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 23, 2000
                               ------------------

                                       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 November 3, 2000
------------------------                         -------------------------------
Membership Common Stock,                                 98,350 shares
$25 par value per share

                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                              PAGE NO.
                                                                                                              --------
<S>          <C>                                                                                                   <C>
PART I.      FINANCIAL INFORMATION
-------      ---------------------
             Item 1.  Financial Statements (Unaudited)

             Condensed Consolidated Balance Sheets as of September 23, 2000 and June 24, 2000....................   3

             Condensed Consolidated Statements of Operations and Retained Earnings for the three months
             ended September 23, 2000 and September 25, 1999.....................................................   4

             Consolidated Statements of Comprehensive Income for the three months ended September 23, 2000
             and September 25, 1999..............................................................................   5

             Condensed Consolidated Cash Flow Statements for the three months ended September 23, 2000
             and September 25, 1999..............................................................................   6

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

             Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations......  16

             Item 3.  Quantitative and Qualitative Disclosures About Market Risk.................................  21

PART II.     OTHER INFORMATION
--------     -----------------
             Item 6.  Exhibits and Reports on Form 8-K...........................................................  22

             SIGNATURES..........................................................................................  23

</TABLE>













                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                   September 23,          June 24,
ASSETS                                                                                 2000                 2000
------                                                                             --------------      -------------
                                                                                    (Unaudited)
<S>                                                                                <C>                 <C>
Current Assets:
      Cash......................................................................   $        9,286      $      29,244
      Trade accounts receivable (including notes receivable of $36,506 and
           $38,755, respectively), less allowance for doubtful accounts of
           $7,879 and $7,204, respectively......................................          189,696            210,598
      Leases receivable, less unearned income of $73,280 and
           $71,944, respectively................................................          159,055            152,255
      Advances and other receivables............................................           25,724             22,401
      Inventories:
           Raw materials........................................................            3,505              7,982
           Finished goods.......................................................           99,092            101,859
           Goods in transit and supplies........................................            2,187              2,099
                                                                                   --------------      -------------
                Total inventories...............................................          104,784            111,940
      Prepaid expenses and other assets.........................................           57,398             48,743
                                                                                   --------------      -------------
           Total current assets.................................................          545,943            575,181
Marketable securities available for sale........................................           35,553             36,254
Other security investments......................................................           50,998             51,472
Properties and equipment, net...................................................          171,553            175,784
Long-term leases receivable, less unearned income of $169,228 and
      $167,414, respectively....................................................          486,330            470,595
Net pension asset...............................................................          217,669            213,455
Other assets    ................................................................           34,304             21,110
Net assets of discontinued operations...........................................           25,060             34,278
                                                                                   --------------      -------------
                Total assets....................................................   $    1,567,410      $   1,578,129
                                                                                   ==============      =============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
      Notes payable.............................................................   $      192,064      $     177,576
      Current installments of long-term debt....................................          130,370            136,211
      Current installments of subordinated debt.................................           55,949             57,125
      Accounts payable..........................................................          107,485             94,046
      Other current liabilities.................................................          113,559            122,060
                                                                                   --------------      -------------
           Total current liabilities............................................          599,427            587,018
Long-term debt..................................................................          261,740            282,338
Subordinated debt...............................................................          420,237            417,749
Other liabilities...............................................................          112,779            108,433
                                                                                   --------------      -------------
           Total liabilities....................................................        1,394,183          1,395,538
Commitments and contingencies...................................................
Shareholders' equity:
      Preferred stock, net......................................................           38,273             39,695
      Common stock, net.........................................................            2,462              2,473
      Accumulated other comprehensive income (loss).............................            5,296               (798)
      Retained earnings.........................................................          127,196            141,221
                                                                                   --------------      -------------
           Total shareholders' equity...........................................          173,227            182,591
                                                                                   --------------      -------------
                Total liabilities and shareholders' equity......................   $    1,567,410      $   1,578,129
                                                                                   ==============      =============

     See accompanying notes to condensed consolidated financial statements.

</TABLE>
                                       3

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                   ----------------------------------
                                                                                    September 23,      September 25,
                                                                                        2000                1999
                                                                                   ---------------     --------------
<S>                                                                                <C>                 <C>
Net sales and revenues from:
      Product sales (including excise taxes)....................................   $       291,513     $     238,584
      Leasing operations........................................................            20,544            18,271
      Insurance operations......................................................             6,972             6,980
                                                                                   ---------------     --------------
           Total net sales and revenues.........................................           319,029           263,835

Cost and expenses from:
      Products and plant operations.............................................           286,048           238,199
      Leasing operations........................................................             9,369             7,701
      Insurance operations......................................................             4,312             4,152
      Selling, general and administrative activities............................            32,431            33,603
                                                                                   ---------------     -------------
           Total operating costs and expenses...................................           332,160           283,655

Operating loss..................................................................           (13,131)          (19,820)

Interest expense, net...........................................................            (9,011)           (6,394)
Other income, net...............................................................             1,148             2,314
                                                                                   ---------------     -------------
Loss before income taxes........................................................           (20,994)          (23,900)
Income tax benefit .............................................................             8,026             8,711
                                                                                   ---------------     -------------

Loss from continuing operations.................................................           (12,968)          (15,189)

Discontinued operations:
      Loss from operations, net of tax of $0 and $874, respectively.............                 0            (1,601)
      Loss on disposal of retail................................................                 0                 0
                                                                                   ---------------     -------------
      Loss from discontinued operations.........................................                 0            (1,601)




Loss before cumulative effect of an accounting change...........................          (12,968)           (16,790)

Cumulative effect of accounting change, net of tax benefit of $723..............           (1,057)                 0
                                                                                   --------------      -------------

Net loss   .....................................................................          (14,025)           (16,790)
                                                                                   --------------      -------------

Retained earnings, beginning of period..........................................          141,221            153,763
                                                                                   --------------      -------------
Retained earnings, end of period................................................   $      127,196      $     136,973
                                                                                   ==============      =============
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                                                           Three Months Ended
                                                                                   ----------------------------------
                                                                                    September 23,       September 25,
                                                                                        2000                1999
                                                                                   ---------------     --------------
<S>                                                                                <C>                 <C>
Net loss   .....................................................................   $       (14,025)    $     (16,790)

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available-for-sale securities:
      Unrealized holding gains (losses) arising during period...................               295              (146)
      Reclassification adjustment for (gains) losses included in net earnings...                 0                 0

Unrealized gains (losses) on derivatives:
      Cumulative effect of accounting change, net of tax expense $2,041.........             3,061                 0
      Unrealized holding gains (losses) arising during period...................             3,402                 0
      Reclassification adjustment for (gains) losses included in net earnings...              (664)                0
                                                                                   ---------------     --------------

Other comprehensive income (loss), net of tax...................................             6,094              (146)
                                                                                   ---------------     --------------

Comprehensive loss..............................................................   $        (7,931)    $     (16,936)
                                                                                   ===============     ==============
</TABLE>


























     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                                                             Three Months Ended
                                                                                    ----------------------------------
                                                                                     September 23,       September 25,
                                                                                         2000                1999
                                                                                    ---------------      -------------
<S>                                                                                 <C>                  <C>
Net cash flows provided by (used in) continuing operations......................    $        8,432       $    (10,527)
Net cash flows provided by (used in) discontinued operations....................             9,218              9,568
                                                                                    ---------------      -------------
Net cash flows provided by (used in) operating activities.......................            17,650               (959)

