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, 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 February 6, 1998
-------------------------                      -------------------------------
Membership Common Stock,                              103,684 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, 1997 and June 30, 1997..................   3

           Condensed Consolidated Statements of Operations and Retained Margin for the three months
           and six months ended December 31, 1997 and December 31, 1996.....................................   4

           Condensed Consolidated Cash Flow Statements for the six months ended December 31, 1997
           and December 31, 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 1.  Legal Proceedings.......................................................................  15

           Item 4.  Submission of Matters to a Vote of Security Holders.....................................  15

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


           SIGNATURES.......................................................................................  16

</TABLE>













                                        2

<PAGE>



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

                                                                                   December 31,           June 30,
                                                                                      1997                 1997
                                                                                   ------------          -----------
ASSETS                                                                              (Unaudited)
------
<S>                                                                               <C>                   <C>
Current Assets:
     Trade accounts receivable (including notes receivable of
         $33,339 and $44,074, respectively), less allowance for
         doubtful accounts of $8,179 and $7,864, respectively...................  $     168,457         $   209,868
     Leases receivable, less unearned income of $56,849 and
         $58,225, respectively..................................................        128,106             124,552
     Advances and other receivables.............................................         41,165              37,918
     Inventories:
         Raw materials..........................................................          7,908               9,396
         Finished goods.........................................................        159,684             134,336
         Goods in transit and supplies..........................................          9,149               6,908
                                                                                  -------------         -----------
              Total inventories.................................................        176,741             150,640
     Prepaid expenses...........................................................         46,682              52,714
                                                                                  -------------         -----------
         Total current assets...................................................        561,151             575,692

Marketable securities available for sale........................................         36,448              35,586
Other security investments......................................................         48,290              49,668
Properties and equipment, net...................................................        213,792             215,095
Long-term leases receivable, less unearned income of $104,176 and...............
     $94,366, respectively......................................................        335,054             320,809
Net pension asset...............................................................        158,758             100,052
Other assets  ..................................................................         13,312              11,355
                                                                                  -------------         -----------
         Total assets...........................................................  $   1,366,805         $ 1,308,257
                                                                                  =============         ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable..............................................................  $      96,280         $    59,200
     Current installments of long-term debt.....................................        104,187             113,720
     Current installments of subordinated debt..................................         86,080              62,999
     Accounts payable...........................................................        109,217             121,063
     Other current liabilities..................................................        112,026             113,927
                                                                                  -------------         -----------
         Total current liabilities..............................................        507,790             470,909

Long-term debt..................................................................        229,572             215,975
Subordinated debt...............................................................        355,060             375,128
Other liabilities...............................................................         88,003              68,494
                                                                                  -------------         -----------
     Total liabilities..........................................................      1,180,425           1,130,506
Shareholders' equity:
  Preferred stock, net..........................................................         49,832              57,541
  Common stock, net.............................................................          2,599               2,639
  Retained margin...............................................................        133,949             117,571
                                                                                  -------------         -----------
     Total shareholders' equity.................................................        186,380             177,751
Commitments and contingencies...................................................
         Total liabilities and shareholders' equity.............................  $   1,366,805         $ 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                      Six Months Ended
                                                      December 31,                           December 31,
                                               ------------------------------       ------------------------------
                                                   1997              1996               1997              1996
                                               -------------    -------------       -------------    -------------
<S>                                            <C>              <C>                 <C>              <C>
Net sales and revenues from:
     Product sales (including
       excise taxes)........................   $     333,724    $     355,559       $     648,682    $     684,982
     Leasing operations.....................          16,346           14,142              32,108           27,459
     Insurance operations...................           6,966            6,735              13,823           13,049
                                               -------------    -------------       -------------    -------------
         Total net sales and revenues.......         357,036          376,436             694,613          725,490

Cost and expenses from:
     Products and plant operations..........         316,094          337,838             616,002          653,489
     Leasing operations.....................           7,098            5,981              14,147           11,937
     Insurance operations...................           4,467            4,035               8,667            7,987
     Selling, general and administrative
       activities...........................          31,038           30,623              62,410           63,552
                                               -------------    --------------      -------------    -------------
         Total costs and expenses...........         358,697          378,477             701,226          736,965

