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


(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934
For the quarterly period ended September 30, 1999
                               ------------------
                                       OR

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

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


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


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


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




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



        Class                                    Outstanding at November 5, 1999
-------------------------                        -------------------------------
Membership Common Stock,                               99,549  shares
$25 par value per share




                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

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

           Item 1.  Financial Statements (Unaudited)

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

           Condensed Consolidated Statements of Operations and Retained Earnings for the three months
           ended September 30, 1999 and September 30, 1998....................................................   4

           Consolidated Statements of Comprehensive Income for the three months ended
           September 30, 1999 and September 30, 1998..........................................................   5

           Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1999
           and September 30, 1998.............................................................................   6

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

           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.....  14

           Item 3.  Quantitative and Qualitative Disclosures About Market Risk................................  23

PART II.   OTHER INFORMATION
--------   -----------------
           Item 6.  Exhibits and Reports on Form 8-K..........................................................  25

           SIGNATURES.........................................................................................  26

</TABLE>













                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                  September 30,         June 30,
ASSETS                                                                                1999                1999
------                                                                            -------------      --------------
<S>                                                                               <C>                <C>
Current Assets:
     Trade accounts  receivable  (including  notes  receivable  of  $40,850  and
         $45,960, respectively), less allowance for doubtful accounts of
         $7,554 and $7,155, respectively........................................  $     168,497      $      185,536
     Leases receivable, less unearned income of $65,101 and
         $64,473, respectively..................................................        134,255             131,431
     Advances and other receivables.............................................         30,189              23,456
     Inventories:
         Raw materials..........................................................          3,233               6,892
         Finished goods.........................................................        134,857             137,348
         Goods in transit and supplies..........................................          3,142               1,826
                                                                                  -------------      --------------
              Total inventories.................................................        141,232             146,066
     Prepaid expenses and other assets..........................................         54,396              52,341
                                                                                  -------------      --------------
         Total current assets...................................................        528,569             538,830

Marketable securities available for sale........................................         36,204              35,099
Other security investments......................................................         50,679              51,010
Properties and equipment, net...................................................        216,342             215,425
Long-term leases receivable, less unearned income of $138,024 and
     $134,623, respectively.....................................................        435,620             419,444
Net pension asset...............................................................        202,118             198,160
Other assets  ..................................................................         22,111              19,083
                                                                                  -------------      --------------
              Total assets......................................................  $   1,491,643      $    1,477,051
                                                                                  =============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable..............................................................  $     132,600      $      81,800
     Current installments of long-term debt.....................................        101,339             94,699
     Current installments of subordinated debt..................................         65,085             76,968
     Accounts payable...........................................................        119,740            115,350
     Other current liabilities..................................................        105,882            115,865
                                                                                  -------------      -------------
         Total current liabilities..............................................        524,646            484,682

Long-term debt..................................................................        260,018            279,417
Subordinated debt...............................................................        422,051            409,335
Other liabilities...............................................................        103,305            104,670
                                                                                  -------------      -------------
         Total liabilities......................................................      1,310,020          1,278,104
Commitments and contingencies
Shareholders' equity:
     Preferred stock, net.......................................................         42,543             42,917
     Common stock, net..........................................................          2,492              2,506
     Accumulated other comprehensive income.....................................           (385)              (239)
     Retained earnings..........................................................        136,973            153,763
                                                                                  -------------      -------------
         Total shareholders' equity.............................................        181,623            198,947
                                                                                  -------------      -------------
              Total liabilities and shareholders' equity........................  $   1,491,643      $   1,477,051
                                                                                  =============      =============

</TABLE>
     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



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

 Item 1. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (Unaudited)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                             September 30,
                                                                                    ------------------------------
                                                                                        1999              1998
                                                                                    -------------    -------------
<S>                                                                                 <C>              <C>
Net sales and revenues from:
     Product sales (including excise taxes).....................................    $     291,428    $     278,960
     Leasing operations.........................................................           18,272           16,913
     Insurance operations.......................................................            6,980            6,966
                                                                                    -------------    -------------
         Total net sales and revenues...........................................          316,680          302,839

Cost and expenses from:
     Products and plant operations..............................................          288,659          271,047
     Leasing operations.........................................................            7,701            7,366
     Insurance operations.......................................................            4,152            4,633
     Selling, general and administrative activities.............................           37,582           35,074
                                                                                    -------------    -------------
         Total operating costs and expenses.....................................          338,094          318,120

Operating loss..................................................................          (21,414)         (15,281)

Interest expense, net...........................................................           (7,687)          (7,523)
Other income, net...............................................................            2,725           13,254
                                                                                    -------------    -------------
Loss before income taxes........................................................          (26,376)          (9,550)
Income tax benefit .............................................................            9,586            3,280
                                                                                    -------------    -------------

Net loss .......................................................................          (16,790)          (6,270)

Retained earnings, beginning of period..........................................          153,763          155,362
                                                                                    -------------    -------------
     Retained earnings, end of period...........................................    $     136,973    $     149,092
                                                                                    =============    =============

</TABLE>


















     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                                                          Three Months Ended
                                                                                              September 30,
                                                                                    -------------------------------
                                                                                        1999              1998
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
Net loss .......................................................................    $    (16,790)    $      (6,270)

Other comprehensive income, net of tax:
     Unrealized gains (losses) on
       available-for-sale securities:
         Unrealized holding gains (losses)
           arising during period................................................            (146)              540
         Reclassification adjustment
           for (gains) losses included in
              net income........................................................               0                46
                                                                                    -------------    --------------

Other comprehensive income (loss)...............................................            (146)              586
                                                                                    -------------    --------------

Comprehensive loss..............................................................    $    (16,936)    $      (5,684)
                                                                                    =============    ==============


</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 30,
                                                                                -----------------------------------
                                                                                    1999                  1998
                                                                                -------------        --------------
<S>                                                                             <C>                  <C>
Net cash flows (used in) provided by operating activities....................   $     (3,131)        $      34,780

