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



(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----
ACT OF 1934
For the quarterly period ended December 23, 2000
                               -----------------

                                       OR

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

Commission file number 2-22791
                       -------


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


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


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


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




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



        Class                                    Outstanding at February 2, 2001
------------------------                         -------------------------------
Membership Common Stock,                                  98,200 shares
$25 par value per share

                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

                                                                                                                      PAGE NO.

PART I.      FINANCIAL INFORMATION
------       ---------------------

<S>          <C>                                                                                                      <C>
             Item 1.  Financial Statements (Unaudited)

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

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

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

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

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

             Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations........   18

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

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

             Item 1.  Legal Proceedings............................................................................   24

             Item 4.  Submission of Matters to a Vote of Security Holders..........................................   25

             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
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                      December 23,          June 24,
ASSETS                                                                                   2000                2000
------                                                                              ---------------     --------------
                                                                                      (Unaudited)
<S>                                                                                 <C>                 <C>
Current Assets:
      Cash.......................................................................   $      13,868       $      29,244
      Trade accounts receivable (including notes receivable of $28,133 and
           $38,755, respectively), less allowance for doubtful accounts of
           $8,864 and $7,204, respectively.......................................         190,749             210,598
      Leases receivable, less unearned income of $73,935 and
           $71,944, respectively.................................................         164,013             152,255
      Advances and other receivables.............................................          34,945              22,401
      Inventories:
           Raw materials.........................................................           7,705               7,982
           Finished goods........................................................         109,047             101,859
           Goods in transit and supplies.........................................           2,920               2,099
                                                                                    --------------      --------------
                Total inventories................................................         119,672             111,940
      Prepaid expenses and other assets..........................................          58,032              48,743
                                                                                    --------------      --------------
           Total current assets..................................................         581,279             575,181
Marketable securities available for sale.........................................          37,823              36,254
Other security investments.......................................................          51,485              51,472
Properties and equipment, net....................................................         167,959             175,784
Long-term leases receivable, less unearned income of $178,902 and
      $167,414, respectively.....................................................         487,948             470,595
Net pension asset................................................................         221,884             213,455
Other assets    .................................................................          32,562              21,110
Net assets of discontinued operations............................................          17,544              34,278
                                                                                    --------------      --------------
                Total assets.....................................................   $   1,598,484       $   1,578,129
                                                                                    ==============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
      Notes payable..............................................................   $      193,170      $     177,576
      Current installments of long-term debt.....................................          118,526            136,211
      Current installments of subordinated debt..................................           56,169             57,125
      Accounts payable...........................................................          142,825             94,046
      Other current liabilities..................................................          115,711            122,060
                                                                                    ---------------     -------------
           Total current liabilities.............................................          626,401            587,018
Long-term debt...................................................................          298,319            282,338
Subordinated debt................................................................          392,186            417,749
Other liabilities................................................................          109,502            108,433
                                                                                    ---------------     -------------
           Total liabilities.....................................................        1,426,408          1,395,538
Commitments and contingencies....................................................
Shareholders' equity:
      Preferred stock, net.......................................................           38,088             39,695
      Common stock, net..........................................................            2,456              2,473
      Accumulated other comprehensive income (loss)..............................            3,907               (798)
      Retained earnings..........................................................          127,625            141,221
                                                                                    ---------------     -------------
           Total shareholders' equity............................................          172,076            182,591
                                                                                    ---------------     -------------
                Total liabilities and shareholders' equity.......................   $    1,598,484      $   1,578,129
                                                                                    ===============     =============

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

                                        3

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                             Three Months Ended                       Six Months Ended
                                                      ---------------------------------      -------------------------------
                                                        December 23,       December 25,       December 23,      December 25,
                                                            2000              1999                2000                1999
                                                       -------------     -------------       -------------     -------------
<S>                                                    <C>               <C>                 <C>               <C>
Net sales and revenues from:
      Product sales (including excise taxes)........   $    357,379      $    293,927        $    648,892      $    532,511
      Leasing operations............................         21,494            19,056              42,038            37,327
      Insurance operations..........................          7,187             6,980              14,159            13,960
                                                       -------------     -------------       -------------     -------------
           Total net sales and revenues.............        386,060           319,963             705,089           583,798

Cost and expenses from:
      Products and plant operations.................        327,028           271,700             613,076           509,899
      Leasing operations............................          9,788             8,179              19,157            15,880
      Insurance operations..........................          4,335             4,192               8,647             8,344
      Selling, general and administrative
           activities...............................         33,367            33,907              65,798            67,510
                                                       -------------     -------------       -------------     -------------
           Total operating costs and expenses               374,518           317,978             706,678           601,633



Operating income (loss)                                      11,542             1,985              (1,589)          (17,835)

Interest expense, net...............................         (9,472)           (7,829)            (18,483)          (14,223)
Other income, net...................................          2,871             2,816               4,019             5,128
                                                       -------------     -------------       -------------     -------------
Earnings (loss) from continuing
      operations before income taxes................          4,941            (3,028)            (16,053)          (26,930)
Income tax expense (benefit) .......................          3,083              (362)             (4,943)           (9,074)
                                                       -------------     -------------       -------------     -------------

Earnings (loss) from continuing operations                    1,858            (2,666)            (11,110)          (17,856)

Discontinued operations:
      Loss from operations, net of tax benefit
           of $0 and $3,454 and $0 and
           $4,328, respectively.....................              0            (6,325)                  0             (7,925)
      Loss on disposal of retail....................              0                 0                   0                  0
                                                       -------------     -------------       -------------     -------------
      Loss from discontinued operations.............              0            (6,325)                  0             (7,925)

Earnings (loss) before cumulative effect
      of an accounting change.......................          1,858            (8,991)            (11,110)           (25,781)

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

Net earnings (loss).................................          1,858            (8,991)            (12,167)          (25,781)

Retained earnings, beginning of period..............        127,196           136,973             141,221           153,763
Dividends...........................................         (1,429)           (1,573)             (1,429)           (1,573)
                                                       -------------     -------------       -------------     -------------
Retained earnings, end of period....................   $    127,625      $    126,409        $    127,625      $    126,409
                                                       =============     =============       =============     =============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                             Three Months Ended                      Six Months Ended
                                                       ------------------------------       ------------------------------
                                                        December 23,     December 25,        December 23,     December  25,
                                                            2000             1999                2000             1999
                                                       -------------    -------------       -------------     ------------
<S>                                                    <C>              <C>                 <C>               <C>
Net earnings (loss).................................   $     1,858      $    (8,991)        $    (12,167)     $   (25,781)

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on available-for-sale
  securities:
      Unrealized holding gains (losses)
           arising during period....................           414             (393)                 709             (539)

Unrealized gains (losses) on derivatives:
      Cumulative effect of accounting change,
           net of tax expense of $2,041.............             0                0                3,061                0
      Unrealized holding gains (losses) arising
           during period............................         1,247                0                4,649                0
      Reclassification adjustment for (gains)
           losses included in net earnings..........        (3,049)               0               (3,714)               0
                                                       -------------    -------------       -------------     ------------

Other comprehensive income (loss), net of tax               (1,388)            (393)               4,705             (539)
                                                       -------------    -------------       -------------     ------------

Comprehensive gain (loss)                              $       470      $    (9,384)        $     (7,462)     $   (26,320)
                                                       =============    =============       =============     ============
</TABLE>


















     See accompanying notes to condensed consolidated financial statements.






