             <C>
Net Sales and Revenues
----------------------
Agriculture.........................................................   $     160,421   $     171,385   $    (10,964)
Retail..............................................................          60,932          64,499         (3,567)
Energy..............................................................         103,436         107,943         (4,507)
Leasing.............................................................          15,762          13,317          2,445
Insurance...........................................................           6,858           6,314            544
Other (a)...........................................................          (9,832)        (14,404)         4,572
                                                                       -------------   -------------   ------------
                                                                       $     337,577   $     349,054   $    (11,477)
                                                                       =============   =============   ============

Margin (Loss) from Operations before Income Taxes
-------------------------------------------------
Agriculture.........................................................   $      (5,646)  $      (8,714)  $      3,068
Retail..............................................................             117             664           (547)
Energy..............................................................          (4,860)         (4,899)            39
Leasing.............................................................           3,158           2,785            373
Insurance...........................................................               6             (64)            70
Other  (a)..........................................................           4,397           1,768          2,629
                                                                       -------------   -------------   ------------
Operating margin (loss) plus other income, net......................          (2,828)         (8,460)         5,632
Interest (expense), net of interest income..........................          (6,874)         (6,559)          (315)
                                                                       -------------   -------------   ------------
                                                                       $      (9,702)  $     (15,019)  $      5,317
                                                                       =============   =============   ============
</TABLE>


(a) Represents unallocated corporate items and intersegment eliminations.

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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of  $337,600  for the three  months  ended
September 30, 1997 decreased  $11,500 (3%) as compared to the same period in the
prior  year.  The  decrease  is the  result of (1)  changes  in  product  mix in
Agriculture  feed and  Retail  sales;  and (2) a decline  in sales in Energy for
heating oils, diesel fuel and gasoline.  These decreases in sales were partially
offset by increased leasing revenues,  as compared to the prior year,  primarily
due to a higher average net lease investment.


                                       10

<PAGE>



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

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


Consolidated Results (continued)
--------------------------------
Net loss from  operations  before  taxes of $9,700  for the three  months  ended
September 30, 1997  improved  $5,300 (35%) as compared to the same period in the
prior year.  These  improvements  can be attributed to (1) a $2,400  increase in
income from a change in accounting for the pension plan; (2) prior year earnings
absorbed a net $1,100  charge with  respect to sale of the pet food  business of
Country  Products  Group (CPG);  and (3) prior year  earnings  absorbed a $1,700
charge for the adoption of a new accounting  pronouncement  on the impairment of
long-lived  assets  adopted in the first quarter of the previous  year.  Results
from ongoing  operations  are comparable to the prior year, but vary somewhat by
segment, as discussed below.

Agriculture
-----------
Agriculture  consists  of Agway  Agricultural  Products  (AAP)  and the  Country
Products Group (CPG).  Total  Agriculture net sales and revenues of $160,400 for
the three months ended September 30, 1997 decreased  $11,000 (6%) as compared to
the same period in the prior year.  The  decrease in net sales and  revenues for
the  three-month  period,  as  compared  to the same  period in the prior  year,
resulted  from a $10,100 (8%)  decrease in AAP net sales and revenues and a $900
(2%) decline in CPG net sales and revenues.

The AAP sales decrease is principally in the feed business.  Despite an increase
in total feed  volume,  a shift in the product mix to lower  priced feeds in the
first  quarter  has  resulted  in  declining  sales  dollars as  compared to the
previous  year.  CPG's decline of $900 is the net result of the 1996 sale of the
pet food business  ($9,100) offset  principally by an increase in sales from the
produce operations.  Produce operations sales increased $8,500 substantially due
to the acquisition of a business in the first quarter ($7,300).

Agriculture's  operating loss of $5,600 for the three months ended September 30,
1997 decreased  $3,100,  a 36% improvement as compared to the same period in the
prior year. AAP's loss of $7,300 was $1,300 (15%) less than the loss in the same
period in the prior year.  In the prior  year,  AAP  earnings  absorbed a $1,500
charge  from  adopting  a new  accounting  pronouncement  on the  impairment  of
long-lived assets.