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................         (6,929)               (8,210)
     Proceeds from disposal of property, plant and equipment.................             20                 1,468
     Proceeds from sale of business..........................................              0                14,150
     Cash paid for acquisition of business...................................         (4,950)               (6,720)
     Leases originated.......................................................        (68,426)              (58,593)
     Leases repaid...........................................................         47,450                42,743
     Proceeds from sale of marketable securities.............................            645                   247
     Purchases of marketable securities......................................         (1,896)                    0
     Net purchase of investments in cooperatives.............................            319                   572
                                                                                -------------        --------------

Net cash flows used in investing activities..................................        (33,767)              (14,343)


Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings.....................................         50,800               (14,320)
     Proceeds from long-term debt............................................            876                 1,921
     Repayment of long-term debt.............................................        (13,505)              (14,945)
     Proceeds from sale of subordinated debt.................................         23,570                18,812
     Maturity and redemption of subordinated debt............................        (22,737)               (9,098)
     Payments on capital leases..............................................            (15)                  (12)
     Redemption of stock, net ...............................................           (389)                 (954)
     Cash dividends paid.....................................................         (1,702)               (1,841)
                                                                                -------------        --------------

Net cash flows provided by (used in) financing activities....................         36,898               (20,437)
                                                                                -------------        --------------

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

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



</TABLE>






     See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>



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

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
     Basis of Presentation
     The accompanying  unaudited condensed  consolidated financial statements of
     Agway Inc. (the  "Company") have been prepared in accordance with generally
     accepted accounting  principles for interim financial  information and with
     the   instructions   to  Form  10-Q  and  Article  10  of  Regulation  S-X.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by generally accepted accounting principles for complete financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal recurring  accruals)  considered  necessary for a fair  presentation
     have been  included.  Operating  results for the  three-month  period ended
     September 30, 1999, are not necessarily  indicative of the results that may
     be expected for the year ending June 30, 2000,  due to the seasonal  nature
     of certain major segments of our business.  For further information,  refer
     to the consolidated  financial statements and notes thereto included in the
     annual report on Form 10-K for the year ended June 30, 1999.

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

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





                                        7

<PAGE>



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

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


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

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

     In exemptive  relief granted pursuant to a "no action letter" issued by the
     staff of the SEC, AFC is not required to file periodic reports with the SEC
     for itself but does  report  summarized  financial  information  in Agway's
     financial  statement  footnotes.  However, as required by the 1934 Act, the
     summarized   financial   information   concerning   AFC  and   consolidated
     subsidiaries is as follows:
<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                                                                       September 30,
                                                                             -------------------------------
                                                                                                  Restated
                                                                                  1999              1998
                                                                             --------------    -------------
         <S>                                                                 <C>               <C>
         Net sales and revenues............................................  $      132,264    $     118,399
         Operating earnings (loss).........................................          (6,526)           1,671
         Net loss..........................................................          (8,285)          (4,023)

                                                                              September 30,       June 30,
                                                                                  1999              1999
                                                                             --------------    -------------
         Current assets....................................................  $      639,004    $     567,602
         Properties and equipment, net.....................................          86,173           86,018
         Noncurrent assets.................................................         576,091          557,688
                                                                             --------------    -------------
         Total assets......................................................  $    1,301,268    $   1,211,308
                                                                             ==============    =============

         Current liabilities...............................................  $      128,741    $      67,391
         Short-term notes payable..........................................         132,600           81,800
         Current installments of long-term debt............................          98,408           92,268
         Current installments of subordinated debt.........................          65,085           76,968
         Long-term debt....................................................         244,545          264,021
         Subordinated debt.................................................         422,051          409,335
         Noncurrent liabilities............................................          20,916           23,262
         Shareholder's equity..............................................         188,922          196,263
                                                                             --------------    -------------
         Total liabilities and shareholder's equity........................  $    1,301,268    $   1,211,308
                                                                             ==============    =============
</TABLE>
                                        8

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS
     ----------------------
     As of  September  30, 1999,  Agway had certain  facilities  available  with
     banking  institutions  whereby  lenders have agreed to provide  funds up to
     $385,000 to separately  financed  units of Agway as follows:  AFC - $65,000
     and  Telmark  -  $320,000.  In  addition,  AFC may issue up to  $50,000  of
     commercial paper under the terms of a separate agreement,  backed by a bank
     standby letter of credit.

     AFC
     As of September  30,  1999,  AFC's  available  bank  facilities  included a
     short-term line of credit and a long-term  revolving line of credit.  These
     facilities   and  AFC's   ability  to  issue   commercial   paper   require
     collateralization  using certain of the Company's  accounts  receivable and
     non-petroleum inventories ("collateral").  The maximum amounts which can be
     drawn under these AFC  agreements  are subject to a  limitation  based on a
     specific  calculation  relating  to  the  collateral  available.   Adequate
     collateral  has existed  throughout the fiscal year to permit AFC to borrow
     amounts to meet the  ongoing  needs of Agway and is expected to continue to
     do  so.  The  line  of  credit  and  long-term  revolving  line  of  credit
     additionally  require  Agway's  investment  in  bank  stock  as  additional
     collateral. In addition, the agreements include certain covenants, the most
     restrictive of which requires Agway to maintain  specific  quarterly levels
     of interest coverage and monthly levels of tangible retained earnings.

     Agway  is currently  negotiating  with its banks for the annual  renewal of
     its line of credit and commercial  paper program.  The long-term  revolving
     line of credit that expires on December 31, 1999,  will not be renewed.  It
     is anticipated  by Agway that the short-term  line of credit and commercial
     paper program will be renewed at a level  appropriate  and adequate to meet
     our ongoing financing needs. The terms, conditions, and financial covenants
     of these  arrangements  may be modified based on the  finalization of these
     negotiations with the banks.