Cash flows provided by (used in) investing activities:
      Purchases of property, plant and equipment................................            (3,351)            (6,909)
      Proceeds from disposal of property, plant and equipment...................             2,170             (1,350)
      Cash paid for acquisition of business.....................................                 0             (4,950)
      Leases originated.........................................................           (76,727)           (68,426)
      Leases repaid.............................................................            52,616             47,450
      Proceeds from sale of marketable securities...............................             1,473                645
      Purchases of marketable securities........................................              (477)            (1,896)
      Net purchase of investments in cooperatives...............................               351                319
                                                                                    ---------------      -------------

Net cash flows used in investing activities.....................................           (23,945)           (35,117)

Cash flows provided by (used in) financing activities:
      Net change in short-term borrowings.......................................            14,488             50,800
      Proceeds from long-term debt..............................................               562                876
      Repayment of long-term debt...............................................           (26,969)           (13,560)
      Proceeds from sale of subordinated debt...................................            24,604             23,570
      Maturity and redemption of subordinated debt..............................           (23,291)           (22,737)
      Payments on capital leases................................................               (32)               103
      Redemption of stock, net .................................................            (1,433)              (389)
      Cash dividends paid.......................................................            (1,592)            (1,702)
                                                                                    ---------------      -------------

Net cash flows provided by (used in) financing activities.......................           (13,663)            36,961
                                                                                    ---------------      -------------

Net increase (decrease) in cash and equivalents.................................           (19,958)               885
Cash and equivalents at beginning of period.....................................            29,244              4,480
                                                                                    ---------------      -------------

Cash and equivalents at end of period...........................................    $        9,286       $      5,365
                                                                                    ===============      =============

</TABLE>









     See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>



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

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


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      ------------------------------------------
      Basis of Presentation
      The accompanying  unaudited condensed consolidated financial statements of
      Agway Inc. (the "Company") have been prepared in accordance with generally
      accepted accounting  principles for interim financial information and with
      the   instructions  to  Form  10-Q  and  Article  10  of  Regulation  S-X.
      Accordingly,  they do not include  all of the  information  and  footnotes
      required  by  generally  accepted   accounting   principles  for  complete
      financial  statements.  In the  opinion  of  management,  all  adjustments
      (consisting of normal recurring accruals)  considered necessary for a fair
      presentation  have been included.  Operating  results for the  three-month
      period ended  September 23, 2000,  are not  necessarily  indicative of the
      results that may be expected for the year ending June 30, 2001, due to the
      seasonal  nature of certain major  segments of our  business.  For further
      information,  refer to the  consolidated  financial  statements  and notes
      thereto included in the annual report on Form 10-K for the year ended June
      24, 2000.

      New Accounting Standard
      The Financial  Accounting Standards Board issued SFAS No. 133, "Accounting
      for  Derivative  Instruments  and  Hedging  Activities."  SFAS No. 133 (as
      amended  by SFAS No.  137) is  effective  for all fiscal  quarters  of all
      fiscal  years  beginning  after June 15,  2000,  (June 25,  2000,  for the
      Company).  SFAS No.  133  requires  that  all  derivative  instruments  be
      recorded  on the balance  sheet at their fair  value.  Changes in the fair
      value of derivatives are recorded each period in current earnings or other
      comprehensive  income,  depending on whether a derivative is designated as
      part of a hedge transaction and, if it is, the type of hedge transaction.

      On June 25, 2000,  upon  adoption of SFAS No. 133, the Company  recorded a
      net-of-tax cumulative-effect loss of $1,100 to recognize at fair value the
      component of all option  contracts  associated  with the Company's  Energy
      segment which is excluded from the  assessment of hedge  effectiveness  as
      allowed by the new  standard.  The  Company  also  recorded  a  net-of-tax
      cumulative-effect   gain  of  $3,100  in  other  comprehensive  income  to
      recognize at fair value all derivative instruments in the Company's Energy
      segment that are designated and qualify as cash- flow hedges.  The Company
      expects to  reclassify  this gain to earnings  during the  current  fiscal
      year.  See Note 7 for  further  details of the  Company's  accounting  for
      derivatives and hedging activities.

      Fiscal Quarter
      The fiscal  quarter-end of Agway Inc. for the first quarter of the current
      and prior year was September 23 and September 25, respectively. The fiscal
      quarter-end  of certain of Agway's  subsidiaries,  including  Agway Energy
      Products LLC, Telmark LLC, and Agway Insurance  Company,  is September 30,
      and these subsidiaries are consolidated on that basis.

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





                                        7

<PAGE>



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

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


2.    AGWAY FINANCIAL CORPORATION
      ---------------------------
      Agway Financial  Corporation  (AFC) is a wholly owned subsidiary of Agway.
      AFC's principal business  activities consist of securing financing through
      bank  borrowings  and issuance of corporate  debt  instruments  to provide
      funds for  general  corporate  purposes  to Agway and AFC's  wholly  owned
      subsidiary,  Agway Holdings Inc. (AHI), and certain of AHI's subsidiaries.
      Major  holdings of AHI include Agway Energy  Products LLC and Agway Energy
      Services Inc. (Energy),  Telmark LLC and its subsidiaries  (Leasing),  and
      Agway  Insurance  Company and Agway General Agency Inc.  (Insurance).  The
      payment of principal and interest on this AFC debt is guaranteed by Agway.
      This guarantee is full and unconditional,  and joint and several.  Telmark
      and Insurance  finance their  activities  through their own  operations or
      through a combination of their own short- and long-term credit facilities.

      In exemptive relief granted pursuant to a "no action letter" issued by the
      staff of the SEC,  AFC is not required to file  periodic  reports with the
      SEC for itself but does report summarized financial information in Agway's
      financial statement  footnotes.  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 23,      September 25,
                                                                                         2000                 1999
                                                                                    ---------------     --------------
           <S>                                                                      <C>                 <C>
           Net sales and revenues...............................................    $      191,191      $     139,467
           Operating loss.......................................................            (4,535)            (6,527)
           Net loss.............................................................            (8,594)            (8,285)


                                                                                      September 23,         June 30,
                                                                                          2000               2000
                                                                                    ---------------     --------------
           Current assets.......................................................    $      683,867      $     696,404
           Properties and equipment, net........................................            78,269             79,178
           Noncurrent assets....................................................           632,563            618,303
                                                                                    ---------------     --------------
           Total assets.........................................................    $    1,394,699      $   1,393,885
                                                                                    ===============     ==============

           Current liabilities..................................................    $      122,755      $     112,259
           Short-term notes payable.............................................           192,064            177,576
           Current installments of long-term debt...............................           125,102            133,399
           Current installments of subordinated debt............................            55,949             57,125
           Long-term debt.......................................................           255,303            273,814
           Subordinated debt....................................................           420,237            417,749
           Noncurrent liabilities...............................................            23,200             19,373
           Shareholder's equity.................................................           200,089            202,590
                                                                                    ---------------     --------------
           Total liabilities and shareholder's equity...........................    $    1,394,699      $   1,393,885
                                                                                    ===============     ==============
</TABLE>

                                        8

<PAGE>



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

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


3.    BORROWING ARRANGEMENTS
      ----------------------
      Agway  finances its operations and the operations of all of its businesses
      and  subsidiaries  through Agway  Financial  Corporation  (AFC).  External
      sources of short-term  financing for Agway and its continuing  operations,
      other than Agway Insurance  Company and Telmark,  include revolving credit
      lines,  letters of  credit,  and a  commercial  paper  program.  Insurance
      finances its activities through operations. Telmark's finance arrangements
      are explained  below. As of September 2000,  Agway had certain  facilities
      available with banking institutions whereby lenders have agreed to provide
      funds up to  $436,700  to  separately  financed  units of the  Company  as
      follows: AFC - $50,000 and Telmark - $386,700. In addition,  AFC may issue
      up to $50,000 of commercial paper under the terms of a separate agreement,
      backed by a bank standby letter of credit.