Operating margin (loss).....................          (1,661)          (2,041)             (6,613)         (11,475)
Interest expense, net.......................          (7,136)          (8,030)            (14,011)         (14,589)
Other income, net...........................           2,629            3,135               4,754            4,108
                                               -------------    -------------       -------------    -------------
Loss from operations before income taxes....          (6,168)          (6,936)            (15,870)         (21,956)
Income tax benefit (expense)................           2,506              292               4,584            4,457
                                               -------------    -------------       -------------    -------------
Loss from operations before cumulative
     effect of an accounting change.........          (3,662)          (6,644)            (11,286)         (17,499)
Cumulative effect on prior years
     (to June 30, 1997) of an accounting
     change, net of tax expense of $16,500                 0                0              28,956                0
                                               -------------    --------------      --------------   -------------
Net margin (loss)...........................   $      (3,662)   $       (6,644)     $       17,670   $     (17,499)

Retained Margin:
     Balance at beginning of period.........         139,372            99,940             117,571         110,714
     Dividends..............................          (1,791)           (2,087)             (1,791)         (2,085)
     Adjustment to unrealized gains (losses)
       on available-for-sale securities,
       net of tax...........................              30               381                 499             460
                                               -------------    --------------       -------------    ------------
Balance at end of period....................   $     133,949    $       91,590       $     133,949    $     91,590
                                               ==============   ==============       =============    ============

</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>
                                                                                         Six Months Ended
                                                                                           December 31,
                                                                                ----------------------------------
                                                                                    1997                  1996
                                                                                ------------         -------------
<S>                                                                             <C>                  <C>
Net cash flows used in operating activities..................................   $       (461)        $     (21,093)

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................        (17,473)               (8,306)
     Proceeds from disposal of property, plant and equipment.................          5,881                 5,609
     Proceeds from disposal of businesses....................................              0                13,777
     Cash paid for acquisitions..............................................         (1,458)                    0
     Leases originated.......................................................       (116,557)             (104,701)
     Leases repaid...........................................................         95,262                81,674
     Proceeds from sale of marketable securities.............................          8,427                19,558
     Purchases of marketable securities......................................         (8,790)              (20,662)
     Net purchase of investments in related cooperatives.....................          1,378                (2,075)
                                                                                -------------        --------------

Net cash flows used in investing activities..................................        (33,330)              (15,126)


Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings.....................................         36,690                32,400
     Proceeds from long-term debt............................................         60,225                27,850
     Repayment of long-term debt.............................................        (55,768)              (29,331)
     Proceeds from sale of subordinated debt.................................         74,946                34,798
     Maturity and redemption of subordinated debt............................        (71,932)              (25,101)
     Payments on capital leases..............................................           (471)               (2,173)
     Redemption of stock, net ...............................................         (7,750)                  (14)
     Cash dividends paid.....................................................         (2,149)               (2,210)
                                                                                -------------        -------------

Net cash flows provided by financing activities..............................         33,791                36,219
                                                                                -------------        -------------

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  six-month  period  ended
     December 31, 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                Six Months Ended
                                                    December 31,                      December 31,
                                          -------------------------------    -------------------------------
                                               1997             1996              1997             1996
                                          --------------    -------------    --------------    -------------
         <S>                                                                 <C>               <C>
         Net sales and revenues.........  $      265,839    $     278,674    $      498,375    $     514,212
         Operating margin...............          10,896            5,661            13,423            4,038
         Net loss.......................          (2,280)            (454)           (9,651)          (3,270)

                                                                              December 31,        June 30,
                                                                                  1997             1997
                                                                             --------------    -------------
         Current assets..................................................    $      529,188    $     530,509
         Properties and equipment, net...................................           151,885          154,030
         Noncurrent assets...............................................           425,449          409,670
                                                                             --------------    -------------
         Total assets....................................................    $    1,106,522    $   1,094,209
                                                                             ==============    =============

         Current liabilities.............................................    $      296,377    $     270,735
         Long-term debt..................................................           224,919          209,296
         Subordinated debt...............................................           355,060          375,128
         Noncurrent liabilities..........................................            17,772           17,813
         Shareholder's equity............................................           212,394          221,237
                                                                             --------------    -------------
         Total liabilities and shareholder's equity......................    $    1,106,522    $   1,094,209
                                                                             ==============    =============

</TABLE>

                                        6

<PAGE>

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

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

3.   BORROWING ARRANGEMENTS
     ----------------------
     As of December 31, 1997, the Company had certain facilities  available with
     banking  institutions  whereby  lenders have agreed to provide  funds up to
     $357,000 to  separately  financed  units of the  Company as follows:  AFC -
     $100,000 and Telmark - $257,000.  In addition,  AFC may issue up to $50,000
     of commercial  paper under the terms of a separate  agreement,  backed by a
     letter of credit.