                                        5

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                                                            Six Months Ended
                                                                                    -----------------------------------
                                                                                      December 23,        December 25,
                                                                                         2000                     1999
                                                                                    --------------       --------------
<S>                                                                                 <C>                  <C>
Net cash flows provided by (used in) continuing operations.......................   $      26,636        $     (12,074)
Net cash flows provided by (used in) discontinued operations.....................          16,734                4,571
                                                                                    --------------       --------------
Net cash flows provided by (used in) operating activities........................          43,370               (7,503)

Cash flows provided by (used in) investing activities:
      Purchases of property, plant and equipment.................................          (6,339)             (13,549)
      Proceeds from disposal of property, plant and equipment....................           4,170                 (175)
      Cash paid for acquisition of business......................................               0               (4,950)
      Leases originated..........................................................        (148,677)            (134,705)
      Leases repaid..............................................................         111,044              101,376
      Proceeds from sale of marketable securities................................           1,895                1,413
      Purchases of marketable securities.........................................          (2,755)              (3,431)
      Net purchase of investments in cooperatives................................            (294)                (518)
                                                                                    --------------       --------------

Net cash flows used in investing activities......................................         (40,956)             (54,539)

Cash flows provided by (used in) financing activities:
      Net change in short-term borrowings........................................          15,594               84,802
      Proceeds from long-term debt...............................................             135               11,509
      Repayment of long-term debt................................................          (1,774)              (4,443)
      Proceeds from sale of subordinated debt....................................          79,939               56,056
      Maturity and redemption of subordinated debt...............................        (106,458)             (80,470)
      Payments on capital leases.................................................            (582)              (2,630)
      Redemption of stock, net ..................................................          (1,623)                (600)
      Cash dividends paid........................................................          (3,021)              (1,702)
                                                                                    --------------       --------------

Net cash flows provided by (used in) financing activities........................         (17,790)              62,522
                                                                                    --------------       --------------

Net increase (decrease) in cash and equivalents..................................         (15,376)                 480
Cash and equivalents at beginning of period......................................          29,244                4,480
                                                                                    --------------       --------------
Cash and equivalents at end of period............................................   $      13,868        $       4,960
                                                                                    ==============       ==============

</TABLE>









     See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>



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

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


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

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

      On June 25, 2000,  upon  adoption of SFAS No. 133, the Company  recorded a
      net-of-tax cumulative-effect loss of $1,100 to recognize at fair value the
      component of all option  contracts  associated  with the Company's  Energy
      segment which is excluded from the  assessment of hedge  effectiveness  as
      allowed by the new  standard.  The  Company  also  recorded  a  net-of-tax
      cumulative-effect   gain  of  $3,100  in  other  comprehensive  income  to
      recognize at fair value all derivative instruments in the Company's Energy
      segment that are designated  and qualify as cash- flow hedges.  See Note 6
      for  further  details of the  Company's  accounting  for  derivatives  and
      hedging activities.

      Fiscal Quarter
      The fiscal quarter-end of Agway Inc. for the second quarter of the current
      and prior year was December 23 and December 25,  respectively.  The fiscal
      quarter-end  of certain of Agway's  subsidiaries,  including  Agway Energy
      Products LLC,  Telmark LLC, and Agway  Insurance  Company,  for the second
      quarter  of  the  current  and  prior  year  is  December  31,  and  these
      subsidiaries are consolidated on that basis.

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





                                        7

<PAGE>



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

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


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

      In exemptive relief granted pursuant to a "no action letter" issued by the
      staff of the SEC,  AFC is not required to file  periodic  reports with the
      SEC for itself but does report summarized financial information in Agway's
      financial statement  footnotes.  However, as required by the 1934 Act, the
      summarized   financial   information   concerning  AFC  and   consolidated
      subsidiaries is as follows:
<TABLE>
<CAPTION>
                                                         Three Months Ended                   Six Months Ended
                                                 ----------------------------------     -------------------------------
                                                    December 23,      December 25,       December 23,      December 25,
                                                        2000              1999               2000               1999
                                                  --------------     --------------     -------------     -------------

           <S>                                    <C>                <C>                <C>               <C>
           Net sales and revenues..............   $     264,653      $     203,037      $    455,844      $    342,504
           Operating income....................          19,362             11,075            14,827             4,548
           Net income (loss)...................           5,872              3,190            (2,722)           (5,095)
</TABLE>

<TABLE>
<CAPTION>
                                                                                         December 23,        June 30,
                                                                                              2000            2000
                                                                                        -------------     -------------
           <S>                                                                          <C>               <C>
           Current assets............................................................   $    691,981      $    696,404
           Properties and equipment, net.............................................         77,348            79,178
           Noncurrent assets.........................................................        637,411           618,303
                                                                                        -------------     -------------
           Total assets..............................................................   $  1,406,740      $  1,393,885
                                                                                        =============     =============

           Current liabilities.......................................................   $    135,633      $    112,259
           Short-term notes payable..................................................        193,170           177,576
           Current installments of long-term debt....................................        113,788           133,399
           Current installments of subordinated debt.................................         56,169            57,125
           Long-term debt............................................................        291,858           273,814
           Subordinated debt.........................................................        392,186           417,749
           Noncurrent liabilities....................................................         19,363            19,373
           Shareholder's equity......................................................        204,573           202,590
                                                                                        -------------     -------------
           Total liabilities and shareholder's equity................................   $  1,406,740      $  1,393,885
                                                                                        =============     =============
</TABLE>

                                        8

<PAGE>



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

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


3.    BORROWING ARRANGEMENTS
      ----------------------
      Current Availability
      Agway  finances its operations and the operations of all of its businesses
      and  subsidiaries  through Agway  Financial  Corporation  (AFC).  External
      sources of short-term  financing for Agway and its continuing  operations,
      other  than  Agway  Insurance  Company  and  Telmark,   currently  include
      revolving credit lines,  letters of credit, and a commercial paper program
      (See  "Renewal"  below).   Insurance   finances  its  activities   through
      operations.  Telmark's  finance  arrangements  are explained  below. As of
      December  2000,  Agway  had  certain  facilities  available  with  banking
      institutions  whereby  lenders have agreed to provide funds up to $456,700
      to separately financed units of the Company as follows:  AFC - $75,000 and
      Telmark - $381,700. In addition, AFC may issue up to $50,000 of commercial
      paper under the terms of a separate  agreement,  backed by a bank  standby
      letter of credit.