      AFC
      The specifics of these AFC arrangements are as follows:
<TABLE>
<CAPTION>
                                                                                      Outstanding
                                                          Available        ------------------------------------
                                                         Sept.  2000          Sept. 2000           June 2000        Term Expires
                                                      ----------------     ---------------      ---------------   ----------------
       <S>                                            <C>                  <C>                  <C>                <C>
       Short-term line of credit....................  $        50,000      $       20,800       $       51,900     December 2000
       Commercial paper.............................  $        50,000      $       50,000       $       50,000     December 2000
</TABLE>
       Effective  November  1,  2000,  AFC's  line of credit  was  increased  to
       $75,000,  principally to support  anticipated  increased  working capital
       requirements  of the Company's  energy  business due to the  industrywide
       increasing costs of petroleum commodities.

       The $75,000  short-term line of credit and the $50,000  commercial  paper
       facility  currently  available  to AFC  require  collateralization  using
       certain of Agway's  accounts  receivable  and  non-petroleum  inventories
       (collateral). The line of credit additionally requires Agway's investment
       in bank stock,  which had a book value of $2,700 and $3,000 at  September
       2000 and June 2000, respectively,  as additional collateral.  The maximum
       amounts  that can be drawn  under these AFC  agreements  are subject to a
       limitation  based on a specific  calculation  relating to the  collateral
       available.  Adequate  collateral  existed throughout the first quarter to
       permit AFC to borrow  amounts to meet the  ongoing  needs of Agway and is
       expected  to  continue  to do so. In  addition,  the  agreements  include
       certain  covenants,  the  most  restrictive  of which  requires  Agway to
       maintain specific quarterly levels of interest  coverage,  monthly levels
       of  tangible  retained  earnings,  monthly  current  ratios,  and  limits
       available  credit to a multiple of earnings as defined in the  agreement.
       Other covenants  limit capital  expenditures to agreed upon levels during
       the term of the  agreements,  require the monthly  maintenance  of senior
       liabilities  to tangible  capital ratios as defined in the agreements and
       the  maintenance of a minimum total of $425,000 in Agway  preferred stock
       and AFC subordinated  debt. The required minimum level of preferred stock
       and  subordinated  debt  has  historically  been  at  levels  that do not
       interfere  with the normal  volume of  requests  Agway has  received  and
       fulfilled to repurchase such securities at par value or principal  amount
       prior to maturity.

       For the months of July and August  2000,  Agway did not meet the  current
       ratio covenant.  The banks have waived these  violations of this covenant
       and have  amended  the  covenant  to  agreed  upon  levels  of  financial
       performance  through  December  2000,  the remaining term of these credit
       arrangements.  As of September 2000, Agway met all covenant requirements.
       However,  the bank  covenants are  restrictive  and, given the historical
       volatility of Agway's operating results,  may be violated between now and
       December 31, 2000.


                                        9

<PAGE>

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

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


3.    BORROWING ARRANGEMENTS (continued)
      ----------------------------------
      AFC (continued)
      To meet working capital demands of the most recent petroleum  product cost
      increases,  banks  under  AFC's  current  lending  arrangements  agreed to
      increase  AFC's  line of  credit to  $75,000  effective  November  1, 2000
      through the expiration of this financing arrangement on December 31, 2000.
      AFC annually  renews its lines of credit in the quarter ended December 31,
      and in anticipation of these continued high petroleum  product costs,  AFC
      has been  negotiating with several lenders to increase and restructure its
      credit  facilities  effective  January 1, 2001.  The  restructured  credit
      facilities are anticipated to include  increased lines of credit without a
      commercial paper program.  Agway's existing banks have expressed  interest
      in  participating  in the  restructured  lines of credit at reduced levels
      from  their  current  commitments.  Agway  expects  to  continue  to  have
      appropriate and adequate financing to meet its ongoing needs.  However, we
      are presently in negotiations for these new credit facilities;  therefore,
      there is no assurance  that the Company will achieve the desired levels of
      financing,  and the terms of such  financing,  as  ultimately  negotiated,
      cannot be determined at this time.

      In addition to the short-term line of credit and commercial paper program,
      Agway,  through AFC, offers  subordinated  money market  certificates (and
      previously  offered   subordinated   debentures)  to  the  public.   AFC's
      subordinated debt is not redeemable by the holder, though AFC historically
      has had a practice of repurchasing at face value, plus interest accrued at
      the  stated  rate,  certain   subordinated  debt  whenever  presented  for
      repurchase  prior to  maturity.  However,  AFC is under no  obligation  to
      repurchase  such debt when so presented,  and AFC may stop or suspend this
      repurchase  practice at any time. In addition,  the terms or conditions of
      the lines of credit discussed above, as ultimately  negotiated,  may cause
      AFC to limit or cease its past  practices with regard to the repurchase of
      subordinated debt. The foregoing debt bears interest payable semi-annually
      on January l and July 1 of each year. AFC's money market certificates bear
      interest  at a rate that is the greater of the stated rate or a rate based
      upon  the  average  discount  rate  for  U.S.  Government  Treasury  Bills
      (T-Bills),  with  maturities of 26 weeks.  AFC  subordinated  money market
      certificates as of September 2000 are due between October 2000 and October
      2014 and bear a weighted average interest rate of 8.0%, while subordinated
      debentures  due  between  July 2001 and July 2003 bear a weighted  average
      interest rate of 7.7%.

      In October 2000, $50,100 of subordinated money market  certificates issued
      by AFC matured.  Agway  refinanced  this debt through a combination of new
      issuance of subordinated debt, cash from operations, sales of discontinued
      assets, and short-term bank borrowings.

      Telmark
      At September  2000,  Telmark had credit  facilities  available  from banks
      which  allow  Telmark  to borrow up to an  aggregate  of  $386,700,  which
      reflects an increase in the revolving  term loan facility of $50,000 since
      June 2000. Uncommitted short-term line of credit agreements permit Telmark
      to borrow up to $86,700 on an  uncollateralized  basis with  interest paid
      upon maturity.  The lines bear interest at money market  variable rates. A
      committed $300,000 partially  collateralized  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 total amounts  outstanding  as of September 2000 and June 2000
      under  the   short-term   lines  of  credit  were   $85,700  and  $75,200,
      respectively, and under the revolving term loan facility were $177,600 and
      $154,500,  respectively.  The portion of the  revolving  term loan that is
      short  term at  September  2000  and  June  2000  was  $35,600  and  $500,
      respectively.   Telmark  borrows  under  its  short-term  line  of  credit
      agreement and its revolving  term  agreement from time to time to fund its
      operations.  Short-term  debt  serves as  interim  financing  between  the
      issuances of long-term debt.  Telmark renews its lines of credit annually.
      The  $86,700  lines of credit all have terms  expiring  during the next 12
      months.  The $300,000  revolving  term loan facility is available  through
      August 1, 2001.