     The specifics of the current arrangements are as follows:
<TABLE>
<CAPTION>
                                                   Available               Outstanding
                                                 ------------     ------------------------------
                                                    9/30/99           9/30/99          6/30/99       Term Expires
                                                 ------------     -------------     ------------     ------------
     <S>                                         <C>              <C>               <C>                  <C>
     Short-term line of credit*................  $     50,000     $       5,400     $          0         12/31/99
     Long-term revolving line of credit........  $     15,000     $           0     $          0         12/31/99
     Commercial paper..........................  $     50,000     $      46,900     $     38,500         12/31/99
</TABLE>
     *AFC's  short-term  line of credit  facility  provides  for an  increase to
     $75,000,   which  became  available  on  October  1,  1999,  to  assist  in
     refinancing maturing subordinated debt.

     In  addition,   Agway,   through  AFC,  offers  subordinated  money  market
     certificates  (and  previously  offered  subordinated  debentures)  to  the
     public.  AFC's subordinated debt is not redeemable by the holder.  However,
     AFC does have a practice  of  repurchasing  at face  value,  plus  interest
     accrued at the stated rate,  certain  subordinated debt whenever  presented
     for repurchase.  The foregoing debt bears interest payable semi-annually on
     January l and July 1 of each  year.  The  money  market  certificates  bear
     interest  at a rate that is the  greater of the stated rate or a rate based
     upon the average discount rate for U.S.  Treasury Bills, with maturities of
     26 weeks.  Subordinated money market  certificates due between October 1999
     and  October  2013 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 8.0%.



                                        9

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS (continued)
     ---------------------------------
     Telmark
     As of September 30, 1999,  Telmark's available credit facilities from banks
     allow  Telmark  to  borrow  up to an  aggregate  of  $320,000.  Uncommitted
     short-term line of credit agreements permit Telmark to borrow up to $70,000
     on an  uncollateralized  basis with interest paid upon maturity.  The lines
     bear  interest  at  money  market  variable  rates.  A  committed  $250,000
     partially  collateralized  revolving line of credit permits Telmark to draw
     short-term  funds bearing  interest at money market rates or draw long-term
     debt at rates  appropriate for the term of the note drawn. The total amount
     outstanding as of September 30, 1999,  under the short-term lines of credit
     was $70,000 and under the revolving  term loan  facility was  $146,300,  of
     which  $136,000  was  long-term.  As of June 30,  1999,  the  total  amount
     outstanding was $35,000 under the short-term  lines of credit and under the
     revolving term loan facility was $168,000, of which $148,000 was long-term.
     The uncommitted  lines of credit expire within the next 12 months,  and the
     $250,000 revolving term loan facility is available through August 1, 2000.

     Telmark had balances  outstanding  on  unsecured  senior notes from private
     placements  totaling  $146,000 at both  September 30 and June 30, 1999. The
     principal  bears  interest at fixed rates  ranging  from 6.5% to 7.6%.  The
     principal payments commence November 1999 with final installment due in May
     2004.  Interest  is payable  semiannually  on each senior  note.  Principal
     payments are both semiannual and annual. The note agreements are similar to
     one another and each contains several specific financial covenants.

     Telmark,  through  two  wholly  owned  special  purpose  subsidiaries,  has
     lease-backed  notes payable to insurance  companies  that total $57,700 and
     $58,800 at September 30 and June 30, 1999, respectively.  Interest rates on
     different  classes of these  notes  range from 6.5% to 7.6%.  The notes are
     collateralized by leases, which Telmark sold to these subsidiaries,  having
     an aggregate  present  value of  contractual  lease  payments  equal to the
     principal balance of the notes. The final scheduled maturity of these notes
     is December 2007.

     Telmark offers  subordinated  debentures to the public.  The debentures are
     unsecured and  subordinated to all senior debt at Telmark.  The interest on
     the debt is payable  quarterly  on January 1, April 1, July 1 and October 1
     and is allowed to be reinvested.

     Agway's  long-term and subordinated debt outstanding at September 30, 1999,
     as compared to June 30, 1999, is as follows:
<TABLE>
<CAPTION>
                                                               AFC
                                     Agway              (excluding Telmark)            Telmark                   Total
                             -----------------------   ---------------------   ----------------------   ----------------------
                                9/99          6/99        9/99        6/99        9/99        6/99         9/99        6/99
                             ----------   ----------   ---------   ---------   ----------   ---------   ----------   ---------
     <S>                     <C>          <C>          <C>         <C>         <C>          <C>         <C>          <C>
     Long-term debt........  $   18,404   $   17,827   $   3,280   $   3,488   $  339,673   $ 352,801   $  361,357   $ 374,116
     Currently payable.....       2,931        2,431         802         807       97,606      91,461      101,339      94,699
                             ----------   ----------   ---------   ---------   ----------   ---------   ----------   ---------
     Net long-term debt....  $   15,473   $   15,396   $   2,478   $   2,681   $  242,067   $ 261,340   $  260,018   $ 279,417
                             ==========   ==========   =========   =========   ==========   =========   ==========   =========

     Subordinated debt.....  $        0   $        0   $ 447,961   $ 448,670   $   39,175   $  37,633   $  487,136   $ 486,303
     Currently payable.....           0            0      46,603      58,768       18,482      18,200       65,085      76,968
                             ----------   ----------   ---------   ---------   ----------   ---------   ----------   ---------
     Net subordinated debt.  $        0   $        0   $ 401,358   $ 389,902   $   20,693   $  19,433   $  422,051   $ 409,335
                             ==========   ==========   =========   =========   ==========   =========   ==========   =========
</TABLE>



                                       10

<PAGE>



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

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


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

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

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

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



                                       11

<PAGE>


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

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


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

     The Other  category  within  the  summary  of  business  segments  includes
     intersegment  eliminations  and  interest.  The category  also includes net
     corporate  expenses and pension  income.  Finally,  interest income for the
     Leasing segment is reported as "Net Sales and Revenues."
<TABLE>
<CAPTION>
                                                                  Three Months Ended September 30, 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.     $    151,472   $    43,266   $     96,690   $    18,266   $   6,980   $        6   $    316,680
Intersegment sales and
  revenues...............              225         2,922            100             5           0       (3,252)             0
                              ------------   -----------   ------------   -----------   ---------   ----------   ------------
   Total sales and revenues   $    151,697   $    46,188   $     96,790   $    18,271   $   6,980   $   (3,246)  $    316,680
                              ============   ===========   ============   ===========   =========   ==========   ============