      AFC
      The specifics of these AFC arrangements are as follows:
<TABLE>
<CAPTION>
                                                            Total
                                                           Amount
                                                          Available       Available Amount Outstanding
                                                         Dec.  2000        Dec. 2000         June 2000     Term Expires
                                                      ---------------     ------------     -----------   -----------------
      <S>                                             <C>                 <C>                <C>         <C>
      Short-term line of credit.....................  $    75,000         $   39,600         $51,900     February 28, 2001
      Commercial paper..............................  $    50,000         $   50,000         $50,000     February 28, 2001
</TABLE>

      To meet working capital demands of the current high  industrywide  cost of
      petroleum  commodities,  banks under AFC's  current  lending  arrangements
      agreed to increase AFC's line of credit from $50,000 to $75,000  effective
      November 1, 2000 through the expiration of this  financing  arrangement on
      February 28, 2001.

     Renewal  AFC  annually  renews  its lines of credit  in the  quarter  ended
     December  31.   Agway's   existing   banks  have   expressed   interest  in
     participating  in a new  facility  at reduced  levels  from  their  current
     commitments. As a result of the foregoing, and in anticipation of continued
     high  petroleum  commodity  costs,  AFC has been  negotiating  with several
     lenders to increase and restructure  its credit  facilities to be effective
     at the end of the  term of its  current  arrangements.  During  the  second
     quarter,  it became  clear to the Company that the  negotiations  for a new
     credit  facility  would  not be  completed  by  the  original  term  of its
     arrangements of December 31, 2000. In order to complete these negotiations,
     the Company received extensions from its existing banks on all arrangements
     through February 28, 2001.

      In January  2001,  Agway  signed a  commitment  letter with an agent for a
      syndicated  senior  collateralized  revolving credit facility for $175,000
      including  letters of credit.  Management is working with the  syndication
      agent  to  close  on  the  new  facility  by  February  28,  2001,  and is
      coordinating the refinancing  activity with the existing creditors.  Agway
      believes it will continue to have  appropriate  and adequate  financing to
      meet its ongoing needs.  However,  negotiations for new credit  facilities
      have not been completed; therefore, there is no assurance that the Company
      will achieve the desired  levels of financing.  In addition,  the terms of
      such refinancing, if and as ultimately negotiated, cannot be determined at
      this time.




                                        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)
      ----------------------------------
      Collateralization and Covenants
      The $75,000  short-term  line of credit and the $50,000  commercial  paper
      facility  currently  available  to  AFC  require  collateralization  using
      certain of  Agway's  accounts  receivable  and  non-petroleum  inventories
      (collateral).  The line of credit additionally requires Agway's investment
      in bank  stock,  which had a book value of $2,300  and $3,000 at  December
      2000 and June 2000,  respectively,  as additional collateral.  The maximum
      amounts  that can be drawn  under  these AFC  agreements  are subject to a
      limitation  based on a specific  calculation  relating  to the  collateral
      available.  Adequate collateral existed throughout the first six months of
      the year to permit  AFC to borrow  amounts  to meet the  ongoing  needs of
      Agway  and is  expected  to  continue  to do so  through  the term of this
      agreement.  In addition, the current agreements include certain covenants,
      the  most  restrictive  of  which  requires  Agway  to  maintain  specific
      quarterly levels of interest coverage, monthly levels of tangible retained
      earnings,  monthly  current  ratios,  and  limits  available  credit  to a
      multiple of earnings as defined in the agreement.  Other  covenants  limit
      capital  expenditures  to  agreed  upon  levels  during  the  term  of the
      agreements,  require  the monthly  maintenance  of senior  liabilities  to
      tangible  capital  ratios as defined in the  agreements  and  require  the
      maintenance  of a minimum total of $425,000 in Agway  preferred  stock and
      AFC  subordinated  debt. The required minimum level of preferred stock and
      subordinated  debt has  historically  been at levels that do not interfere
      with the normal  volume of requests  Agway has received  and  fulfilled to
      repurchase  such  securities  at par value or  principal  amount  prior to
      maturity.

      For the quarter ended December 2000, Agway met all covenant  requirements.
      However,  the bank  covenants are  restrictive  and,  given the historical
      volatility of Agway's operating  results,  may be violated between now and
      the end of the existing credit agreements.

      Other Debt Issuances
      In addition to the short-term line of credit and commercial paper program,
      Agway,  through AFC, offers  subordinated  money market  certificates (and
      previously  offered   subordinated   debentures)  to  the  public.   AFC's
      subordinated debt is not redeemable by the holder, though AFC historically
      has had a practice of repurchasing at face value, plus interest accrued at
      the  stated  rate,  certain   subordinated  debt  whenever  presented  for
      repurchase  prior to  maturity.  However,  AFC is under no  obligation  to
      repurchase  such debt when so presented,  and AFC may stop or suspend this
      repurchase  practice at any time. In addition,  the terms or conditions of
      the lines of credit discussed above, as ultimately  negotiated,  may cause
      AFC to limit or cease its past  practices with regard to the repurchase of
      subordinated debt. The foregoing debt bears interest payable semi-annually
      on January l and July 1 of each year. AFC's money market certificates bear
      interest  at a rate that is the greater of the stated rate or a rate based
      upon  the  average  discount  rate  for  U.S.  Government  Treasury  Bills
      (T-Bills),  with  maturities of 26 weeks.  AFC  subordinated  money market
      certificates  outstanding as of December 2000 are due between October 2001
      and October 2015 and bear a weighted  average interest rate of 8.0%, while
      subordinated  debentures  due  between  July  2001  and July  2003  bear a
      weighted average interest rate of 7.7%.

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





                                       10

<PAGE>



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

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


3.    BORROWING ARRANGEMENTS (continued)
      ----------------------------------
      Telmark Debt
      At December 31, 2000,  Telmark had credit facilities  available from banks
      which allow Telmark to borrow up to an aggregate of $381,700.  Uncommitted
      short-term  line of  credit  agreements  permit  Telmark  to  borrow up to
      $81,700 on an uncollateralized basis with interest paid upon maturity. The
      lines bear interest at money market variable  rates. A committed  $300,000
      partially  collateralized  (by stock in a cooperative bank) revolving term
      loan facility permits Telmark to draw short-term funds bearing interest at
      money market rates or draw  long-term  debt at rates  appropriate  for the
      term of the note drawn.  The total amounts  outstanding as of December 31,
      2000 and June 30, 2000 under the  short-term  lines of credit were $71,300
      and $75,200, respectively, and under the revolving term loan facility were
      $176,200 and $164,500,  respectively.  The portion of the  revolving  term
      loan that is short term at December  31, 2000 and June 30, 2000 is $40,200
      and $500,  respectively.  Telmark  borrows  under its short-  term line of
      credit  agreement and its revolving  term  agreement  from time to time to
      fund its operations.  Short- term debt serves as interim financing between
      the  issuances  of  long-term  debt.  Telmark  renews  its lines of credit
      annually.  The $81,700 lines of credit all have terms expiring  during the
      next 12 months.  The $300,000  revolving  term loan  facility is available
      through August 1, 2001.