     AFC
     The  $100,000  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 December 31, 1997, under
     AFC's $100,000 line of credit and $50,000 commercial paper were $20,600 and
     $50,000, respectively, as compared to $0 and $34,300, respectively, at June
     30, 1997. AFC's current line of credit facility was renewed in January 1998
     and  continues  through  December 31,  1998.  It was renewed at $50,000 but
     provides  an increase to $75,000,  which  becomes  available  on October 1,
     1998,  to  assist  in  paying  maturing  subordinated  debt.  In  addition,
     effective  January 1, 1998,  the  Company has a $25,000  revolving  line of
     credit available  through January 1, 2000.  AFC's current  commercial paper
     program  continues  through  December  31,  1998.  The  Company has ongoing
     discussions  with its lenders  and expects to continue to have  appropriate
     and adequate financing to meet its ongoing needs.

     Annually, Agway, through AFC, offers subordinated money market certificates
     to the public. Of AFC's subordinated debt at December 31, 1997, $338,800 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.  Subordinated  money
     market  certificates  due 10/98-10/08 bear a weighted average interest rate
     of 8.1%,  while  subordinated  debentures  due  7/99-7/03  bear a  weighted
     average interest rate of 7.9%.

     Telmark
     As of  December  31,  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,
     1998,  and the $250,000 line was  increased  from $200,000 on September 22,
     1997, and expires on February 1, 1999.  The total amount  outstanding as of
     December 31, 1997, under the short-term line of credit was $7,000 and under
     the  revolving  term loan  facility  was  $166,700,  of which  $148,000  is
     long-term.  As of June 30, 1997,  the total amount  outstanding  was $4,000
     under the  short-term  line of credit  and  under the  revolving  term loan
     facility was $190,900, of which $170,000 was long-term.

     At December 31, 1997, Telmark had balances  outstanding on unsecured senior
     notes from private placements  totaling $151,600 as compared to $119,700 at
     June 30,  1997.  Interest  is payable  semiannually  on each  senior  note.
     Principal  payments are both semiannual and annual. The note agreements are
     similar to one another and each contains specific financial covenants.

     Additionally,  Telmark,  through a wholly owned special purpose subsidiary,
     has two classes  outstanding  of lease-  backed notes  payable to insurance
     companies  totaling  $20,200 and $24,800 at December 31, 1997, and June 30,
     1997,  respectively.  Interest on these notes is 6.58% and 7.01%. The notes
     are collateralized by leases, sold by Telmark to this subsidiary, having an
     aggregate  present  value  of  contractual  lease  payments  equal  to  the
     principal balance of the notes.

                                        7

<PAGE>

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

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

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

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

     Long-term  and  subordinated  debt  outstanding  at December 31,  1997,  as
     compared to June 30, 1997, is as follows:
<TABLE>
<CAPTION>
                                                            AFC
                                     Agway          (excluding Telmark)         Telmark                 Total
                             --------------------  --------------------  ----------------------  --------------------
                               12/97      6/97       12/97      6/97       12/97        6/97       12/97       6/97
                             ---------  ---------  ---------  ---------  ----------   ---------  ---------  ---------
     <S>                     <C>        <C>        <C>        <C>        <C>          <C>        <C>        <C>
     Long-term debt........  $   9,259  $   9,042  $   4,629  $   6,071  $  319,871   $ 314,582  $ 333,759  $ 329,695
     Currently payable.....      4,607      2,363      2,661      3,158      96,919     108,199    104,187    113,720
                             ---------  ---------  ---------  ---------  ----------   ---------  ---------  ---------
     Net long-term debt....  $   4,652  $   6,679  $   1,968  $   2,913  $  222,952   $ 206,383  $ 229,572  $ 215,975
                             =========  =========  =========  =========  ==========   =========  =========  =========

     Subordinated debt.....  $       0   $      0  $ 403,878  $ 407,083  $   37,262   $  31,044  $ 441,140  $ 438,127
     Currently payable.....          0          0     74,953     51,980      11,127      11,019     86,080     62,999
                             ---------  ---------  ---------  ---------  ----------   ---------  ---------  ---------
     Net subordinated debt.  $       0  $       0  $ 328,925  $ 355,103  $   26,135   $  20,025  $ 355,060  $ 375,128
                             =========  =========  ================================   =========  =========  =========
</TABLE>
     In  conjunction  with a private  placement  offering  made by Telmark,  the
     Company  ascertained  that because  Telmark was in  technical  violation of
     certain covenants in its loan agreements, the Company was also in technical
     violation of certain covenants in existing loan agreements specific to debt
     issuances by  subsidiaries  and assets pledged as  collateral.  The Company
     received all necessary  permanent  waivers in relation to these  violations
     prior to December 31, 1997.