Earnings (loss) before
   income taxes..........     $    (16,245)  $       203   $    (12,021)  $     3,842   $      35   $   (2,190)  $    (26,376)
                              ============   ===========   ============   ===========   =========   ==========   ============

Total assets.............     $    351,165   $    68,104   $    152,201   $   614,009   $  55,229   $  250,935   $  1,491,643
                              ============   ===========   ============   ===========   =========   ==========   ============

<CAPTION>
                                                                  Three Months Ended September 30, 1998
                              -----------------------------------------------------------------------------------------------
                                               Country
                                               Products
                               Agriculture      Group         Energy        Leasing     Insurance     Other(a)   Consolidated
                              ------------   -----------   ------------   -----------   ---------   ----------   ------------
<S>                           <C>            <C>           <C>            <C>           <C>         <C>          <C>
Net sales and revenues to
  unaffiliated customers.     $    157,056   $    36,121   $     85,740   $    16,907   $   6,966   $       49   $    302,839
Intersegment sales and
  revenues...............               27         2,364            111             6           0       (2,508)             0
                              ------------   -----------   ------------   -----------   ---------   ----------   ------------
   Total sales and revenues   $    157,083   $    38,485   $     85,851   $    16,913   $   6,966   $   (2,459)  $    302,839
                              ============   ===========   ============   ===========   =========   ==========   ============

Earnings (loss) before
   income taxes..........     $    (18,031)  $    11,521   $     (5,315)  $     3,421   $       6   $   (1,152)  $     (9,550)
                              ============   ===========   ============   ===========   =========   ==========   ============

Total assets.............     $    367,263   $    53,035   $    126,431   $   543,013   $  55,993   $  250,466   $  1,396,201
                              ============   ===========   ============   ===========   =========   ==========   ============
</TABLE>
(a) Represents unallocated net corporate items and intersegment eliminations.



                                       12

<PAGE>



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

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


6.   SUBSEQUENT EVENT
     ----------------
     On October 19, 1999, the Board of Directors  approved a plan to restructure
     the retail  operations  within  Agway's  Agriculture  segment.  The plan is
     intended  to improve the  operating  results in our retail  operations  and
     provide a greater  opportunity  to meet  customer  needs with  products  we
     manufacture  and  sell.  The   restructuring   will  focus  Agway's  retail
     distribution  into a  dealer-based  system by  converting a majority of the
     Agway-operated  retail  stores  into  dealer-operated  stores and by adding
     additional  retail dealer stores to the currently  operating  retail dealer
     system.  As of the  beginning  of  the  current  fiscal  year,  there  were
     approximately 160 Agway-operated stores and 300 retail dealer stores. It is
     expected that this conversion of Agway-operated stores will take place in a
     series of  transactions  with  numerous  counter  parties over the next two
     fiscal years and that certain  locations will be sold for alternative uses.
     During this transition  period,  we expect continued  operating losses from
     our retail  operations,  but at  a  reduced  level as compared to the prior
     year.  It is probable that there will be costs for such things as severance
     pay and  inventory liquidation.  Further, it is expected that there will be
     gains,  and it is possible that  there could be losses  related to the sale
     or  conversion  of these  retail   business  locations.  The  level of gain
     or loss  will be determined on a transaction-by-transaction  basis over the
     transition  period  and  cannot  be  presently reasonably estimated for all
     locations. During the development of this plan, negotiations for conversion
     or sale  of  certain of the Agway-operated  stores  were  undertaken.  As a
     result, costs associated  with consummated  transactions and certain of the
     transactions under  negotiation are known or can be  reasonably  estimated,
     and  therefore,  $500  has  been  incurred  or accrued in the quarter ended
     September 30, 1999. As additional costs associated with these restructuring
     transactions  can  be reasonably estimated,  they will be accrued. One cost
     that can be reasonably estimated currently is a $4,300 curtailment cost for
     the immediate recognition of the unamortized  balance of prior service cost
     in the pension plan  associated with employees  expected  to  be   affected
     over the course of  the implementation  of this plan. This curtailment cost
     is a non-cash charge to income  that will reduce the net  pension  asset on
     the  balance  sheet and which will be fully recognized in the quarter ended
     December 1999.

                                       13

<PAGE>



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

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


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

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

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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of  $316,700  for the three  months  ended
September 30, 1999, increased $13,800 (5%) as compared to the same period in the
prior year. The increase was  substantially the result of increased sales in the
Country Products Group,  Energy,  and Leasing segments.  The increase in Country
Products Group resulted from improvements in its Business  Division's  sunflower
operations and in the Produce  Division.  The increase in Energy was principally
due to a sharp  increase in the pricing  level of petroleum  products and slight
volume  improvements.  The Leasing  improvement was from continued growth of the
lease  portfolio.  These sales increases were partially  offset by a decrease in
Agriculture,  which was principally due to lower agronomy sales. The lower level
of agronomy sales occurred due to an industry-wide  decline in commodity pricing
and drought  conditions  experienced  during the first quarter of 2000.  See the
detailed business segment discussion below.

Consolidated  pre-tax loss from operations of $26,400 for the three months ended
September 30, 1999,  increased  $16,800 (176%) as compared to the same period in
the prior year.  The  decrease in the  consolidated  pre-tax  operating  results
resulted  principally  from  declines in the Country  Products  Group and Energy
business  segments  (see below) and a $1,000  increase in net  corporate  costs,
substantially due to a reduction in the level of pension income recognized.  The
decline in Country  Products Group during the first quarter is  principally  the
result of a net  improvement  in results  during the first  quarter of the prior
year relating to the sale of the Allied Seed  operations.  The decline in Energy
is the result of lower product margins  experienced from a sharp increase during
the quarter of petroleum  product costs.  The decline in pension income resulted
from lower projected gains on assets this year than in the prior year.