                                       10

<PAGE>



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

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


3.    BORROWING ARRANGEMENTS (continued)
      ----------------------------------
      Telmark (continued)
      Telmark had balances  outstanding  on unsecured  senior notes from private
      placements  totaling  $122,000  at  September  30 and June 30,  2000.  The
      principal  bears  interest at fixed rates  ranging from 6.5% to 7.6%.  The
      principal  payments  commence  November 2000 with final installment due in
      May 2004. Interest is payable  semiannually on each senior note. Principal
      payments are both  semiannual and annual.  The note agreements are similar
      to one another and each contains several specific financial covenants.

      Telmark, through three wholly owned special purpose subsidiaries,  has six
      classes of lease-backed  notes outstanding  totaling $113,600 and $118,300
      at  September  2000 and June  2000,  respectively,  payable  to  insurance
      companies.  Interest  rates on these  classes of notes  range from 6.5% to
      9.1%. The notes are collateralized by leases,  which Telmark sold to these
      subsidiaries,  having an  aggregate  present  value of  contractual  lease
      payments  equal to the principal  balance of the notes,  and the notes are
      further  collateralized  by the  residual  values of these  leases  and by
      segregated  cash  accounts.  The  scheduled  maturity of these notes is in
      varying amounts and dates through December 2008.

      Telmark  registers  with the SEC to offer  debentures  to the public.  The
      debentures are unsecured and  subordinated  to all senior debt at Telmark.
      The  interest  on the debt is paid on  January  1,  April  1,  July 1, and
      October 1 of each year and may, at the holder's option, be reinvested. The
      offering  of the  debentures  is not  underwritten,  and  there  can be no
      guarantee  as to the  amount  of  debentures,  if any,  that will be sold.
      Telmark's  subordinated  debentures  bear  interest  at a rate that is the
      greater of the stated rate or a rate based upon an average  discount  rate
      for U.S. Government  Treasury Bills, with maturities of 26 weeks.  Telmark
      debentures as of September  2000 are due between March 2001 and March 2008
      and bear a weighted  average  interest rate of 8.0%. As of September 2000,
      approximately   $38,400  of  debentures  were   outstanding   under  these
      offerings.

      The Company's  long-term and  subordinated  debt  outstanding at September
      2000, as compared to June 2000, is as follows:
<TABLE>
<CAPTION>
                                                                      AFC
                                           Agway                 (excluding Telmark)        Telmark                    Total
                                  -----------------------   -----------------------  ---------------------   ----------------------
                                     9/00         6/00         9/00         6/00        9/00        6/00         9/00       6/00
                                  ----------   ----------   ----------  -----------  ----------  ---------   ----------  ----------
      <S>                         <C>          <C>          <C>         <C>          <C>         <C>         <C>         <C>
      Long-term debt ..........   $   11,705   $   11,336   $    2,796  $     2,957  $  377,609  $ 404,256   $  392,110  $  418,549
      Currently payable........        5,268        2,812          452          626     124,650    132,773      130,370     136,211
                                  ----------   ----------   ----------  -----------  ----------  ---------   ----------  ----------
      Net long-term debt.......   $    6,437   $    8,524   $    2,344  $     2,331  $  252,959  $ 271,483   $  261,740  $  282,338
                                  ==========   ==========   ==========  ===========  ==========  =========   ==========  ==========

      Subordinated debt........   $        0   $        0   $  437,790  $   437,476  $   38,396  $  37,398   $  476,186  $  474,874
      Currently payable........            0            0       50,589       51,628       5,360      5,497       55,949      57,125
                                  ----------   ----------   ----------  -----------  ----------  ---------   ----------  ----------
      Net subordinated debt....   $        0   $        0   $  387,201  $   385,848  $   33,036  $  31,901   $  420,237  $  417,749
                                  ==========   ==========   ==========  ===========  ==========  =========   ==========  ==========
</TABLE>




                                       11

<PAGE>



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

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


4.    COMMITMENTS AND CONTINGENCIES
      -----------------------------
      Environmental
      Agway and its  subsidiaries  are subject to various laws and  governmental
      regulations concerning  environmental matters. We expect to be required to
      expend funds to participate in the remediation of certain sites, including
      sites where we have been designated by the Environmental Protection Agency
      (EPA) as a  potentially  responsible  party (PRP) under the  Comprehensive
      Environmental Response,  Compensation and Liability Act (CERCLA) and sites
      with  underground  fuel storage  tanks.  We will also incur other expenses
      associated with environmental compliance.

      Agway is  designated  as a PRP  under  CERCLA  or as a third  party to the
      original PRPs in several  Superfund  sites.  The liability under CERCLA is
      joint and  several,  meaning that Agway could be required to pay in excess
      of its pro rata share of remediation costs.  Agway's  understanding of the
      financial  strength  of  other  PRPs at  these  Superfund  sites  has been
      considered,   where   appropriate,   in  determination  of  its  estimated
      liability.

      We  continually   monitor  our   operations   with  respect  to  potential
      environmental issues,  including changes in legally mandated standards and
      remediation  technologies.   Agway's  recorded  liability  reflects  those
      specific issues where  remediation  activities are currently  deemed to be
      probable and where the cost of remediation can be estimated.  Estimates of
      the extent of our degree of  responsibility  of a particular  site and the
      method and ultimate cost of  remediation  require a number of  assumptions
      for which the ultimate outcome may differ from current estimates. However,
      we believe that past experience provides a reasonable basis for estimating
      our liability. As additional information becomes available,  estimates are
      adjusted as necessary. While we do not anticipate that any such adjustment
      would be material to our financial  statements,  it is reasonably possible
      that the result of ongoing  and/or future  environmental  studies or other
      factors  could  alter  this  expectation  and  require  the  recording  of
      additional  liabilities.  The  extent or amount  of such  events,  if any,
      cannot be  estimated  at this  time.  The  settlement  of the  liabilities
      established  will cause future cash outlays over at least five years based
      upon  current  estimates,  and it is not  expected  that such outlays will
      materially impact Agway's liquidity position.

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



                                       12

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

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

5.    FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
      --------------------------------------------------
      Agway is an agricultural  cooperative  directly engaged in  manufacturing,
      processing, distribution, and marketing of agricultural feed and agronomic
      products  and  services  for  its   farmer-members  and  other  customers,
      primarily in the northeastern  United States and Ohio. In addition,  Agway
      is involved in  repackaging  and  marketing  produce  and  processing  and
      marketing sunflower seeds. Agway, through certain of its subsidiaries,  is
      involved in the distribution of petroleum  products;  the installation and
      servicing  of  heating,   ventilation,   and  air-conditioning  equipment;
      marketing  of  natural  gas  and   electricity;   lease   financing;   the
      underwriting and sale of certain types of property and casualty insurance;
      and the sale of health insurance. Agway reports its operations principally
      in five  business  segments.  Total sales and  revenues  of each  industry
      segment  includes  the  sale of  products  and  services  to  unaffiliated
      customers, as reported in the Agway consolidated statements of operations,
      as well as sales to  other  segments  of  Agway  which  are  competitively
      priced.