      In November  2000,  Telmark  issued  $61,000 of unsecured  senior notes to
      institutional  investors.  The terms of the note  agreement are similar to
      the  terms  of  other  unsecured   senior  notes.   Telmark  had  balances
      outstanding on all unsecured senior notes from private placements totaling
      $159,000  at  December  31,  2000,  and  $122,000  at June 30,  2000.  The
      principal  bears  interest at fixed rates  ranging from 6.7% to 8.7%.  The
      principal  payments  commence  April  2001 with final  installment  due in
      December  2012.  Interest is payable  semiannually  on each  senior  note.
      Principal  payments are on both a semiannual  and annual  basis.  The note
      agreements are similar to one another and each contains  several  specific
      financial covenants.

      Telmark, through three wholly owned special purpose subsidiaries,  has six
      classes of lease-backed  notes outstanding  totaling $108,300 and $118,300
      at  December  31,  2000  and  June  30,  2000,  respectively,  payable  to
      institutional  investors.  Interest  rates on these classes of notes range
      from 6.5% to 9.1%. The notes are  collateralized by leases,  which Telmark
      sold  to  these  subsidiaries,   having  an  aggregate  present  value  of
      contractual  lease payments equal to or greater than the principal balance
      of the notes,  and the notes are further  collateralized  by the  residual
      values  of  these  leases  and by  segregated  cash  accounts.  The  final
      scheduled  maturity of these notes is in varying amounts and dates through
      December 2008.

      Telmark  registers  with the SEC to offer  debentures  to the public.  The
      debentures are unsecured and  subordinated  to all senior debt at Telmark.
      The  interest  on the debt is paid on  January  1,  April  1,  July 1, and
      October 1 of each year and may, at the holder's option, be reinvested. The
      offering  of the  debentures  is not  underwritten,  and  there  can be no
      guarantee  as to the  amount  of  debentures,  if any,  that will be sold.
      Telmark's  subordinated  debentures  bear  interest  at a rate that is the
      greater of the stated rate or a rate based upon an average  discount  rate
      for U.S. Government  Treasury Bills, with maturities of 26 weeks.  Telmark
      debentures  outstanding as of December 31, 2000 are due between March 2001
      and March 2009 and bear a weighted  average  interest  rate of 8.0%. As of
      December 31, 2000,  approximately  $39,900 of debentures were  outstanding
      under these offerings.


                                       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)


3.    BORROWING ARRANGEMENTS (continued)
      ----------------------------------
      The Company's  long-term and  subordinated  debt  outstanding  at December
      2000, as compared to June 2000, is as follows:
<TABLE>
<CAPTION>
                                                               AFC
                                         Agway          (excluding Telmark)          Telmark              Total
                                  --------------------  --------------------  --------------------  --------------------
                                     12/00      6/00      12/00       6/00      12/00       6/00      12/00       6/00
                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
      <S>                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
      Long-term debt ..........   $  11,199  $  11,336  $   2,340  $   2,957  $ 403,306  $ 404,256  $ 416,845  $ 418,549
      Currently payable........       4,738      2,812        231        626    113,557    132,773    118,526    136,211
                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
      Net long-term debt.......   $   6,461  $   8,524  $   2,109  $   2,331  $ 289,749  $ 271,483  $ 298,319  $ 282,338
                                  =========  =========  =========  =========  =========  =========  =========  ==========

      Subordinated debt........   $       0  $       0  $ 408,449  $ 437,476  $  39,906  $  37,398  $ 448,355  $ 474,874
      Currently payable........           0          0     50,827     51,628      5,342      5,497     56,169     57,125
                                  ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
      Net subordinated debt....   $       0  $       0  $ 357,622  $ 385,848  $  34,564  $  31,901  $ 392,186  $ 417,749
                                  =========  =========  =========  =========  =========  =========  =========  =========
</TABLE>



                                       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)


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

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

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

      Other
      Agway  has a Master  Equipment  Lease  Agreement  with a bank with a total
      operating  lease  obligation  of  approximately  $10,000  which has a call
      provision  based upon  performance  criteria  specified in the  agreement.
      Agway did not meet the specified  criteria,  and in January 2001, the bank
      exercised its call provision. This obligation is expected to be settled in
      April 2001 in accordance with the terms of the agreement.

      Agway is 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.



                                       13

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


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

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

      The net sales and revenues for  discontinued  operations  (retail services
      business)  for the three months  ended  December 23, 2000 and December 25,
      1999,  were $5,300 and $53,700 and for the six months  ended  December 23,
      2000 and December 25, 1999, were $24,500 and $113,800,  respectively.  Net
      interest expense allocated to discontinued operations for the three months
      ended December 23, 2000 and December 25, 1999,  totaled $0 and $1,000, and
      for the six months ended December 23, 2000 and December 25, 1999,  totaled
      $0 and $2,300, respectively.

      A summary of net assets of discontinued operations was as follows:
<TABLE>
<CAPTION>
                                                                                   December 23,         June 24,
                                                                                      2000                2000
                                                                                  --------------     -------------
      <S>                                                                         <C>                <C>
      Accounts receivable.......................................................  $      10,573      $     22,982
      Inventory.................................................................              0            18,408
      Property, plant and equipment, net........................................         14,657            18,989
      Other assets, net.........................................................         15,496            23,370
      Accounts payable and accrued expenses.....................................        (23,182)          (49,413)
      Long-term liabilities.....................................................              0               (58)
                                                                                  --------------     -------------
      Net assets of discontinued operations.....................................  $      17,544      $     34,278
                                                                                  ==============     =============
</TABLE>

6.    ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
      -------------------------------------------------
      All  derivatives  are recognized on the balance sheet at their fair value.
      At the time a  derivative  contract is entered  into,  the Company  either
      designates  the  derivative as a fair value or cash flow hedge or does not
      designate  the  derivative  as a hedge and will record all changes in fair
      value of these  derivatives  in current  period  earnings.  For fair value
      hedge  transactions  in which the Company is hedging changes in fair value
      of an asset, liability,  or firm commitment,  changes in the fair value of
      the derivative will generally be offset in the income statement by changes
      in the hedged item's fair value. For cash flow hedge transactions in which
      the  Company  is  hedging  the  variability  of cash  flows  related  to a
      variable-priced asset, liability,  commitment,  or forecasted transaction,
      changes  in the  fair  value  of the  derivative  are  reported  in  other
      comprehensive  income.  The gains and losses on the  derivatives  that are
      reported  in  comprehensive  income are  reclassified  as  earnings in the
      periods in which  earnings  are  impacted by the  variability  of the cash
      flows of the hedged item. The ineffective portion of derivatives' changes

                                       14

<PAGE>



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

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


6.    ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES (continued)
      -------------------------------------------------------------
      in fair value and the change in fair value of  derivatives  designated but
      not qualifying as hedges are recognized in current-period earnings.