                                       14

<PAGE>



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

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


Agriculture
-----------
Total  Agriculture  sales and  revenues of $151,700  for the three  months ended
September 30, 1999,  decreased  $5,400 (3%) as compared to $157,100 for the same
period in the prior year.  The  decrease was  substantially  due to a decline in
enterprise  agronomy and retail  operations sales. The agronomy sales decline of
$4,900 for the first  quarter as  compared  to the same period in the prior year
was due to pervasively low industry  commodity prices as a global  oversupply of
nitrogen  products has  significantly  reduced prices  throughout the fertilizer
industry.  Additionally,  drought  conditions  in  parts  of  our  service  area
negatively  impacted the sales volume in the first  quarter.  The agronomy sales
decline was partially offset by an $800 increase in enterprise feed sales during
the first  quarter of 2000 as  compared  to the same  period in the prior  year.
Agriculture  continues to grow its feed business,  which reflected a unit volume
increase of 9% in the first quarter.  Agriculture's retail sales declined $2,300
for the first  quarter of 2000 as  compared to the same period in the prior year
and was driven by reduced sales from store  locations that were closed after the
first  quarter of last year and the sales  declines in a number of product lines
that were negatively  impacted by the drought conditions  experienced during the
first quarter of this year. The decline in retail sales was partially  offset by
a $1,400 (10%) increase in  wholesale  dealer  sales  during the quarter,  which
was a direct result of  the effort  made in  the fourth  quarter of fiscal  1999
to improve the existing dealer relationship.

Pre-tax loss of Agriculture of $16,200 for the three months ended  September 30,
1999,  decreased  $1,800  (10%) as compared to a pre-tax loss of $18,000 for the
same  period in the prior  year.  Despite  higher  gross  margin  dollars in the
enterprise feed operations in the first quarter of 2000 as compared to the first
quarter in the prior year,  higher  operating  costs caused the enterprise  feed
operations  pre-tax  earnings to decrease $300 in the first quarter of 2000. The
increased  margins  and costs were  substantially  the result of a new  business
acquisition  during the first quarter of the prior year having a full quarter of
activity in the current year and the start of a new feed depot  operation  after
the first quarter of the prior year. The enterprise  agronomy  business  pre-tax
results declined $1,500 for the first quarter due substantially to lower product
margins  which were  negatively  impacted  by the  greater  supply-versus-demand
imbalance  and the  drought  conditions  during  the  first  quarter  of 2000 as
compared to the first quarter of 1999. The enterprise retail operations  pre-tax
earnings  improved  $800  substantially  due  to  lower  operating  expenses  in
connection  with the  consolidation  of the retail business into the Agriculture
segment  which  occurred  in  the  fourth  quarter  of  fiscal  1999.   Overall,
Agriculture  pre-tax  results  for the first  quarter  of 2000  were  negatively
impacted by $500 of net losses  experienced  from the closing and conversions of
Company-owned  retail  stores that is part of a plan to  restructure  the retail
operations.  (See Footnote 6 for a further  description of this activity and its
impact on future operating  results.)  Finally,  improved pre-tax results in the
first  quarter  of 2000  were  experienced  due to  lower  losses  in the  grain
marketing  operations  as compared to the first quarter of 1999. As disclosed at
June 30, 1999,  pre-tax losses  totaling  $5,800 from  unauthorized  speculative
activity  occurred in the first  quarter of 1999 as compared to losses of $1,800
incurred  during the first  quarter of 2000.  The current year loss included the
costs of $1,300 incurred in closing the unauthorized  speculative positions that
were outstanding at June 30, 1999, as well as losses from operations  during the
first quarter of 2000.



                                       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)


Country Products Group
----------------------
Total sales and  revenues of $46,200 for the three months  ended  September  30,
1999,  increased  $7,700 (20%) as compared to the same period in the prior year.
The first quarter  growth in sales in the current year was in the Business Group
($2,500)  and in the  Produce  Group  ($6,200).  This sales  growth in the first
quarter was partially offset by an $800 decline in sales as a result of the sale
of the Allied Seed business in the first quarter of the prior year. The Business
Group's  sunflower seed operation  experienced  increased  sales volume of human
edible sunflower seed this year from its processing plant expansion that was not
fully  operational  in the first  quarter of the prior year.  The Produce  Group
sales growth in the first quarter of this year as compared to the same period in
the prior year is substantially due to the acquisition of new produce businesses
in the  second  half of the prior year and in the first  quarter of the  current
year.  Additional sales growth resulted from the new Empire Sweets onion product
line which  harvested  a larger crop and had higher  sales in the first  quarter
this year as compared to the same period in the prior year.

CPG pre-tax  earnings of $200 for the three  months  ended  September  30, 1999,
declined  $11,300  (98%) as compared  to the same  period in the prior  year.  A
substantial amount of this decline ($10,700) resulted from the fact that pre-tax
earnings of the comparable  period in the prior year reflected a net improvement
in  results  relating  to the  sale of the  Allied  Seed  operations,  while  no
comparable  sale occurred in the first quarter ended  September 30, 1999.  CPG's
Business Group improved its pre-tax results of ongoing  operations by $1,000 for
the first quarter of this year as compared to the same period in the prior year.
This improvement was  substantially  driven by improved margins in the sunflower
seed  operations.  These  improvements  were reduced by lower margins and higher
costs  experienced  in the Produce  Group during the first quarter which reduced
this group's pre-tax  earnings by $600.  CPG's  Investment  Group  experienced a
pre-tax loss of $1,200 as it continues to incur costs  related to several of its
initiatives for future growth.  One of the Investment  Group's  businesses,  CPG
Nutrients,  began  commercial  sales of  OptigenTM  1200,  a  controlled-release
nitrogen feed product, to dairy farmers in October 1999.