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 three and six months ended December
     31,  1997,  would have been  higher by  approximately  $2,400  and  $4,800,
     respectively.

     Pro forma amounts  (unaudited),  assuming the new accounting  principle was
     applied  during all periods  presented,  follow with a comparison to actual
     results:
<TABLE>
<CAPTION>
                                                      Three Months Ended                   Six Months Ended
                                                          December 31,                       December 31,
                                                 ------------------------------     -------------------------------
                                                     1997               1996            1997              1996
                                                 -------------    -------------     -------------    --------------
     LOSS FROM OPERATIONS BEFORE CUMULATIVE EFFECT OF AN ACCOUNTING CHANGE:
     <S>                                         <C>              <C>               <C>              <C>            
         As  reported .........................  $     (3,662)    $      (6,644)    $     (11,286)   $      (17,499)
         Pro Forma.............................  $     (3,662)    $      (4,709)    $     (11,286)   $      (13,629)

     NET MARGIN (LOSS):
         As  reported..........................  $     (3,662)    $      (6,644)    $     17,670     $      (17,499)
         Pro Forma.............................  $     (3,662)    $      (4,709)    $     (11,286)   $      (13,629)
</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 December 31, 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.

     The  Internal  Revenue  Service  performed a routine  employment  tax audit
     during  fiscal  1996 and  proposed a payroll  tax  adjustment  against  the
     Company.  The Company appealed this  assessment,  and in December 1997, the
     Internal Revenue Service concluded that the proposed payroll tax adjustment
     would not be assessed.  No further action needs to be taken by the Company,
     and no loss has been or will be incurred regarding this issue.

     During  January of 1998, a severe ice storm  affected many of the Company's
     customers  in the far  northern  parts  of New  York  and  portions  of New
     England.  While the  Company  does not yet know the impact of that storm on
     its customers in those  regions,  it is possible that, due to the number of
     the Company's customers in those regions, such storm could adversely affect
     current  year  sales  in  its  agricultural  feed  and  energy  businesses,
     underwriting  experience  in its insurance  business,  and  collections  of
     receivables in many of its other businesses.

                                        9

<PAGE>



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

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


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

The  Company's net sales and revenues and  operating  results are  significantly
impacted by seasonal  fluctuations  due to the nature of its  operations and the
geographic  location of its service area,  which is primarily  the  Northeastern
United States.  Agriculture and Retail net sales and revenues are  traditionally
higher in the spring as  customers  acquire  products  to  initiate  the growing
season. Energy generally realizes significantly higher net sales and revenues in
the winter months due to cold winter  conditions.  Leasing and Insurance are not
materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
                                                              Results by Operating Segment
                                 ---------------------------------------------------------------------------------
                                            Three Months Ended                     Six Months Ended
                                 --------------------------------------    ---------------------------------------
                                                            $ Increase                                  $ Increase
                                   12/31/97     12/31/96     (Decrease)    12/31/97        12/31/96      (Decrease)
                                 ----------    ----------   -----------   ----------     -----------    -----------
<S>                              <C>           <C>          <C>           <C>            <C>            <C>
Net Sales and Revenues
----------------------
Agriculture..................    $  145,091    $ 146,280    $   (1,189)   $ 305,512      $  317,660     $  (12,148)
Retail.......................        54,722       57,103        (2,381)     115,654         121,602         (5,948)
Energy.......................       150,077      167,567       (17,490)     253,513         275,511        (21,998)
Leasing......................        16,346       14,142         2,204       32,108          27,459          4,649
Insurance....................         6,966        6,735           231       13,823          13,049            774
Other (a)....................       (16,166)     (15,391)         (775)     (25,997)        (29,791)         3,794
                                 ----------    ----------   -----------   ----------     -----------    -----------
                                 $  357,036    $ 376,436    $  (19,400)   $ 694,613      $  725,490     $  (30,877)
                                 ==========    ==========   ===========   ==========     ===========    ===========          
Margin (Loss) from Operations
-----------------------------
  before Income Taxes
  -------------------
Agriculture..................    $  (10,306)   $  (7,578)   $   (2,728)   $ (15,952)     $  (16,293)    $      341
Retail.......................        (3,556)      (1,251)       (2,305)      (3,439)           (587)        (2,852)
Energy.......................         7,296        5,172         2,124        2,436             273          2,163
Leasing......................         3,505        3,257           248        6,663           6,042            621
Insurance....................           162          316          (154)         168             252            (84)
Other (a)....................         3,867        1,178         2,689        8,265           2,946          5,319
                                 ----------    ----------   -----------   ----------     -----------    -----------
Operating margin (loss),
   plus other income, net....           968        1,094          (126)      (1,859)         (7,367)         5,508
Interest (expense), net of
   interest income...........        (7,136)      (8,030)          894      (14,011)        (14,589)           578
                                 ----------    ----------   -----------   ----------     -----------    -----------
                                $    (6,168)   $  (6,936)   $      768    $ (15,870)     $  (21,956)    $    6,086
                                ===========    ==========   ===========   ==========     ===========    ===========
</TABLE>