      The Other  category  within the  summary  of  business  segments  includes
      intersegment  eliminations  and  interest.  The category also includes net
      corporate  expenses and pension income.  Finally,  interest income for the
      Leasing segment is reported as net sales and revenues and interest expense
      is reported as cost and expenses from leasing operations (cost of sales).
<TABLE>
<CAPTION>
                                                           Three Months Ended September 2000
                               --------------------------------------------------------------------------------------------
                                               Country
                                               Products
                               Agriculture       Group       Energy      Leasing      Insurance     Other(a)   Consolidated
                               -----------   -----------  -----------   ----------   ----------   ----------   ------------
<S>                            <C>           <C>          <C>           <C>          <C>          <C>          <C>
Net sales and revenues to
  unaffiliated customers.....  $    98,963   $   43,365   $   149,251   $   20,468   $    6,972   $       10   $   319,029
Intersegment sales and
  revenues...................        2,230        1,761            85           76            0       (4,152)            0
                               -----------   -----------  -----------   -----------  ----------   ----------   -----------
    Total sales and revenues   $   101,193   $   45,126   $   149,336   $   20,544   $    6,972   $   (4,142)  $   319,029
                               ===========   ===========  ===========   ===========  ==========   ==========   ===========

Earnings (loss) before
   income taxes..............  $    (8,932)  $   (2,284)  $    (8,912)  $    4,212   $      171   $   (5,249)  $   (20,994)
                               ===========   ===========  ===========   ===========  ==========   ==========   ===========

Total assets.................  $   248,494   $   67,725   $   202,085   $   693,154  $   55,032   $  300,920   $ 1,567,410
                               ===========   ===========  ===========   ===========  ==========   ==========   ===========
<CAPTION>

                                                           Three Months Ended September 1999
                               --------------------------------------------------------------------------------------------
                                                Country
                                                Products
                               Agriculture      Group       Energy       Leasing     Insurance     Other(a)   Consolidated
                               -----------   -----------  -----------   ----------   ----------   ----------  ------------
<S>                            <C>           <C>          <C>           <C>          <C>          <C>         <C>
Net sales and revenues to
  unaffiliated customers.....  $    91,424   $   43,266   $   103,893   $   18,265   $    6,980   $       7   $    263,835
Intersegment sales and
  revenues...................        3,338        2,922           100            6            0      (6,366)             0
                               -----------   -----------  -----------   ----------   ----------   ----------  ------------
    Total sales and revenues   $    94,762   $   46,188   $   103,993   $   18,271   $    6,980   $  (6,359)  $    263,835
                               ===========   ===========  ===========   ==========   ==========   ==========  ============

Earnings (loss) before
   income taxes..............  $   (12,888)  $      204   $   (12,020)  $    3,842   $       36   $  (3,074)  $    (23,900)
                               ===========   ===========  ===========   ==========   ==========   ==========  ============

Total assets.................  $   244,265   $   68,104   $   152,201   $  614,009   $   55,229   $ 330,647   $  1,464,455
                               ===========   ===========  ===========   ===========  ==========   ==========  ============
</TABLE>
(a)    Represents unallocated net corporate costs and intersegment eliminations.

                                       13

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

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

6.    DISCONTINUED OPERATIONS
      -----------------------
      In  October  1999,  the  Agway  Board  of  Directors  approved  a plan  to
      restructure the retail store distribution system. This plan called for the
      sale or  closure  of the 227  Agway  retail  properties  over a period  of
      approximately  1 1/2  years.  In the  spring of 2000,  the Agway  Board of
      Directors  authorized  the sale of the  wholesale  procurement  and supply
      system to Southern States  Cooperative,  Inc. An agreement was executed on
      June 20, 2000 and the sale closed on July 31, 2000.

      The sale of the wholesale  procurement  and supply  system,  when combined
      with the sale and closure of the  Agway-owned  or operated  retail stores,
      constitutes  a plan  to  discontinue  operations  of the  retail  services
      business.  For financial  reporting  purposes,  the measurement  date upon
      which this discontinued operation plan became effective was June 20, 2000.
      Operating results of the retail services business, including restructuring
      activity  which  took  place  through  that  date,  were  included  in the
      operating loss from  discontinued  operations in the financial  statements
      for the year ended June 2000. The anticipated  gains and losses after June
      20, 2000 from the future anticipated sale of the wholesale procurement and
      supply  system,  which was  consummated  on July 31, 2000, and the sale or
      closure of the remaining  Agway-owned or operated retail store properties,
      as well as the results of their future operations  through the anticipated
      dates  of  sale,  were  included  in the loss on  disposal  of the  retail
      services   business  in  the  fiscal   year-end  June  2000  statement  of
      operations.  No adjustments were required for discontinued  operations for
      the first quarter of this year.  Quarterly financial results for the prior
      fiscal year have been reclassified to reflect the retail services business
      as a discontinued operation.

      The net sales and revenues from discontinued  operations  (retail services
      business)  for the  first  quarter  of 2001  and 2000  were  approximately
      $19,200 and  $60,100,  respectively.  Net  interest  expense  allocated to
      discontinued  operations for the first quarter of 2001 and 2000 totaled $0
      and $1,300, respectively.

      A summary of net assets of discontinued operations was as follows:
<TABLE>
<CAPTION>
                                                                                    September 23,       June 24,
                                                                                        2000              2000
                                                                                    -------------     -----------
      <S>                                                                           <C>               <C>
      Accounts receivable.......................................................    $      13,536     $   22,982
      Inventory.................................................................            1,973         18,408
      Property, plant and equipment, net........................................           18,838         18,989
      Other assets, net.........................................................           17,986         23,370
      Accounts payable and accrued expenses.....................................          (27,266)       (49,413)
      Long-term liabilities.....................................................               (7)           (58)
                                                                                    -------------     -----------
      Net assets of discontinued operations.....................................    $      25,060     $   34,278
                                                                                    =============     ===========
</TABLE>
7.    ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
      -------------------------------------------------
      All  derivatives  are recognized on the balance sheet at their fair value.
      At the time a  derivative  contract is entered  into,  the Company  either
      designates  the  derivative  as a fair value or cash flow hedge.  For fair
      value hedge  transactions  in which the Company is hedging changes in fair
      value of an asset,  liability,  or firm  commitment,  changes  in the fair
      value of the derivative  will generally be offset in the income  statement
      by  changes  in  the  hedged  item's  fair  value.  For  cash  flow  hedge
      transactions in which the Company is hedging the variability of cash flows
      related to a variable-priced asset, liability,  commitment,  or forecasted
      transaction,  changes in the fair value of the  derivative are reported in
      other  comprehensive  income. The gains and losses on the derivatives that
      are reported in  comprehensive  income are reclassified as earnings in the
      periods in which  earnings  are  impacted by the  variability  of the cash
      flows of the hedged item. The ineffective portion of derivatives'  changes
      in fair value and the change in fair value of  derivatives  designated but
      not qualifying as hedges are recognized in current-period earnings.

                                       14

<PAGE>

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

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


7.    ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (continued)
      -------------------------------------------------------------
      For all derivatives  designated as a hedge, the Company formally documents
      the  relationship  between the hedging  instrument and the hedged item, as
      well as the risk  management  objective  and  strategy  for the use of the
      hedging  instrument.  This documentation  includes linking the derivatives
      that are designated as fair value or cash flows hedges to specific  assets
      or  liabilities  on  the  balance  sheet,  commitments,  or to  forecasted
      transactions.  The Company  assesses at the time a derivative  contract is
      entered into and at least quarterly whether the hedge relationship between
      the  derivative  and the hedged  item is highly  effective  in  offsetting
      changes  in fair  value or cash  flows.  Any  change in fair  value of the
      derivative resulting from ineffectiveness,  as defined by SFAS No. 133, is
      recognized  currently  in earnings.  Further,  for  derivatives  that have
      ceased to be a highly  effective  hedge,  the Company  discontinues  hedge
      accounting prospectively.