Energy
------
Energy sales and revenues of $96,800 for the three  months ended  September  30,
1999,  increased $10,900 (13%) over the same period in the prior year.  Overall,
product  unit  volumes  increased  1% during  the first  quarter of this year as
compared  to the same  period in the prior  year.  A  substantial  amount of the
increase in sales dollars in the first quarter is due to a sharp increase during
the  quarter of the costs of  petroleum  products  within  the energy  industry.
Petroleum prices rose approximately $0.20/gallon between June and September 1999
and are  approximately  $0.11/gallon  higher than the first quarter of the prior
year.  The  increased  costs  caused  increased  selling  prices in the  market.
Additionally,  a sales increase in the three months ended September 30, 1999, of
$3,300  results from the continued  growth of revenues in heating,  ventilation,
and  air-conditioning  installation and service sales and continued sales growth
in the electric and gas marketing business.

Pre-tax loss from operations of $12,000 for the three months ended September 30,
1999,  was greater by $6,700  (126%) as compared to the same period in the prior
year.  The sharp  increase in petroleum  product  costs noted above could not be
fully  reflected in the selling price of the products in the market for a number
of reasons and reduced  overall margin dollars on petroleum  products during the
first quarter by 17% as compared to the same period in the prior year.

An operating  expense increase of $5,100 in the first quarter as compared to the
same period in the prior year  resulted  from  increased  administrative  costs,
principally payroll and information systems costs related to year 2000 readiness
and increased marketing costs from new initiatives.





                                       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)


Leasing
-------
Total  revenue  of  $18,300  for the three  months  ended  September  30,  1999,
increased  $1,400 (8%) as  compared  to the same period in the prior year.  This
increase,  which was partly offset by a lower income rate on new and replacement
leases,  is primarily  due to higher  average  investment  in leases.  Telmark's
average net investment in leases increased $60,900 (12%) in the first quarter as
compared to the same period in the prior year.

Pre-tax  earnings from operations of $3,800 for the three months ended September
30, 1999, increased $400 (12%) as compared to the same period in the prior year.
The total revenue  increase  noted above was partially  offset by an increase in
total  expenses  of $900 (7%) for the  quarter  ended  September  30,  1999,  as
compared to the same period in the prior year.  The  increase in total  expenses
was due to increased interest and selling,  general and administrative  expenses
(SG&A) and a higher credit loss provision. 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. SG&A expenses
increased due to higher payroll costs associated with incentives paid to certain
employees  relating  to  overall  profitability,   retention  of  business,  and
profitability of new business. Finally, the increase in the provision for credit
losses  results from a larger  lease  portfolio  as of  September  30, 1999,  as
compared to the same period in the prior year.

Insurance
---------
Insurance net revenues of $7,000 for the three months ended  September 30, 1999,
were the same as the prior year. Net earned  premiums and  investment  income of
Agway  Insurance  Company and Agency  revenues in the first  quarter were at the
same levels as compared to the same period during the prior year.

Pre-tax  earnings of the  Insurance  Company of $200 for the three  months ended
September 30, 1999,  increased $100 (100%) as compared to the same period in the
prior year.  The  improvement in pre-tax  earnings  resulted from improved claim
experience  during the quarter  being  partially  offset by higher costs of data
processing  resulting from new system  implementation.  The Agency experienced a
pre-tax loss of $200 for the three months ended September 30, 1999, an increased
loss of $100  (41%) as  compared  to the same  period  in the  prior  year.  The
increased  loss resulted from  increased  payroll and data  processing  costs as
compared to the same period in 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)




LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash generated from  operations and external  borrowings  continue to be 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
September 30:
<TABLE>
<CAPTION>
                                                                                                           Increase
                                                                             1999            1998         (Decrease)
                                                                        -------------    -------------   ------------
<S>                                                                     <C>              <C>             <C>
Net cash flows provided by (used in):
   Operating activities..............................................   $      (3,131)   $      34,780   $    (37,911)
   Investing activities..............................................         (33,767)         (14,343)       (19,424)
   Financing activities..............................................          36,898          (20,437)        57,335
                                                                        -------------    -------------   ------------
Net increase (decrease) in cash and equivalents......................   $           0    $           0   $          0
                                                                        =============    =============   ============
</TABLE>

Cash Flows Provided By Operating Activities
The decrease in cash flows provided by operating activities for the three months
ended  September  30,  1999,  included  a net  earnings  decrease  of $10,500 as
compared  to the same  period in the prior year and  changes in working  capital
generated  cash of $11,800 in the first quarter  compared to generating  cash of
$40,000  for the same period in the prior year.  The decline in  receivable  and
inventory  balances  during  the first  quarter  of this year was  substantially
smaller than the same period in the prior year.

Cash Flows Used In Investing Activities
The cash flows used in investing  activities increased in the first three months
of 2000 by $19,400 as compared to the first three months of the prior year. Cash
of $14,200 generated during the first quarter of the prior year from the sale of
the Allied Seed business offset the cash investments made in the prior year, and
there was a $5,200 greater net investment in Telmark leases in the first quarter
of this year compared to last year.

Cash Flows Provided By (Used In) Financing Activities
Financing  activities  for the three months ended  September 30, 1999,  provided
cash of $36,900 compared to a net cash use of $20,400 for the same period in the
prior year.  This $57,300 change in cash from financing was  substantially  from
increased  short-term  borrowings to cover the changed requirements for cash for
operations and investing activities.