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

      The Company's Energy segment enters into a combination of  exchange-traded
      futures and options  contracts  and,  in certain  circumstances,  over the
      counter  options  (collectively  derivatives)  to manage  the  price  risk
      associated  with  future   purchases  of  the  commodities   used  in  its
      operations,  principally  heating oil and  propane.  Energy has fair value
      hedges  associated with its fixed price purchase  contracts and cash flows
      hedges for its variable  priced  purchase  contracts.  The derivatives are
      specifically  matched in volume and  maturity  with the  various  purchase
      commitments of the business and generally  expire within a year. The value
      of option  contracts that Energy enters into has two components,  time and
      intrinsic  value.  The intrinsic value is the value by which the option is
      in the money. The remaining amount of option value is attributable to time
      value.  Energy does not include the time value of option  contracts in its
      assessment of hedge  effectiveness  and therefore  records  changes in the
      time value component of its options currently in earnings. At December 31,
      2000,  Energy  had  derivative  assets of  $6,700  classified  as  prepaid
      expenses and other  assets.  An after-tax  total of $4,000 of deferred net
      unrealized  gains on  derivatives  instruments  were  accumulated in other
      comprehensive  income and are expected to be  reclassified  into  earnings
      during the next six months. The pre-tax earnings impact for the time value
      component  of  option  value  not used in  assessing  hedge  effectiveness
      totaled $1,800 upon the initial  adoption of SFAS No. 133 at July 1, 2000,
      and is  included,  net of tax,  in the  cumulative  effect  of  accounting
      change.  For the three and six months ended December 31, 2000,  $(500) and
      $200,  respectively,  is  included in cost of goods sold for the change in
      option time value not used in the assessment of hedge effectiveness.

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

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

                                       15

<PAGE>



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

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

7.    FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
      --------------------------------------------------
      Agway is an agricultural  cooperative  directly engaged in  manufacturing,
      processing, distributing, and marketing of agricultural feed and agronomic
      products  and  services  for  its   farmer-members  and  other  customers,
      primarily in the northeastern  United States and Ohio. In addition,  Agway
      is involved in  repackaging  and  marketing  produce  and  processing  and
      marketing  sunflower  seed  products.   Agway,   through  certain  of  its
      subsidiaries,  is involved in the distribution of petroleum products;  the
      installation and servicing of heating,  ventilation,  and air-conditioning
      equipment;  marketing of natural gas and electricity; lease financing; the
      underwriting and sale of certain types of property and casualty insurance;
      and the sale of health insurance. Agway reports its operations principally
      in five  business  segments.  Total sales and  revenues  of each  industry
      segment  includes  the  sale of  products  and  services  to  unaffiliated
      customers, as reported in the Agway consolidated statements of operations,
      as well as sales to  other  segments  of  Agway  which  are  competitively
      priced. As disclosed in Note 5, the retail services business is classified
      as a  discontinued  operation and therefore is not reported in the segment
      information below.

      The Other  category  within the  summary  of  business  segments  includes
      intersegment  eliminations  and  interest.  The category also includes net
      corporate  expenses and pension income.  Finally,  interest income for the
      Leasing segment is reported as net sales and revenues and interest expense
      is reported as cost and expenses from leasing operations (cost of sales).
<TABLE>
<CAPTION>
                                                              Three Months Ended December 2000
                               ------------------------------------------------------------------------------------------------
                                                 Country
                                                 Products
                                Agriculture       Group         Energy      Leasing     Insurance      Other(a)    Consolidated
                               -------------   -----------   -----------   ----------   ----------   -----------   ------------
<S>                            <C>             <C>           <C>           <C>          <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers.....  $     91,452    $    43,847   $   222,401   $   21,164   $    7,187   $        9    $   386,060
Intersegment sales and
  revenues...................         1,386            911           136          330            0       (2,763)             0
                               -------------   -----------   -----------   ----------   ----------   -----------   ------------
    Total sales and revenues   $     92,838    $    44,758   $   222,537   $   21,494   $    7,187   $   (2,754)   $   386,060
                               =============   ===========   ===========   ==========   ==========   ===========   ============

Earnings (loss) from
   continuing operations
   before income taxes.......  $     (9,143)   $    (1,104)  $    14,928   $    4,848   $      273   $   (4,861)   $     4,941
                               =============   ===========   ===========   ==========   ==========   ===========   ============

Total assets.................  $    250,585    $    73,402   $   227,884   $  709,475   $   55,392   $  281,746    $ 1,598,484
                               =============   ===========   ===========   ==========   ==========   ===========   ============
<CAPTION>

                                                              Three Months Ended December 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.....  $     85,012    $    42,550   $   166,372   $   19,051   $    6,980   $       (2)   $   319,963
Intersegment sales and
  revenues...................         3,435          4,194           100            5            0       (7,734)             0
                               -------------   -----------   -----------   ----------   ----------   -----------   ------------
    Total sales and revenues   $     88,447    $    46,744   $   166,472   $   19,056   $    6,980   $   (7,736)   $   319,963
                               =============   ===========   ===========   ==========   ==========   ===========   ============

Earnings (loss) from
   continuing operations
   before income taxes.......  $    (10,097)   $      (894)  $     6,129   $    4,557   $      (43)  $   (2,680)   $    (3,028)
                               =============   ===========   ===========   ==========   ==========   ===========   ============

Total assets.................  $     251,264   $    78,079   $   176,147   $  620,028   $   55,641   $  337,649    $ 1,518,808
                               =============   ===========   ===========   ==========   ==========   ===========   ============
</TABLE>

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

                                       16

<PAGE>



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

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


7.    FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
      --------------------------------------------------

<TABLE>
<CAPTION>
                                                               Six Months Ended December 2000
                               -----------------------------------------------------------------------------
                                                  Country
                                               Products
                                Agriculture       Group       Energy       Leasing     Insurance      Other(a)   Consolidated
                               ------------   -----------   -----------   ----------   ----------   ----------   ------------
<S>                            <C>            <C>           <C>           <C>          <C>          <C>          <C>
Net sales and revenues to
  unaffiliated customers.....  $    190,415   $   87,212    $   371,652   $   41,632   $  14,159    $      19    $   705,089
Intersegment sales and
  revenues...................         3,616        2,672            221          406           0       (6,915)             0
                               ------------   -----------   -----------   ----------   ----------   ----------   ------------
    Total sales and revenues   $    194,031   $   89,884    $   371,873   $   42,038   $  14,159    $  (6,896)   $   705,089
                               ============   ===========   ===========   ==========   ==========   ==========   ============

Earnings (loss) from
   continuing operations
   before income taxes.......  $    (18,075)  $   (3,388)   $     6,016   $    9,060   $     444    $ (10,110)   $   (16,053)
                               ============   ===========   ===========   ==========   ==========   ==========   ============

Total assets.................  $    250,585   $   73,402    $   227,884   $  709,475   $  55,392    $ 281,746    $ 1,598,484
                               ============   ===========   ===========   ==========   ==========   ==========   ============

<CAPTION>
                                                               Six Months Ended December 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.....  $    176,436   $   85,816    $   270,265   $   37,316   $  13,960    $       5    $   583,798
Intersegment sales and
  revenues...................         6,773        7,116            200           11           0      (14,100)             0
                               ------------   -----------   ------------  -----------  ----------   ----------   ------------
    Total sales and revenues   $    183,209   $   92,932    $   270,465   $   37,327   $  13,960    $ (14,095)   $   583,798
                               ============   ===========   ============  ===========  ==========   ==========   ============

Earnings (loss) from
   continuing operations
   before income taxes.......  $    (22,985)  $     (690)   $    (5,891)  $    8,399   $      (7)   $  (5,756)   $   (26,930)
                               ============   ===========   ============  ===========  ==========   ==========   ============

Total assets.................  $    251,264   $   78,079    $   176,147   $  620,028   $  55,641    $  337,649   $ 1,518,808
                               ============   ===========   ============  ===========  ==========   ==========   ============
</TABLE>

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


                                       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)


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

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

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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of $386,100 and $705,100 for the three and
six months ended December 23, 2000,  increased $66,100 (21%) and $121,300 (21%),
respectively,  as compared to the same periods in the prior year.  The increases
in both the three-month and six-month  periods were  substantially the result of
increased sales in the Energy, Leasing and Agriculture segments. The increase in
Energy was  principally  due to  significant  increases in the cost of petroleum
products over the prior year combined with increases in volume.  The increase in
Leasing  revenues was primarily from the continued growth of the lease portfolio
as compared to the prior year.  The  consolidated  sales were further  increased
over the prior year for the three and six months ended  December 23, 2000 in the
Agriculture  segment from increases in the agronomy  business sales. See further
explanation by business segment below.