      The Company's Energy segment enters into a combination of  exchange-traded
      futures and options  contracts  and,  in certain  circumstances,  over the
      counter  options  (collectively  derivatives)  to manage  the  price  risk
      associated  with  future   purchases  of  the  commodities   used  in  its
      operations,  principally  heating oil and  propane.  Energy has fair value
      hedges  associated with its fixed price purchase  contracts and cash flows
      hedges for its variable  priced  purchase  contracts.  The derivatives are
      specifically  matched in volume and  maturity  with the  various  purchase
      commitments  of the business and generally  expire  within a year.  Energy
      does not include the time value of option  contracts in its  assessment of
      hedge  effectiveness  and  therefore  records  changes  in the time  value
      component of its options currently in earnings.  At September 2000, Energy
      had derivative assets of $12,900  classified as prepaid expenses and other
      assets. A total of $5,800 of deferred net gains on derivatives instruments
      were  accumulated  in other  comprehensive  income and are  expected to be
      reclassified  into  earnings  during  the next nine  months.  The  pre-tax
      earnings impact for the mark-to-market  component of option value not used
      in assessing hedge effectiveness  totaled $1,800 upon the initial adoption
      of SFAS No.  133 at July 1,  2000,  and is  included,  net of tax,  in the
      cumulative  effect  of  accounting  change.  For the  three  months  ended
      September 30, 2000,  $700 is included in cost of goods sold for the change
      in option value not used in the assessment of hedge effectiveness.

      In the Agriculture  segment,  the purchase of corn, soy complex, and oats,
      which can be sold  directly as  ingredients  or included in feed  products
      sold by  Agriculture,  creates price risk for this  business.  Agriculture
      intends to use natural  hedges of purchase  and sales  contracts  whenever
      possible;   however,   exchange-traded   commodity  instruments  are  used
      principally to manage the price risk associated  with unmatched  commodity
      purchases or sales.  Agriculture  matches all  derivative  contracts  with
      their  underlying  purchase  or  sale  contract;   however,   due  to  the
      differences  in the changes in the commodity  cash price at an Agriculture
      location  versus the Chicago Board of Trade,  a highly  effective  hedging
      relationship  (as  defined  by  SFAS  No.  133)  has  not  been  achieved.
      Therefore,  the  derivatives  used in  Agriculture  are  marked  to market
      currently in earnings.

      In the  Country  Products  Group  segment,  exchanged-traded  soybean  oil
      futures  contracts  are used  principally  to  manage  the  price  risk of
      confection  and bakery kernel  sunflower  seeds which are  purchased  from
      growers by CPG and sold to customers.  Foreign currency forward  contracts
      are entered into to manage  fluctuations in foreign  currency  denominated
      sales transactions.  Because the commodity instrument used by CPG (soybean
      oil) does not create a highly effective  hedging  relationship (as defined
      by SFAS No. 133) with the sunflower seed purchase  contracts,  and because
      the timing of the foreign currency contracts does not match the associated
      sales  contracts,  these  derivatives  are marked to market  currently  in
      earnings.



                                       15

<PAGE>



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

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


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

Agway's net sales and revenues and operating results are significantly  impacted
by seasonal  fluctuations due to the nature of its operations and the geographic
location of its service area, which is primarily the northeastern United States.
Agriculture  net sales and  revenues are  traditionally  higher in the spring as
customers  acquire  products to initiate the growing  season.  Energy  generally
realizes significantly higher net sales and revenues in the winter months due to
the higher demand from cold winter conditions.  Country Products Group, Leasing,
and Insurance are not materially impacted by seasonal fluctuations.

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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of $319,000 for the fiscal  quarter  ended
September  23, 2000,  increased  $55,200 (21%) as compared to the same period in
the prior year. The increase in the  three-month  period was  substantially  the
result of increased sales in the Energy and Agriculture  segments.  The increase
in Energy was principally due to significant  increases in the cost of petroleum
products over the prior year combined with volume improvements.  The increase in
Agriculture sales resulted substantially from increases in agronomy sales, where
delayed plantings in the spring of 2000 due to high rainfall in certain areas of
our operating  territory  moved sales of agronomy  products such as fertilizers,
crop  protectants,  and lime (which are typically  made in the fourth quarter of
the fiscal year) to the first quarter of the current year.

Consolidated  pre-tax loss of $21,000 for the three months ended  September  23,
2000,  improved  $2,900  (12%)  over the same  period  in the prior  year.  From
operations,  the pre-tax  results for the three months ended September 23, 2000,
improved  $5,100  (24%).  Improvements  in  Agriculture,  Energy,  Leasing,  and
Insurance were partially  offset by a decline in the Country Products Group. See
further explanation by business segment below.  Increased net corporate costs of
$2,200 (72%) further reduced pre-tax  results for the  three-month  period.  The
increase  in  corporate   costs  over  the  prior  year   resulted  from  higher
professional  services  costs,  higher total  interest costs from overall higher
average short-term borrowings, and higher debt fees.

Effective  June 25, 2000,  Agway adopted a new  accounting  requirement  for all
derivative  instruments.  As a  result,  a loss  on  the  cumulative  effect  of
accounting  change,  net of tax of  $1,100,  has been  recorded  (See Note 1 for
details).  Also, as detailed in Note 6, the former  retail  segment is now being
reported as a discontinued  operation and the $1,600 after- tax losses on retail
operations for the quarter ended September 25, 1999, have been so  reclassified.
For the quarter ended September 23, 2000, no further  adjustments  were required
to be recorded for this discontinued operation.

                                       16

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

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

Agriculture
-----------
Total  Agriculture  sales and  revenues of $101,200  for the three  months ended
September  23, 2000,  increased  $6,400 (7%) as compared to $94,800 for the same
period in the prior year. The increase in sales for the  three-month  period was
due  principally  to  increased  sales in the  agronomy  business,  but was also
favorably  impacted by increased sales in the TSPF(TM)  heifer-rearing  services
and in the Agriculture  farm store sales.  These increases were partially offset
by sales  decreases  in the  enterprise  feed and  grain  marketing  businesses.
Agronomy sales  increased  $9,300 (30%) and farm store sales increased $400 (9%)
for the  three-month  period as  compared  to the same period in the prior year.
High rainfall in the northern  portion of Agway's  market  territory  during the
spring  2000  planting  season  delayed  plantings.  Consequently,  the  sale of
agronomy products such as fertilizer,  crop protectants,  and lime that normally
would have  occurred in the fourth  quarter of last fiscal year  occurred in the
first quarter of the current year.  The TSPF(TM)  heifer  rearing  service sales
increased $500 (278%) for the three-month  period as compared to the same period
in the prior year.  This new  service  continues  to grow as a larger  number of
animals are in the  heifer-rearing  facilities than in the prior year. The above
increases were partially  offset by a decline in grain marketing sales of $2,000
(97%) and enterprise feed sales of $1,900 (3%) in the first quarter of this year
as  compared  to the same  period  in the  prior  year.  The  decrease  in grain
marketing sales is due to the discontinuation of the grain marketing  operations
that  occurred  in the second half of the prior  fiscal  year.  The  decrease in
enterprise  feed  sales  resulted  substantially  from a  combination  of market
consolidation,  increased competition, and lower milk prices which have impacted
farmers' buying decisions.