CPG  operating  margin of $1,700 for the three months ended  September  30, 1997
improved  $1,800 as compared  to the same period in the prior year.  The produce
operation  earnings  exceeded those in the same period last year due to improved
gross margins. The prior year earnings absorbed a net $1,100 charge with respect
to the sale of the pet food business of CPG.

Retail
------
Total net sales and revenues of $60,900 for the three months ended September 30,
1997 decreased $3,600 (6%) as compared to the same period in the prior year. The
majority of the decline in sales ($1,600) is due to the planned reduction of the
power  equipment  business at most retail  store  locations.  Additionally,  the
frozen food product line was discontinued,  resulting in a $300 decline in sales
from the prior year.

Reduced  retail sales were  largely  offset by improved  gross  margin  percent,
resulting in a net gross margin decrease of  approximately  $200 compared to the
first quarter in the prior year.  Operating  expenses were up approximately $300
(2%). The operating margin of $100, consequently,  decreased $500 from the prior
year.



                                       11

<PAGE>



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

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


Energy
------
Net sales and revenues of $103,400 for the three months ended September 30, 1997
decreased  $4,500 (4%) as  compared  to the same  period in the prior year.  The
decrease,  as compared to the prior year, is a decline in volume  ($2,700) and a
decline in price ($1,800).

Operating loss of $4,900 for the three months ended September 30, 1997 showed no
change as compared to the same  period in the prior  year.  Despite  lower sales
volume,  gross margins improved slightly ($400).  These improvements were offset
by an increase in operating expenses.

Leasing
-------
Telmark total revenues of $15,800 for the three months ended  September 30, 1997
increased  $2,400  (18%) as compared  to the same period in the prior year.  The
increased  revenues,  as compared  to the same period in the prior year,  result
primarily  from a higher  average net  investment.  The net  average  investment
increased  $22,900 (5%) to $492,700 for the  three-month  period ended September
30, 1997.

Operating  margin of $3,200  for the  three  months  ended  September  30,  1997
increased  $400 (13%) as compared  to the same  period in the prior year.  Total
revenue increases were partially offset by an increase in total expenses for the
three  months ended  September  30, 1997 of $2,100 (20%) as compared to the same
period in the prior  year.  The larger net  investment  during this  period,  as
compared to the same period in the prior year,  has increased  interest  expense
($1,100)  and  selling,  general  and  administrative  expenses  ($1,000) in the
current year.

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

Insurance  net revenues  (earned  premiums) of $6,900 for the three months ended
September  30,  1997  increased  $500 (9%) as compared to the same period in the
prior year. The increase for the three-month period is the result of both higher
direct earned premiums and decreased reinsurance costs.

Operating  margin broke even for the three months ended  September  30, 1997, an
increase of $100 as compared to the same period in the prior year.  The increase
was the result of improvement in loss development.


                                       12

<PAGE>



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

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

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash Flows from Operating Activities
Net cash flows  provided from  operating  activities  for the three months ended
September  30,  1997 were  $6,000,  representing  an  increase  in cash flows of
approximately  $13,300 as compared  to the same  period in the prior year.  This
increase is due  primarily  to an increase in cash  earnings of $15,600 over the
prior  year,  which was  partially  offset by an  increased  use of cash to fund
working capital increases.