Consolidated  pre-tax earnings of $4,900 for the three months ended December 23,
2000  increased   $8,000  (264%)  over  the  same  period  in  the  prior  year.
Consolidated pre-tax loss of $16,100 for the six months ended December 23, 2000,
decreased  $10,800 (40%) as compared to the same period in the prior year.  From
operations,  the pre-tax results for the three- and six-month  periods  improved
$10,200 and $15,200, respectively.  Improvements in Energy, Leasing, Agriculture
and Insurance were partially  offset by the decreases in pre-tax  results of the
Country Products Group for both the three-month period and the six-month period.
See detailed  business segment  discussion  below. Net corporate costs of $4,900
and  $10,100 for the three and six months  ended  December  23,  2000  increased
$2,200 (81%) and $4,400 (76%), respectively, as compared to the same periods in
the  prior  year.  The  increase  results  substantially  from the  increase  in
corporate costs in the current year as a result of higher professional  services
costs,  higher total  interest  costs from  overall  higher  average  short-term
borrowings, and higher debt fees in the current year than in the same periods in
the prior year.



                                       18

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Consolidated Results (continued)
--------------------------------
Effective  June 25, 2000,  Agway adopted a new  accounting  requirement  for all
derivative  instruments.  As a  result,  a loss  on  the  cumulative  effect  of
accounting  change,  net of tax of  $1,100,  has been  recorded  (See Note 1 for
further  details.)  Also,  as detailed in Note 5, the former  retail  segment is
reported as a discontinued  operation and the $6,300 and $7,900 after-tax losses
on retail  operations  for the three and six months  ended  December  25,  1999,
respectively,  have been so reclassified.  For the six months ended December 23,
2000, no further  adjustments were required to be recorded for this discontinued
operation.

Agriculture
-----------
Total  Agriculture  sales and revenue of $92,800 and  $194,000 for the three and
six months  ended  December 23, 2000,  increased  $4,400 (5%) and $10,800  (6%),
respectively, as compared to the same periods in the prior year. The increase in
sales for both the three- and six-month periods was due principally to increased
sales  in the  agronomy  business  and  to  the  increased  sales  in  the  TSPF
heifer-rearing  services.  These  increases  were  partially  offset in both the
three- and six -month periods ended  December 23, 2000 from  decreased  sales in
the enterprise feed business. Total Agronomy sales increased $6,600 (28%) during
the  three-month   period  and  $15,900  (29%)  during  the  six-month   period,
respectively,   as  compared  to  the  same  periods  in  the  prior  year.  The
weather-related  delay in spring 2000 plantings resulted in the sale of agronomy
products,  such as fertilizer,  crop protectants,  and lime, that normally would
occur in the fourth  quarter  of last year to occur in the first  quarter of the
current year.  Additionally,  agronomy sales increased in both the three and six
months ended  December 23, 2000, by $2,000 (31%) and $3,500 (28%),  respectively
from  growth  in  turf  and  farm  seed  and  in  fertilizer   sales.  The  TSPF
heifer-rearing  service sales continue to grow from increased utilization of the
heifer-rearing  facilities.  As a result,  sales  increased $700 (1%) and $1,200
(1%) for the three-month and six-month period, respectively,  as compared to the
same periods in the prior year. The above  increases were partially  offset by a
decline in enterprise  feed sales of $2,800 (5%) and $6,700 (6%),  respectively,
for the three- and six-month periods ended December 23, 2000, as compared to the
same  periods in the prior fiscal year.  The decrease in  enterprise  feed sales
resulted  substantially  from a combination of market  consolidation,  increased
competition,  and lower milk prices which have adversely  impacted farmers' feed
buying decisions.

Agriculture  pre-tax  loss of $9,100  and  $18,100  for the three and six months
ended December 23, 2000,  decreased $1,000 (9%) and $4,900 (21%),  respectively,
as compared to the same periods in the prior year.  The  improvement  in pre-tax
results in the three- and  six-month  periods as compared to the same periods in
the prior year  resulted  from  improved  operating  results from the  agronomy,
enterprise feed and grain  marketing  operations.  The  improvements to agronomy
pre-tax earnings of $200 (4%) and $3,000 (22%), respectively, resulted primarily
from  increased  sales and  product  margins  from the  result of a delay in the
spring 2000 planting season noted above. The improvements to enterprise feed and
grain  marketing  pre-tax  earnings of $500 (5%) and $1,900 (34%) for the three-
and six-month period ended December 23, 2000, as compared to the same periods in
the  prior  year,  are  substantially  due  to  improved  enterprise  feed  cost
management and the absence of grain marketing losses. (Grain marketing losses of
$1,800 were  incurred in the first quarter of the prior year,  principally  from
unauthorized speculative transactions previously disclosed.)

Country Products Group
----------------------
Country  Products Group (CPG) total sales and revenue of $44,800 and $89,900 for
the three and six months  ended  December 23,  2000,  decreased  $2,000 (4%) and
$3,000  (3%),  respectively,  as compared to the same periods in the prior year.
The decline in CPG sales for the three and six months  ended  December 23, 2000,
as compared to the prior year related  primarily from the Business Group,  where
sales decreased $3,000 (21%) and $6,100 (21%), respectively. The declines in the
Business  Group sales  resulted  principally  from lower  sunflower seed product
sales and the sale of the pastry  flour mill in the fourth  quarter of the prior
year that reduced sales in the three- and six-month  periods of the current year
by $1,300 and $2,500,  respectively.  A poor  sunflower seed crop in the fall of
1999 adversely impacted sunflower seed product sales during the first quarter of
this year and a combination of lower product demand,  low commodity  pricing and
international  pricing  competition  has lowered sales levels as compared to the
prior year for the new seed harvest. These decreases were partially offset by an
increase in the Produce Group sales of $1,600 (5%) and

                                       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)

Country Products Group (continued)
----------------------------------
$2,400 (4%),  respectively,  compared to the same periods in the prior year. The
increase in the Produce  Group sales  resulted  from a mixture of activity.  The
Investment  Group  sales  increased  $100  (6%)  and $600  (77%),  respectively,
primarily due to the commercial sale of Optigen(TM)  1200, a  controlled-release
nitrogen feed product,  which was not available  until the second quarter of the
prior year.