Agriculture  pre-tax  loss of $8,900 for the three months  ended  September  23,
2000,  decreased  $4,000  (31%) as compared to a pre-tax loss of $12,900 for the
same  period in the prior  year.  The  improvement  to  pre-tax  results  in the
three-month  period as compared  to the same  period in the prior year  resulted
from improved  operating results in the agronomy  operations of $2,800 (38%) and
in the grain marketing  operations of $2,000 (91%). The improvements to agronomy
pre-tax earnings resulted substantially from increased sales and product margins
as  compared to the prior year which were the result of the delay in spring 2000
sales until the first  quarter of the  current  year as noted  above.  The grain
marketing business  improvements are principally related to the absence of grain
marketing  losses in the three months ended  September  23, 2000, as compared to
the first  quarter of the prior  year.  (Grain  marketing  losses of $1,800 were
incurred in the first quarter of the prior year  principally  from  unauthorized
speculative  transactions  as previously  disclosed.)  These  improvements  were
partially  offset by a decrease in enterprise feed operations of $600 (14%). The
decline in sales  described  above  resulted  in lower gross  margins  that were
offset  slightly by lower operating  expenses as the operations  adjusted to the
decline in volume.

Country Products Group
----------------------
Country  Products  Group (CPG) total sales and revenues of $45,100 for the three
months ended September 23, 2000,  decreased  $1,100 (2%) as compared to the same
period in the prior year. The decline in CPG sales as compared to the prior year
related primarily to the Business Group, where sales decreased $3,100 (20%). The
Business  Group sales decline  resulted  principally  from lower  sunflower seed
sales  due to a poor  sunflower  seed  crop in the fall of 1999.  The poor  crop
continued to adversely impact sales during the first quarter of this year as the
new sunflower seed crop is not expected to be substantially  harvested until the
second quarter of this year. Additionally,  the sale of the pastry flour mill in
the fourth  quarter of the prior year reduced  Business Group sales in the first
quarter of this year as  compared to the prior year by $1,200.  These  decreases
were  partially  offset by an $800 (3%)  increase in the Produce Group sales for
the three-  month  period as compared to the same period in the prior year.  The
increase  in Produce  Group sales  resulted  from a mixture of  activity.  A new
produce  operation  acquired in the first quarter of the prior year did not have
appreciable sales until after the first quarter of last year, and therefore, the
Produce Group experienced a growth of $3,200 in sales from this operation in the
current year as compared to last year.  This  increase was  partially  offset as
industry  consolidation  has caused some loss in sales  volume of other  produce
operations  in the current  year as compared  to the prior  year.  Finally,  the
Investment  Group  sales  increased  $500  ((530%)   substantially  due  to  the
commercial  sale of Optigen  (TM)  1200,  a  controlled  release  nitrogen  feed
product, which was not available until the second quarter of the prior year.

                                       17

<PAGE>



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

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


Country Products Group (continued)
----------------------------------
CPG pre-tax  losses of $2,300 for the three  months  ended  September  23, 2000,
represents  a decrease of $2,500 as  compared to pre-tax  income of $200 for the
same period in the prior year. The pre-tax results related to the Business Group
declined $1,200 (180%).  The Business Group's sunflower  operations  experienced
lower margins due to high product cost and increased production costs associated
with a poor  sunflower  crop harvest in the fall of 1999 that was  widespread in
its territory due to adverse  growing  conditions.  The Produce  Group's pre-tax
loss of $200 in the three- month period ended  September 23, 2000,  represents a
decrease of $1,400 compared to pre-tax income of $1,200 in the comparable period
in the prior year.  The decline is due to a  combination  of lower gross margins
and increased operating costs. CPG's Investment Group experienced a pre-tax loss
for the first  quarter of $900 as compared  to $1,400 in pre-tax  losses for the
same period in the prior year. The lower amount of losses in the current year as
compared to the prior year resulted substantially from revenues generated in the
current  year on the  commercial  sale of  Optigen(TM)  1200,  as  noted  above.
Additionally, lower costs associated with new business development were incurred
in the first  quarter of the current  year as compared to the same period in the
prior year.

Energy
------
Energy sales and revenues of $149,300 for the three months ended  September  30,
2000,  increased $45,300 (44%) as compared to the same period in the prior year.
Overall, sales dollar increases from liquid product volume increases were $4,300
(4%) during the  three-month  period as compared to the same period in the prior
year.  The volume  increases  were driven by higher retail volume of heating oil
and  propane and higher  wholesale  gasoline  volumes.  The  petroleum  industry
continued to experience  significant  increases in the pricing of product in the
quarter ended September 30, 2000,  primarily due to pressure on global supply of
products.  As a result of these  market  conditions,  Energy  experienced  sales
dollars increases due to price increases in its liquid products of $37,000 (36%)
for the three-month  period.  Additionally,  continued focus on growth increased
sales in the three  months  ended  September  30,  2000,  by $1,600 (13%) in the
heating,  ventilation and  air-conditioning  installation  and service sales and
$2,400 (90%) in the electric and natural gas  marketing  business as compared to
the same period in the prior year.

Energy  pre-tax loss of $8,900 for the  three-month  period ended  September 30,
2000, improved by $3,100 (26%) as compared to the same period in the prior year.
In the three-month period ended September 30, 2000, overall gross margin dollars
increased $4,300 (17%) over the same period in the prior year and were driven by
an increase in liquid  product volume with higher gross margin rates as compared
with the prior year. The improved gross margin dollars,  however, were partially
offset in the  three-month  period by a $1,000  (78%)  decrease  in  terminaling
throughput  revenues  and a $300 (1%)  increase in total  operating  expenses as
compared  to the same  period in the  prior  year.  The  decline  in  throughput
revenues was the result of the sale of six pipeline terminal storage  facilities
in the fourth  quarter of the prior year.  As a result,  there is no  throughput
revenue for these facilities in the first quarter of this year.








                                       18

<PAGE>

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

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


Leasing
-------
Total revenue of $20,500 for the  three-month  period ended  September 30, 2000,
increased  $2,200 (12%) as compared to the same period in the prior year.  These
increases were primarily due to a higher average  investment in leases which was
partly  offset by a slightly  lower income rate on new and  replacement  leases.
Telmark's  average  net  investment  in leases  increased  $78,800  (13%) in the
three-month  period ended  September 30, 2000, as compared to the same period in
the prior year.

Pre-tax  earnings from operations of $4,200 for the three months ended September
30, 2000, increased $400 (10%) as compared to the same period in the prior year.
The total revenue  increases noted above were partially offset by an increase in
total expenses of $l,900 (13%) for the three months ended September 30, 2000, as
compared to the same period in the prior year.  The  increase in total  expenses
was substantially  due to increased  interest  expense.  The increased  interest
expense is due to an  increase  in the amount of debt  required  to finance  the
increase in the lease portfolio as compared to the same period in the prior year
and higher interest rates on new and replacement debt.

Insurance
---------
Insurance  Group  net  revenues  of  $7,000  for the  three-month  period  ended
September  30,  2000,  remained  unchanged as compared to the same period in the
prior year.  Net earned  premiums and investment  income of the Agway  Insurance
Company totaled $6,800 and the Agway General Agency income was $200.