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



                                       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)


LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
Sources of longer-term financing include the following as of September 30, 1999:
<TABLE>
<CAPTION>
                                                                                   AFC
                                                                       Agway    (excluding
Source of debt                                                         Inc.      Telmark)       Telmark       Total
--------------                                                     ----------   ----------     ---------    ---------
<S>                                                                <C>          <C>            <C>          <C>
Banks - due 10/99 to 4/04, interest at a weighted average
   rate of 6.8% with a range of 5.6% - 7.7%...................     $        0   $    1,050     $ 136,000    $ 137,050
Insurance companies - due 10/99 to 12/07, interest at a
   weighted average rate of 6.8% with a range of
   6.5% - 7.6%................................................              0            0       203,673      203,673
Capital leases and other - due 1999 to 2008, interest at a
   weighted average rate of 9.3% with a range of 6% to 12%....         18,404        2,230             0       20,634
                                                                   ----------   ----------     ---------    ---------
     Long-term debt...........................................         18,404        3,280       339,673      361,357
Subordinated money market certificates - due 10/99 to 10/13,
   interest at a weighted average rate of 8.0% with a range of
   4.5% - 9.5%................................................              0      440,007             0      440,007
Subordinated debentures - due 3/00 to 7/03, interest at a
   weighted average rate of 8.0% with a range of 6.0%
   to 8.5%....................................................              0        7,954        39,175       47,129
                                                                   ----------   ----------     ---------    ---------
     Total debt...............................................     $   18,404   $  451,241     $ 378,848    $ 848,493
                                                                   ==========   ==========     =========    =========
</TABLE>
For a further  description  of the  Company's  credit  facilities  available  at
September  30, 1999,  see  Footnote 3 to the  condensed  consolidated  financial
statements.

OTHER MATTERS
-------------
Year 2000
The approach of the year 2000 presents potential issues to all organizations who
use  computers in the conduct of their  business or depend on business  partners
who use computers.  To the extent  computer use is date  sensitive,  hardware or
software  that  recognizes  the  year by the  last two  digits  may  erroneously
recognize "00" as 1900 rather than 2000,  which could result in errors or system
failures.

Agway  utilizes a number of computers and computer  software  ("systems") in the
conduct of its  business.  Many systems are for specific  business  segments and
others have broader  corporate-wide use. Systems are principally involved in the
flow of information.  In addition, in some business segments, computer chips are
embedded in the automation of certain processing or manufacturing operations.

Agway initiated its year 2000 compliance  efforts in January 1996. The year 2000
compliance  effort has been  comprehensive,  including each business  segment as
well as corporate-level  activities.  Agway engaged an international  consulting
firm  in  March  1998 to  evaluate  Agway's  approach  to year  2000  plans  and
implementation  compared  to  industry  "best  practices."  Year 2000  readiness
responsibility  has been assigned to high level management  within each business
segment and for Agway as a whole. This includes periodic reports to the Board of
Directors  regarding  the  implementation   timetable  and  the  development  of
contingency plans. In the systems area, the effort has included:


                                       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)


OTHER MATTERS (continued)
-------------------------
Year 2000 (continued)

1.   inventorying all critical information systems;
2.   prioritizing those systems determined to be at risk;
3.   planning  the upgrade through system remediation, replacement, outsourcing,
     or disposal;
4.   testing and implementation of upgraded systems; and
5.   testing of the critical upgraded systems in a year 2000 environment created
     for that purpose.

While upgraded systems are individually tested for year 2000 compliance prior to
implementation,  the year 2000 environment  allows us to not only test them in a
simulated  year 2000  environment  but also to test the  interaction of critical
systems on an "enterprise-wide" basis in a simulated year 2000 environment.

The  prioritization of Agway's year 2000 compliance work considers,  among other
things, the seasonal business cycles of certain Agway business segments to allow
for  implementation  of and  training on major new systems  during the non- peak
portion of each segment's  business cycle.  The inventory,  prioritization,  and
planning  stages for all  information  systems  are  complete.  The  testing and
implementation  stage is complete for all critical  systems and  enterprise-wide
testing for  selected  critical  information  systems  has also been  completed,
except for the following  outstanding  information  systems  issues as discussed
below:

-    The accounts  receivable  system for the  Agriculture  segment's  wholesale
     business is scheduled for replacement November 1999.

-    Enterprise-wide  testing for the Agway Energy segment's new fully installed
     retail operations  systems is scheduled for completion in November 1999. In
     addition,  the remaining year 2000  compliance  tests by the vendor for the
     Agway modified version of this software will be completed in November 1999.

Based on the work to date,  we believe that this  remaining  information  system
work will be completed on a timely basis. We expect minimal,  if any, disruption
of our information systems as we enter the year 2000.

In  addition to the  information  systems  review  noted  above,  Agway has also
initiated  processes  to review and to modify,  where  appropriate,  other areas
impacted by year 2000. These areas include, but are not limited to, hardware and
software  associated with end-user  computing  functions  (personal  computers),
information  technology  (IT)  vendor  relationships,   external  interfaces  to
internal  IT  systems,  remote  location  access  to  IT  systems,  and  certain
non-information technology issues such as supplier year 2000 readiness, facility
year  2000  readiness,  and the  extent  to  which  embedded  chips  are used in
machinery and equipment used in business  operations.  In the IT-related  areas,
Agway has completed significant assessments in its major business operations and
has developed and implemented plans to address the critical issues. With respect
to  suppliers,  Agway is engaged in dialogue,  both in writing and by interview,
regarding their year 2000 readiness.  These  communications will continue to the
extent  useful  through  December  1999.  In  the  case  of  embedded  chips  in
manufacturing and processing operations, the review, assessment, and remediation
are complete in the Country Products Group and Energy segments.  The Agriculture
segment has determined that the only facilities requiring further  consideration
are the feed mills.  A complete  inventory of embedded  chips in these mills has
been completed. Based on work to date the need for remediation of these chips is
expected to be limited, if any, and is planned to be completed by November 1999.