CPG  pre-tax  losses of $1,100 and  $3,400  for the three and six  months  ended
December 23, 2000,  increased  $200 (23%) and $2,700  (391%),  respectively , as
compared to the same periods in the prior year. The pre-tax  results  related to
the Business  Group declined $600 (303%) and $1,800  (208%),  respectively.  The
Business Group's sunflower operations continued to experience low margins due to
high product cost from the  carryover of the poor  sunflower  seed crop from the
fall of 1999 and also  experienced  lower margins than in the prior year for the
new seed harvest as a result of lower product demand,  excess industry capacity,
and global  competition  which has  suppressed  margins.  Although  the  pre-tax
results  related to the Produce Group  increased $200 (42%) for the  three-month
period  ended  December  23,  2000 due an  increase  in sales  volume of various
produce,  the six-month period ended December 23, 2000 pre-tax results decreased
$1,200  (68%) from the same period in the prior year.  Pre-tax  losses for CPG's
Investment  Group for the three- and six-month  periods ended  December 23, 2000
decreased  $400 (20%) and $1,000  (36%),  respectively,  as compared to the same
periods in the prior year.  The  decreases in pre-tax  losses are  primarily due
from revenues  generated in the current year from the commercial sale of Optigen
(TM) 1200.

Energy
------
Energy  sales and revenue of $222,500  and $371,900 for the three and six months
ended  December  31,  2000,   increased   $56,100  (34%)  and  $101,400   (38%),
respectively,  as compared to the same periods in the prior year.  Overall sales
dollar  increases  from liquid  product  volume  increases  were $3,900 (2%) and
$8,600  (3%)  during  the   three-month   period  and  the   six-month   period,
respectively,  as  compared to the same  periods in the prior  year.  The volume
increases  were  driven by higher  retail  volume of heating oil and propane and
higher  wholesale   gasoline  volumes.   The  petroleum  industry  continued  to
experience  high pricing of commodity  product in the quarter ended December 31,
2000,  primarily due to continued  pressure on global  supply of products.  As a
result of these market conditions, Energy experienced sales dollar increases due
to price increases in its liquid products of $50,000 (30%) and $83,000 (31%) for
the three and six months ended December 31, 2000,  respectively,  as compared to
the same periods in the prior year.  Additionally,  sales increases in the three
and six months  ended  December  31,  2000 of $2,100 and  $9,800,  respectively,
resulted  from the  continued  sales  growth in the  electric  and  natural  gas
marketing business and continued growth of revenues in the heating,  ventilation
and air-conditioning installation and service business.

Energy pre-tax earnings of $14,900 and $6,000 for the three and six months ended
December 31, 2000, increased $8,800 (144%) and $11,900 (202%), respectively,  as
compared  to the same  periods in the prior  year.  In the three- and  six-month
periods of the current year, overall gross margin dollars increased $8,100 (17%)
and $12,400  (17%),  respectively,  over the same  periods in the prior year and
were driven by the increase in liquid product volume,  particularly fuel oil and
propane,  due to the colder  weather  conditions in the Northeast in the current
year.

Leasing
-------
Total revenue of $21,500 and $42,000 for the three- and six-month  periods ended
December 31, 2000,  increased  $2,400 (13%) and $4,700 (13%),  respectively,  as
compared to the same periods in the prior year.  These  increases were primarily
due to a higher average  investment in leases which was offset by a lower income
rate on new and replacement  leases.  Telmark's average net investment in leases
increased  $81,800  (14%) in the  three-month  period and  $79,700  (13%) in the
six-month period as compared to the same periods in the prior year.


                                       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)

Leasing (continued)
-------------------
Pre-tax  earnings  from  operations  of $4,800  and $9,100 for the three and six
months  ended   December  31,  2000,   increased  $  300  (6%)  and  $700  (8%),
respectively, as compared to the same periods in the prior year. The increase in
pre-tax  earnings is due primarily to the total revenue  increases  noted above,
which were partially offset by an increase in total expenses of $2,100 (15%) for
the three months and $4,100 (14%) for the six months ended December 31, 2000, as
compared to the same periods in the prior year.  The increase in total  expenses
for both  periods was  substantially  due to  increased  interest  expense.  The
increase  in  interest  expense  is due to an  increase  in the  amount  of debt
required to finance the increase in the lease  portfolio as compared to the same
periods  in the  prior  year,  along  with  higher  interest  rates  on new  and
replacement debt.

Insurance
---------
Insurance  Group net revenues of $7,200 and $14,200 for the three and six months
ended  December 31, 2000  increased  $200 (3%) and $200 (1%),  respectively,  as
compared to the same periods in the prior year.  These changes were  experienced
in net earned  premiums  of the Agway  Insurance  Company  as sales  initiatives
caused the increase in net premiums.

Pre-tax  earnings of the Insurance  Group of $300 and $400 for the three and six
months ended December 31, 2000, increased $300 and $400, respectively,  over the
same  periods in the prior year.  The Agency  experienced  a pre-tax  break-even
position for the three and six months ended December 31, 2000,  which represents
an increase of $100 and $300,  respectively,  for the same  periods in the prior
year. The improvements in pre-tax earnings for both periods was primarily due to
lower expenses in the General Agency.  The Insurance  Company  pre-tax  earnings
increased $200 and $100 for the three and six months ended December 31, 2000, as
compared to the same periods in the prior year.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash  generated from  operations  and/or  external  borrowings are Agway's major
ongoing sources of funds to finance capital improvements, business acquisitions,
shareholder  dividends,  and a growing lease portfolio at Telmark. The following
is a summary of net cash flows for the six months ended:
<TABLE>
<CAPTION>
                                                                                December 23,     December 25,      Increase
                                                                                   2000             1999          (Decrease)
                                                                              ---------------   -------------   --------------
<S>                                                                           <C>               <C>             <C>
Net cash flows provided by (used in):
-------------------------------------
       Operating activities................................................   $       43,370    $     (7,503)   $      50,873
       Investing activities................................................          (40,956)        (54,539)          13,583
       Financing activities................................................          (17,790)         62,522          (80,312)
                                                                              ---------------   -------------   --------------
Net increase (decrease) in cash and equivalents............................   $      (15,376)   $        480    $     (15,856)
                                                                              ===============   =============   ==============
</TABLE>
Cash Flows Provided By Operating Activities
The increase in cash flows  provided by operating  activities for the six months
ended December 23, 2000, of $50,900 is  substantially  due to changes in working
capital. In the first six months of this year, working capital generated cash of
$30,500,  while the same period in the prior year working  capital used net cash
of $19,200.

Cash Flows Used in Investing Activities
The net cash  flows  used in  investing  activities  increased  in the first six
months of this year by $13,600 as  compared to the first six months of the prior
year.  Cash of  $5,000  was used  during  the first  half of the prior  year for
business acquisitions,  while no business acquisitions occurred during the first
six months of the current year. In addition, an $7,200 decrease in the amount of
cash used for the purchase of property, plant and equipment occurred through the
first six months of this year as compared to last year.  These declines were the
results of a decision by the Company to reduce  capital  spending in the current
year.