Pre-tax earnings of the Insurance Group of $200 for the three-month period ended
September 30, 2000,  increased $100 (384%) as compared to the same period in the
prior year.  The  improvement  in pre-tax  earnings for the  three-month  period
resulted  from lower  expenses  in the General  Agency.  The  Insurance  Company
pre-tax  earnings for the three- month period of this year remain unchanged from
the prior year.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash  generated  from external  borrowings  and/or  operations are Agway's major
ongoing sources of funds to finance capital improvements, business acquisitions,
shareholder  dividends,  and a growing lease portfolio at Telmark. The following
is a summary of net cash flows for the three months ended:
<TABLE>
<CAPTION>
                                                                  September 23,     September 25       Increase
                                                                      2000             1999           (Decrease)
                                                                 ---------------   -------------     -------------
<S>                                                              <C>               <C>               <C>
Net cash flows provided by (used in):
       Operating activities...................................   $       17,650    $       (959)     $      18,609
       Investing activities...................................          (23,945)        (35,117)            11,172
       Financing activities...................................          (13,663)         36,961            (50,624)
                                                                 ---------------   -------------     -------------
Net increase (decrease) in cash and equivalents...............   $      (19,958)   $        885      $     (20,843)
                                                                 ===============   =============     =============
</TABLE>
Cash Flows Provided By Operating Activities
The increase in cash flows provided by operating activities for the three months
ended September 23, 2000, included a net earnings increase of $2,700 as compared
to the same period in the prior year and the  generation of $9,400 in cash flows
from working  capital in the first  quarter  compared to net cash used of $8,100
for the same period in the prior year.

                                       19

<PAGE>



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

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


LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------

Cash Flows Used in Investing Activities
The cash flow used in investing  activities  increased in the three months ended
September 23, 2000, by $11,200 as compared to the same period in the prior year.
Cash of $5,000 was used  during the first  quarter of the prior year in business
acquisitions,  along  with a $3,600  decrease  in the amount of cash used in the
purchases of property, plant and equipment in the first quarter of this year.

Cash Flows Provided  By (Used In) Financing Activities
Financing  activities for the three months ended September 23, 2000, netted cash
used of $13,600  compared to cash provided of $36,900 for the same period in the
prior year.  This $50,600 change in cash from financing was  substantially  from
decreased  short-term  borrowings to cover the changed requirements for cash for
operations and investing activities.

The Company  finances its  operations  and the  operations of all its continuing
business and subsidiaries, except Insurance and Telmark, through Agway Financial
Corporation  (AFC).  External sources of short-term  financing for Agway and all
its other  continuing  operations  include  revolving  credit lines,  letters of
credit,  and a  commercial  paper  program  as more fully  described  in Note 3,
Borrowing  Arrangements,  to  the  condensed  financial  statements.   Insurance
finances its activities through operations.  Telmark's finance  arrangements are
also  explained  in Note 3. Agway  expects to continue to have  appropriate  and
adequate  financing  to meet its ongoing  needs.  However,  we are  presently in
negotiations for new credit  facilities;  therefore,  there is no assurance that
the Company will achieve the desired level of  financing,  and the terms of such
financing, as ultimately negotiated, cannot be determined at this time.

Sources of longer-term financing include the following as of September 2000:
<TABLE>
<CAPTION>
                                                                                           AFC
                                                                              Agway     (excluding
Source of debt                                                                 Inc.      Telmark)       Telmark       Total
--------------                                                             ----------   -----------   -----------  ----------
<S>                                                                        <C>          <C>           <C>          <C>
Banks - due 10/00 to 4/04, interest at a weighted average
   rate of 6.9% with a range of 5.6% - 8.6% ............................   $        0   $      350    $  142,000   $  142,350
Insurance companies - due 10/00 to 2/07, interest at a
   weighted average rate of 7.1% with a range of
   6.5% - 9.1%..........................................................            0            0       235,609      235,609
Capital leases and other - due 2000 to 2018, interest at a
   weighted average rate of 9.3% with a range of 7.5% to 10%............       11,705        2,446             0       14,151
                                                                           ----------   -----------   -----------  -----------
      Long-term debt....................................................       11,705        2,796       377,609      392,110
Subordinated  money  market  certificates  - due 10/00 to 10/14,
  interest  at a weighted average rate of 8.0% with a range of
   4.5% - 9.5%..........................................................            0      430,727             0      430,727

Subordinated  debentures - due 3/01 to 3/08, interest at a weighted
  average rate of 8.0% with a range of 6.0% to 8.8%.....................            0        7,063        38,396       45,459
                                                                           ----------   -----------   -----------  -----------
      Total debt........................................................   $   11,705   $  440,586    $   416,005  $  868,296
                                                                           ==========   ===========   ===========  ===========
</TABLE>
For a further  description  of the  Company's  credit  facilities  available  at
September  30,  2000,  see  Note  3  to  the  Condensed  Consolidated  Financial
Statements.

                                       20

<PAGE>



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

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


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

In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally  for  heating  oil and  propane.  They are  entered  into as a hedge
against  the  price  risk  associated  with  Energy's  future  purchases  of the
commodities  used in its  operations.  Generally,  the price risk  extends for a
period  of one  year  or  less.  In the  Agriculture  segment's  feed  business,
exchange-traded  commodity  instruments are used principally to manage the price
risk of corn, soy complex,  and oats,  which can be sold directly as ingredients
or included in feed products.  In the Country Products Group, due to a change in
governmental  subsidy  programs  during fiscal 2000,  exchange-traded  commodity
instruments were entered into to principally  manage the price risk of sunflower
seeds which are purchased from growers by CPG and sold to customers.

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its commodity  instrument  positions as of September  2000 and 1999. The
fair value of such  position is a summation  of the fair values  calculated  for
each commodity  instrument by valuing each position at quoted futures prices or,
in the case of options,  a delta- adjusted  calculated price. The market risk of
the  commodity  positions  is  estimated  as the  potential  loss in fair  value
resulting  from a  hypothetical  10%  adverse  change  in  market  prices of the
underlying  commodities.  This  estimated  loss in fair  value of the  commodity
instruments  does not reflect the offsetting  impact of the market price changes
to the  underlying  value of the  commodities.  As of  September  2000 and 1999,
assuming a 10%  hypothetical  adverse change in the underlying  commodity price,
the potential  decrease in fair value of Agway's  commodity  instruments  was as
follows:

                                                                  September
                                                          ----------------------
                                                            2000          1999
                                                         ----------    ---------
Energy.................................................  $    5,900    $  1,700
Country Products Group.................................       *             -
Agriculture............................................       *             *
Grain Marketing (1)....................................       -             *


*     The potential loss in fair value of commodity instruments resulting from a
      hypothetical  10% change in market prices of the underlying  commodity was
      immaterial.

(1) Grain marketing  activity was discontinued  during fiscal 2000, as disclosed
    in the June 24, 2000 Form 10-K.



                                       21

<PAGE>



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


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
Agway  filed a report  on Form 8-K on August 3,  2000,  announcing  the June 30,
2000,  sale by Agway  Energy  Products,  LLC of six  pipeline  terminal  storage
facilities,  located in New York and  Pennsylvania,  to Buckeye  Partners,  L.P.
(Buckeye) for a total purchase price of $19,000.

Agway  filed a report on Form 8-K on August 15,  2000,  announcing  the July 31,
2000,  finalization  of the  purchase by  Southern  States  Cooperative  Inc. of
Agway's  consumer  wholesale   procurement  and  supply  system.  The  aggregate
consideration  received  by Agway  consisted  of $9,080 in cash,  assumption  of
$1,963 of accounts  payable by Southern States  Cooperative  Inc., and a $13,300
interest-bearing  promissory note to Agway from Southern States Cooperative Inc.
payable at the end of 30 months.




                                       22

<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    November 6, 2000                    /s/ PETER J. O'NEILL
       ------------------           --------------------------------------------
                                               Peter J. O'Neill
                                            Senior Vice President,
                                              Finance & Control,
                                       (Principal Financial Officer and
                                           Chief Accounting Officer)










                                       23