(a) Represents unallocated corporate items and intersegment eliminations.



                                       10

<PAGE>



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

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


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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of $357,000 and $694,600 for the three and
six months ended  December 31, 1997,  decreased  $19,400 (5%) and $30,900  (4%),
respectively,  as compared to the same periods in the prior year.  The decreases
were  substantially  the  result of (1) a decline  in sales in  Agriculture  and
Energy, principally due to a decrease in the pricing level of feed and petroleum
products;  (2) planned  changes in product mix in Retail sales;  and (3) reduced
sales in the pet food business  which was sold by the Country  Products Group in
the prior year.  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.

Net loss from  operations  before  incomes  taxes of $6,200 and  $15,900 for the
three and six months ended  December 31,  1997,  improved  $800 (11%) and $6,100
(28%),  respectively,  as compared to the same periods in the prior year. Growth
of the net pension asset recognized in the income statement was higher this year
by $3,400 in the three  months and $6,800 in the six months  ended  December 31,
1997. Of these pension-related  increases,  $1,000 and $2,000 for the respective
periods  were due to an  increase  in net pension  assets to be  recognized  and
$2,400 and $4,800, respectively,  were due to the change in accounting discussed
in the retirement benefits footnote.

The  pension-related  increase was offset by a decline in  operating  results of
$2,700 and $3,400 in the three-month  and six-month  periods,  respectively,  as
discussed by business  segment  below.  The current year  six-month  results are
improved over last year due to the recognition last year of a $1,100 charge with
respect to the sale of the pet food business by Country Products Group (CPG) and
a $1,700 charge last year for the adoption of a new accounting  pronouncement on
the impairment of long-lived assets.

Agriculture
-----------
Agriculture  consists  of Agway  Agricultural  Products  (AAP)  and the  Country
Products Group (CPG).  Total  Agriculture net sales and revenues of $145,100 and
$305,500 for the three and six months ended December 31, 1997,  decreased $1,200
(1%) and $12,100  (4%),  respectively,  as  compared to the same  periods 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 an $8,600 (8%)
decrease  in AAP net  sales and  revenues  partially  offset  by a $7,400  (21%)
increase in CPG net sales and  revenues.  The decline in net sales and  revenues
for the six-month period ended December 31, 1997, as compared to the same period
in the prior year,  resulted  from an $18,600 (8%) decrease in AAP net sales and
revenues  partially  offset by a $6,500 (8%) increase in CPG total net sales and
revenues.

The decrease in AAP sales for the three- and six-month  periods  ended  December
31, 1997,  resulted  principally from the feed and crops businesses.  Despite an
increase  in total  feed  volume in both the  three- and  six-month  periods,  a
decrease  in the  pricing  level of feed  products  over the past six months has
decreased  total feed sales as  compared to the prior  year.  The crop  business
sales also declined over the three- and  six-month  periods,  as compared to the
prior year,  largely due to sales of crop-related  services that typically occur
in the spring actually occurring in the first half of the prior year.