                                       20

<PAGE>



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

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


OTHER MATTERS (continued)
-------------------------
Year 2000 (continued)
The year 2000  compliance  issue is an uncertainty  that is  continuously  being
monitored as Agway  implements  its plans.  Based on the work performed to date,
Agway presently  believes that the likelihood of the year 2000 having a material
effect on the  results of  operations,  liquidity,  or  financial  condition  is
remote.  Notwithstanding the foregoing, it is not presently clear that all parts
of the country's  infrastructure,  including such things as the national banking
systems,  electrical  power,  transportation  of  goods,   communications,   and
governmental activities,  will be fully functioning as the year 2000 approaches.
Our  research  to  date  gives  us  increased   confidence   in  many  of  these
infrastructure   components  but  also  persuades  us  that  absolute  certainty
regarding  their  performance  will not likely be possible prior to passing into
the year  2000.  To the  extent  failure  occurs in such  activities,  which are
outside Agway's  control,  it could affect Agway's sources of supply and Agway's
ability to service  its  customers  with the same degree of  effectiveness  with
which  they  are  served  presently.   Agway  has  identified  elements  of  the
infrastructure  that  are  of  greater  significance  to its  operations  and is
obtaining  information  on an  ongoing  basis as to  their  expected  year  2000
readiness.

Each of Agway's  business  segments has either completed or is in the process of
completing  business  contingency  and continuity  plans in the event of unusual
business  developments  due to entering into the year 2000. The methodology used
for this planning  process was common for each business area. Each business unit
identified its business  processes and assessed each process on the basis of its
importance to the conduct of business and the  probability  of its having a year
2000-generated  problem.  Processes  identified  as  critical  to the conduct of
business  with a  moderate  or  higher  probability  of  exposure  to year  2000
disruption were then investigated for work-around alternatives.  Those processes
for which  alternatives were not readily available were then considered  further
for establishment of business contingency and continuity plans.

Our  business  contingency  and  continuity  plans were set to provide  the best
possible  assurance  first for those services we provide  customers that involve
human health and safety, i.e.,  principally delivery of energy products;  second
for those services that involve animal life and welfare, principally delivery of
animal feeds; and third for those business  activities that provide cash flow to
Agway to permit us to meet our obligations.

Based on these  priorities,  the most severe difficulty that we could face would
be  either  the  disruption  of supply of our  energy  or feed  products  to the
Northeast or power  failures which would disrupt  ability to deliver  product to
our customer  base.  In both our energy and feed  businesses,  we have  multiple
locations  throughout our market  territory and will store product to the extent
possible prior to December 31, 1999, as a contingency plan. In the normal course
of business, we have multiple suppliers so that alternative supply is available.
If primary  transportation of bulk product to the Northeast,  i.e., pipelines or
rail, is impaired,  we would move to  alternative  transportation  to the extent
available, move product from locations with higher stored inventory to locations
experiencing  shortages  and,  if  necessary,  particularly  in Energy,  move to
allocation programs which are part of our standard business continuity programs.
Similarly,  in the event of  localized  power  failures,  we have the ability in
emergency  conditions  to move product from  non-affected  locations to affected
locations.

Finally,  we have  established and tested a command center that makes use of the
telephones  and work space in our  existing  overnight  call  center.  A back-up
generator is in place with  capacity to provide  power to this  command  center,
Agway's computer center, and limited additional space.  Business units have been
allocated  work space in this area to  monitor  and react to  critical  business
interruptions just prior and subsequent to the millennium date change.



                                       21

<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)


OTHER MATTERS (continued)
-------------------------
Year 2000 (continued)
Agway has incurred  significant  internal  staff costs as well as consulting and
other  expenses  related  to its year 2000  efforts.  Due to the level of effort
required to complete remediation for the year 2000, non-business critical system
enhancements have been deferred until the year 2000 efforts have been completed.
The  conversion and testing of existing  systems and the  replacement of systems
are expected to cost the Company  approximately  $15,900,  of which  $15,700 has
been  incurred  and $200 is expected to be incurred  from  October  1999 through
December 1999.  Approximately 85% of these estimated costs represent replacement
costs and will be capitalized.  Additionally, the Company estimates the costs to
remediate  all other  areas may  approximate  $3,000,  of which  $2,900 has been
incurred and $100 is expected to be incurred from October 1999 through  December
1999.  However,  these  costs will vary as the Company  continues  to assess and
implement its plans or if the Company is required to invoke  contingency  plans.
The Company treats  non-capital  costs associated with year 2000 as period costs
and they are expensed when incurred.

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

FUTURE ACCOUNTING REQUIREMENTS
------------------------------
See Footnote 1 to the condensed consolidated financial statements.

                                       22

<PAGE>



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

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


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

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

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

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



                                       23

<PAGE>



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

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


COMMODITY PRICE EXPOSURE (continued)
------------------------------------
A sensitivity  analysis has been prepared to estimate the department's  exposure
to  market  risk of its  exchange-traded  commodity  instrument  position  as of
September  30,  1999 and June 30,  1999.  The fair value of such  position  is a
summation of the fair values calculated for each commodity instrument by valuing
each  position  at  quoted  futures  prices  or,  in  the  case  of  options,  a
delta-adjusted  calculated  price. The market risk of the commodity  position is
estimated as the potential loss in fair value resulting from a hypothetical  10%
change in market prices of the  underlying  commodities.  As noted above,  grain
marketing  historically  enters into  generally  matched  transactions  to hedge
against price  fluctuations.  However, as discussed in prior filings, as of June
30,  1999,  unauthorized  speculative  positions  had  been  taken  so that  the
commodity instrument activity of the department at that date was not effectively
hedging the underlying commodities and forward contracts. As of September 30 and
June 30, 1999,  assuming a 10% hypothetical  change in the underlying  commodity
price,  the  potential  change  in  fair  value  of the  department's  commodity
instruments was $290 and $2,900, respectively.


                                       24

<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 Form 8-K on July 8, 1999, reporting that it was disclosed to Agway
that records had been falsified to conceal losses from unauthorized  speculative
activities in Agriculture's grain marketing business.


                                       25

<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 5, 1999                    /s/ PETER J. O'NEILL
         --------------------------     ----------------------------------------
                                                   Peter J. O'Neill
                                                Senior Vice President,
                                                  Finance & Control,
                                           (Principal Financial Officer and
                                              Chief Accounting Officer)










                                       26