Cash Flows from Investing Activities
Net cash flows used in the Company's investing activities totaled  approximately
$26,900 for the three months ended September 30, 1997, as compared to $8,700 for
the three months ended September 30, 1996,  representing an increased outflow of
$18,200.  The Company has a growing  leasing  business and cash required to fund
lease origination  growth in excess of lease repayments and leases sold amounted
to $23,000 for the three months ended September 30, 1997, as compared to $12,400
for the three months ended  September 30, 1996,  representing  a net increase in
cash outflow of $10,600. Cash paid for property,  plant and equipment was $6,100
higher in the first  quarter  1997  compared  to 1996.  Proceeds  of $3,900 from
businesses  and fixed assets sold during the three months  ended  September  30,
1997 were $4,300 less than the cash generated from the same activity  during the
corresponding  period in the prior  year.  Additionally,  $1,500 was used in the
acquisition of a produce business in the current year.  Activities in securities
investments  generated  cash of $1,700 in the three months ended  September  30,
1997, as opposed to requiring cash of $2,600 in the three months ended September
30, 1996, a cash increase of $4,300.

Cash Flows from Financing Activities
Cash of $6,800 used to redeem  stock  represents  an increase of $5,400 over the
corresponding period in the prior year.  Effective July 1, 1997,  restriction on
the redemption of $16,700 of preferred stock expired.  Net borrowings  increased
$26,300 to finance the stock  redemptions and investing  activities not financed
through operating activities. Net borrowings in the prior year increased $17,400
to finance last year's stock redemptions, investing and operating activities.

The Company  borrows money to finance its  operations  and the operations of all
its continuing  businesses and subsidiaries,  except Telmark and Agway Insurance
Company,   through  Agway  Financial  Corporation  (AFC).  External  sources  of
short-term  financing  for the Company and all its other  continuing  operations
include  revolving  credit  lines,  letters  of  credit,  and  commercial  paper
programs.  Telmark  and  Agway  Insurance  Company  finance  themselves  through
operations or direct borrowing arrangements. Each is financed with a combination
of short- and long-term credit facilities. In addition, Telmark has occasionally
sold blocks of its lease portfolio. Sources of longer-term financing include the
following as of September 30, 1997:
<TABLE>
<CAPTION>
                                                                             Agway & AFC
                                                                             (excluding
   Source of debt                                                              Telmark)      Telmark        Total
   --------------                                                            -----------   -----------   -----------
   <S>                                                                       <C>           <C>           <C>

   Banks - due 11/97 to 2/01, interest at a weighted average
     rate of 7.2% with a range of 6.0% - 8.4%..............................  $     2,450   $   152,000   $   154,450
   Insurance companies - due 10/97 to 4/04, interest at a weighted
     average rate of 7.5% with a range of 5.9% - 8.9%......................                    141,910       141,910
   Capital leases and other - due 1997 to 2007, interest at a
     weighted average rate of 9.3% with a range of 6% to 12%...............       12,531            72        12,603
                                                                             -----------   -----------   -----------
       Long-term debt......................................................       14,981       293,982       308,963
   Subordinated money market certificates - due 10/97 to 10/08, interest
     at a weighted average rate of 8.1% with a range of 4.5% - 9.5%........      402,115                     402,115
   Subordinated debentures - due 1999 to 2003, interest at a weighted
     average rate of 7.9% with a range of 6.0% to 8.5%.....................       22,432        31,657        54,089
                                                                             -----------   -----------   -----------
       Total debt..........................................................  $   439,528   $   325,639   $   765,167
                                                                             ===========   ===========   ===========
</TABLE>
For a complete  description  of the  Company's  credit  facilities  available at
September  30, 1997,  see  Footnote 3 to the  condensed  consolidated  financial
statements.

                                       13

<PAGE>



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


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

(a)  List of Exhibits
     18.0     Letter re change in accounting principle
     27.0     Financial Data Schedule*

(b) There  were no  reports on Form 8-K  required  to be filed  during the three
months ended September 30, 1997.


*Included with electronic filing only.

                                       14

<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        October 30, 1997                   /s/ PETER J. O'NEILL
         ----------------------        ----------------------------------------
                                                  Peter J. O'Neill
                                               Senior Vice President,
                                                 Finance & Control,
                                              Treasurer and Controller
                                         (Principal Financial Officer and
                                             Chief Accounting Officer)










                                       15