The increase in CPG sales for the three- and six-month  periods  ended  December
31, 1997,  resulted  from strong sales growth in its produce  operations  $7,800
(48%) and $16,000 (46%),  respectively.  This growth resulted substantially from
an  acquisition  of a business and the formation of a new  operation  during the
first  quarter  ($13,500).   Additionally,  strong  seed  operation  sales  have
increased  sales  during the first six months by $2,300 as  compared to the same
period in the prior year. These  improvements were partially offset from reduced
sales from the pet food business ($11,500) which was sold in the prior year.



                                       11

<PAGE>



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

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


Agriculture (continued)
-----------------------
The  Agriculture  operating  loss of $10,300  and  $16,000 for the three and six
months ended December 31, 1997,  increased $2,700 (36%) and decreased $300 (2%),
respectively,  as compared to the same  periods in the prior year.  AAP's second
quarter loss of $12,900 was $3,700 (40%) larger than the loss in the same period
in the prior year,  and the $20,300  six-month loss was $2,400 (13%) larger than
the loss in the first six months of the prior year. The increased  losses in AAP
over the three- and  six-month  periods ended  December 31, 1997,  resulted from
declines  in gross  margins  of  $3,400 in each  period  resulting  from  higher
unfavorable  experience  with  exchange-traded  futures and option  contracts as
compared  to the same  periods  in the prior  year.  The loss for the  six-month
period was  reduced  this year in  comparison  to the prior year due to a $1,500
charge  incurred  last year for the adoption of a new  accounting  pronouncement
regarding the impairment of long-lived assets.

The CPG operating margin of $2,600 and $4,300 for the three and six months ended
December 31, 1997,  increased $1,000 (63%) and $2,800 (187%),  respectively,  as
compared to the same periods in the prior year. The operating margin improvement
in the second quarter is principally from improved margins in produce operations
($400) and  sunflower  operations  ($500).  The  operating  improvements  in the
six-month period resulted from improved produce  operation  results ($1,300) and
the fact that prior year earnings  absorbed a net $1,100 charge from the sale of
CPG's pet food business.

Retail
------
Total net sales and  revenues  of  $54,700  and  $115,700  for the three and six
months  ended  December  31,  1997,  decreased  $2,400  (4%)  and  $5,900  (5%),
respectively, as compared to the same periods in the prior year. The decrease in
sales and revenues for the three- and six-month periods ended December 31, 1997,
were principally the result of planned reduction of the power equipment business
at  most  retail   locations   ($1,800  and   $4,400,   respectively)   and  the
discontinuation   of  the  frozen  food   product   line   ($2,000  and  $2,800,
respectively). Additionally, for the six-month period, sales associated with bag
fertilizers  and seeds  declined  ($1,200).  These sales declines were partially
offset by  improvements  in the three- and six-month  periods ended December 31,
1997,  as  compared  to the prior  year,  in the  seasonal,  nursery and related
businesses ($1,500 and $2,900, respectively).

Retail's  operating loss of $3,600 and $3,400 for the three and six months ended
December 31, 1997, increased $2,300 (177%) and $2,900 (580%),  respectively,  as
compared  to the same  periods in the prior  year.  Gross  margin  dollars  have
declined  $400 in the second  quarter and $600 for the  six-month  period due to
planned product line reductions,  while gross margin  percentage has improved 2%
overall for both the three- and six-month periods. Total expenses have increased
$1,000 in the second quarter and $1,300 over the six-month period as compared to
the prior year. This increase is  substantially  due to increased costs from new
business locations.  In addition,  other revenues,  principally from the sale of
surplus properties,  declined $800 and $600 for the three- and six-month periods
ended  December 31, 1997,  respectively,  as compared to the same periods in the
prior year.

Energy
------
Net sales and  revenues of $150,100  and  $253,500  for the three and six months
ended December 31, 1997, decreased $17,500 (10%) and $22,000 (8%), respectively,
as compared to the same periods in the prior year. While heating oil unit volume
was  down 1% and 2% for the  three-  and  six-month  periods,  respectively,  as
compared to the same  periods in the prior year,  due to warm  weather,  overall
unit  volumes  increased  over 2% for the second  quarter  and are level for the
six-month  period as  compared  to the prior year.  Reduced  cost for  petroleum
products in the current year allowed for reduced selling price to customers. The
lower selling prices  decreased sales by $20,600 and $22,400 and are principally
the reason for the decline in sales dollars for the three- and six-month periods
ended December 31, 1997, respectively.



                                       12

<PAGE>



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

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


Energy (continued)
------------------
Energy  operating margin of $7,300 and $2,400 for the three and six months ended
December 31, 1997, increased $2,100 (41%) and $2,100 (792%), respectively,  over
both  periods as  compared to the same  periods in the prior  year.  Despite the
lower sales dollars, gross margins on all products improved $1,400 for the three
months and $1,800 for the six months ended December 31, 1997, as compared to the
same  periods in the prior year.  Operating  expenses  decreased  for the second
quarter by $400 and are in line with the  six-month  period  ended  December 31,
1997, as compared to the same periods in the prior year.

Leasing
-------
Telmark total revenues of $16,300 and $32,100 for the three and six months ended
December 31, 1997,  increased  $2,200 (16%) and $4,600 (17%),  respectively,  as
compared to the same periods in the prior year.  The Company's net investment in
leases and notes increased by $21,000 (5%) to $490,800 for the six-month  period
ended  December 31, 1997, as compared to an increase of $22,700 (6%) to $417,000
for the  corresponding  period in the prior year.  Increased  revenues  were the
result of a higher  average net  investment in the three- and six-month  periods
ended December 31, 1997.

Operating  margin of $3,500  and  $6,700  for the  three  and six  months  ended
December  31,  1997,  increased  $200  (78%) and $600  (10%),  respectively,  as
compared to the same periods in the prior year.  Total revenue  increases  noted
above were partially offset by an increase in total expenses of $2,000 (18%) and
$4,000 (19%) for the threeand  six-month  periods  ended  December 31, 1997,  as
compared  to the same  periods  in the prior  year.  The  larger  amount of debt
required to finance the increased net investment during the three- and six-month
periods,  as  compared  to the same  periods in the prior  year,  has  increased
interest  expense  $1,100 (19%) and $2,200  (19%),  respectively,  and increased
selling,  general  and  administrative  expenses  $800 (25%) and  $1,700  (28%),
respectively, in the threeand six-month periods ended December 31, 1997.

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

Insurance  net revenues of $7,000 and $13,800 for the three and six months ended
December 31, 1997, increased $200 (3%) and $800 (6%), respectively,  as compared
to the same periods in the prior year. The increase for the three- and six-month
periods  is the result of both  higher  direct  earned  premiums  and  decreased
reinsurance costs.

Operating  margin of $200 for the three and six months ended  December 31, 1997,
decreased  $150 and $100,  respectively,  as compared to the same periods in the
prior  year.  The  decrease  was the  result of losses and  expenses  offsetting
increased premiums.


                                       13

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

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

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash Flows from Operating Activities
Net cash flows used in operating  activities  for the six months ended  December
31, 1997,  were $500,  representing  an increase in cash flows of  approximately
$21,000 as compared to the same period in the prior year.  This  increase is due
primarily  to an  increase in cash  earnings  (net margin  (loss)  adjusted  for
non-cash  items) of $15,000 over the prior year,  in addition to a decreased use
of cash to fund working capital increases of $6,000.

Cash Flows from Investing Activities
Net cash flows used in the Company's investing activities totaled  approximately
$33,300 for the six months ended  December 31, 1997,  as compared to $15,100 for
the six months ended December 31, 1996, representing an increase in cash outflow
of $18,200. With reduced divestiture  activity,  principally at CPG, proceeds of
$6,000  from  businesses  and fixed  assets  sold  during the six  months  ended
December 31,  1997,  were  $13,500  less than the cash  generated  from the same
activity  during the  corresponding  period in the prior  year.  Acquisition  of
businesses  in the current  year has  resulted in cash paid for  businesses  and
fixed assets being $10,600  higher in the six months ended December 31, 1997, as
compared  to the same  period in the prior year.  The  foregoing  were offset by
several  items,  the  largest of which was  activity in  investments  in related
cooperatives which generated cash of $1,400 in the six months ended December 31,
1997,  as opposed to requiring  cash of $2,100 in the six months ended  December
31, 1996, a cash increase of $3,500.

Cash Flows from Financing Activities
Cash of $7,800 used to redeem  stock  represents  an increase of $7,800 over the
corresponding period in the prior year.  Effective July 1, 1997,  restriction on
the redemption of $16,700 of preferred  stock expired,  of which $5,900 has been
redeemed as of December 31, 1997. Net borrowings in the first six months of 1998
increased  $41,500,  as compared to the comparable period in the prior year, due
primarily  to the need to finance  the above  stock  redemptions  and  investing
activities not financed  through  operating  activities,  as explained in detail
below.

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.  In  conjunction  with a private  placement
offering made by Telmark,  the Company  ascertained  that because Telmark was in
technical violation of certain covenants in its loan agreements, the Company was
also in technical  violation of certain  covenants in existing  loan  agreements
specific to debt issuances by subsidiaries and assets pledged as collateral. The
Company received all necessary permanent waivers in relation to these violations
prior to  December  31,  1997.  Sources of  longer-term  financing  include  the
following as of December 31, 1997:
<TABLE>
<CAPTION>
                                                                              Agway & AFC
                                                                             (excluding
   Source of debt                                                              Telmark)      Telmark       Total
   --------------                                                            -----------  -----------   ----------
   <S>                                                                       <C>          <C>           <C>
   Banks - due 1/98 to 2/01, interest at a weighted average
     rate of 7.2% with a range of 6.0% - 8.4%..............................  $     2,275  $   148,000   $  150,275
   Insurance companies - due 1/98 to 4/04, interest at a weighted
     average rate of 7.2% with a range of 5.9% - 8.9%......................            0      171,817      171,817
   Capital leases and other - due 1998 to 2007, interest at a
     weighted average rate of 9.3% with a range of 6% to 12%...............       11,613           54       11,667
                                                                             -----------  -----------   ----------
       Long-term debt......................................................       13,888      319,871      333,759
   Subordinated money market certificates - due 10/98 to 10/08, interest
     at a weighted average rate of 8.1% with a range of 4.5% - 9.5%........      381,446            0      381,446
   Subordinated debentures - due 7/99 to 7/03, interest at a weighted
     average rate of 7.9% with a range of 6.0% to 8.5%.....................       22,432       37,262       59,694
                                                                             -----------  -----------   ----------
       Total debt..........................................................  $   417,766  $   357,133   $  774,899
                                                                             ===========  ===========   ==========
</TABLE>
For a complete  description  of the  Company's  credit  facilities  available at
December  31,  1997,  see  Footnote 3 to the  condensed  consolidated  financial
statements.

                                       14

<PAGE>



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


Item 1.  Legal Proceedings
--------------------------
As previously  reported in its Form 10-K,  the Company  submitted  drafts of its
risk  characterization and remedial action plan reports on certain real property
located in Acton,  Massachusetts,  for public  comment in July 1997. The Company
had  originally  scheduled to finalize  those reports by September 30, 1997, but
now anticipates their completion in the first half of calendar 1998. The Company
currently has accrued its best estimate  relative to the cost of any  additional
assessment,  containment, removal or remediation actions regarding the property.
However,  it is reasonably  possible  that the results of ongoing  and/or future
environmental studies or other factors could alter this estimate and require the
recording of additional liabilities.  The extent or amount of such events cannot
be estimated at this time.  However,  Agway  believes  that its past  experience
provides a reasonable basis for its estimates recorded for this matter.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its annual  meeting of  shareholders  on November 12, 1997,  at
which a quorum was present in person or by proxy.  The following  Directors were
elected to three-year terms through December 2000:

         Nominee                   In Favor                  Opposed
  ----------------------     ----------------------      ---------------
  Gary K. Van Slyke                  47,678                   14,423
  Jeffrey B. Martin                  47,678                   14,423
  Ralph H. Heffner                   47,678                   14,423
  Edwin C. Whitehead                 47,678                   14,423
  Samuel B. Minor                    47,678                   14,423

Eligible  additional  votes totaling 17,101 were not received at the time of the
annual  meeting  and are not  included  as  either  votes in  favor or  opposed.
Additionally,   these  17,101  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 Annual Meeting:

        Ralph H. Heffner               - Chairman of the Board and Director
        Gary K. Van Slyke              - Vice Chairman of the Board and Director
        Kevin B. Barrett               - Director
        Keith H. Carlisle              - Director
        D. Gilbert Couser              - Director
        Andrew J. Gilbert              - Director
        Peter D. Hanks                 - Director
        Robert L. Marshman             - Director
        Jeffrey B. Martin              - Director
        Samuel F. Minor                - 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, 1997.



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<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 9, 1998                   /s/ PETER J. O'NEILL
         ----------------------         ----------------------------------------
                                                   Peter J. O'Neill
                                                Senior Vice President,
                                                  Finance & Control,
                                               Treasurer and Controller
                                           (Principal Financial Officer and
                                              Chief Accounting Officer)










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