                                       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)


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

Cash Flows Provided  By (Used In) Financing Activities
Financing  activities  for the six months ended  December 23, 2000,  netted cash
used of $17,800  compared to cash provided of $62,500 for the same period in the
prior  year.  This  $80,300   decrease  in  cash  provided  from  financing  was
substantially  from decreased  short-term  borrowings as a result of the changed
requirements for cash for operations and investing activities.

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


Sources of longer-term financing include the following as of December 2000:
<TABLE>
<CAPTION>
                                                                                            AFC
                                                                              Agway     (excluding
                                                                               Inc.       Telmark)        Telmark         Total
                                                                           -----------  -------------   ------------   ------------
<S>                                                                        <C>          <C>             <C>            <C>
Source of debt
Banks - due 2/01 to 4/04, interest at a weighted average
   rate of 6.8% with a range of 5.6% - 8.6% ............................   $        0   $        175    $   136,000    $   136,175
Insurance companies - due 1/01 to 12/12, interest at a
   weighted average rate of 7.1% with a range of
   6.5% - 9.1%..........................................................            0              0        267,306        267,306
Capital leases and other - due 2001 to 2018, interest at a
   weighted average rate of 9.3% with a range of 7.5% to 10%                   11,199          2,165              0         13,364
                                                                           -----------  -------------   ------------   ------------
      Long-term debt....................................................       11,199          2,340        403,306        416,845
Subordinated  money  market  certificates  - due 10/01 to 10/15,
 interest  at a  weighted average rate of 8.0% with a range of
   4.5% - 9.8%..........................................................            0        401,467              0        401,467
Subordinated debentures - due 3/01 to 3/09, interest at a
   weighted average rate of 8.0% with a range of 6.0%
   to 9.0%..............................................................            0          6,982         39,906         46,888
                                                                           -----------  -------------   ------------   ------------
      Total debt........................................................   $   11,199   $    410,789    $   443,212    $   865,200
                                                                           ===========  =============   ============   ============
</TABLE>
For a further  description  of the  Company's  credit  facilities  available  at
December  23,  2000,  see  Note  3  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 Energy, Agriculture,  and Country Products Group
businesses.  To  manage  the  risk of  market  price  fluctuations,  Agway  uses
commodity derivative instruments,  including  exchange-traded futures and option
contracts and, in limited circumstances,  over-the-counter  contracts with third
parties (commodity  instruments).  Agway has policies with respect to the use of
these  commodity  instruments  that specify what they are to be used for and set
limits on the maturity of contracts entered into and the level of exposure to be
outstanding in relation to the value of the commodity.

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

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

                                                       December
                                             -----------------------------
                                                  2000            1999
                                             ------------     ------------
Energy.....................................  $      3,400     $       700
Country Products Group.....................          *             -
Agriculture................................          *             *
Grain Marketing (1)........................          -             *

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

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



                                       23

<PAGE>



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


Item 1.  Legal Proceedings
--------------------------
Agway and its  subsidiaries  are not  involved  in any  material  pending  legal
proceedings  other than ordinary routine  litigation  incidental to the business
except the following:

In August  1994,  the  Environmental  Protection  Agency  (EPA)  notified  Motor
Transportation Services, Inc. (MTS), a dissolved wholly owned subsidiary of AHI,
that the EPA has reason to believe that MTS is a potentially  responsible  party
(PRP)  under  the  Comprehensive  Environmental  Response,   Compensation,   and
Liability Act (CERCLA) at the Rosen Site, Cortland,  New York. The EPA requested
that   MTS   and   other   PRPs    participate    in   the   ongoing    Remedial
Investigation/Feasibility Study (RI/FS) for the Rosen Site. In a related matter,
other PRPs at the Rosen Site, Cooper Industries, Inc., et al., filed a complaint
under CERCLA against Agway,  MTS and other alleged PRPs at the Rosen Site in the
U.S.  District  Court,  Northern  District  of New York,  in June 1992,  seeking
reimbursement  for the cost of the ongoing  RI/FS.  In January 2001, the parties
agreed to a voluntary dismissal of this lawsuit. In March 1998, the EPA issued a
unilateral  administrative  order to the PRPs,  including  Agway and MTS,  for a
removal action at the Rosen Site.  Agway and MTS have notified the EPA that they
will comply with the order by cooperating with the other PRPs to assure that the
removal  action  is  performed.  In  addition,  Agway  and MTS have  offered  to
cooperate  with the other PRPs in performing a Remedial  Design/Remedial  Action
(RD/RA) for the site in accordance  with the Record of Decision  (ROD) issued by
the EPA and a Consent Decree has been entered by the Court as of May 1999. Agway
currently has accrued its best estimate  relative to the cost of any  additional
assessment,  containment, removal or remediation actions regarding the property.
However,  it is reasonably  possible  that the results of ongoing  and/or future
environmental studies or other factors could alter this estimate and require the
recording of additional liabilities.  The extent or amount of such events cannot
be estimated at this time.  However,  Agway  believes  that its past  experience
provides a reasonable basis for its estimates recorded for this matter.

In  December  1985,  it  was  asserted  by  the   Massachusetts   Department  of
Environmental  Protection  (MDEP) that certain real  property  located in Acton,
Massachusetts,  previously owned by Agway is contaminated and that Agway and the
subsequent  owner of the property are responsible for the cost of  investigating
and cleaning up environmental  contamination at the property. In September 1993,
Agway  entered into an  Administrative  Consent  Order with the MDEP pursuant to
which Agway performed a phase II comprehensive  site assessment.  In March 1995,
Agway and the subsequent owner entered into a settlement agreement whereby Agway
agreed, at Agway's expense, to complete any additional assessment,  containment,
removal or remediation  actions at the property.  The subsequent owner agreed to
cooperate with Agway in achieving a permanent solution  satisfactory to the MDEP
and in compliance with the MDEP's requirements. Agway prepared a risk assessment
scope  of work  that was  approved  by the  MDEP,  and the  MDEP  also  approved
reclassification  of  the  site.  Agway  finalized,  in  April  1998,  its  risk
characterization  and remedial action plan reports and, in July 1998, its remedy
implementation plan report.  Pursuant to the remedy  implementation  plan, Agway
completed  activities   associated  with  the  installation  of  an  impermeable
vegetated  surface cover system in October 1998, and  implemented a ground water
monitoring  program  and an  activity  and use  limitation.  In June  2000,  the
subsequent  owner of the property  transferred it to a new owner.  The new owner
agreed to cooperate  with Agway in complying  with the MDEP's  requirements.  In
addition,   Agway   negotiated   a   resolution   of   MDEP's   claim  for  past
response/oversight  costs and  interest  related to the site.  In January  2001,
Agway submitted to the MDEP a statement that a condition of no significant  risk
exists  at  the  site  based  on  current  and  foreseeable  future  conditions.
Therefore,  Agway  believes the remedial  activities at the site have attained a
permanent  solution under MDEP's  requirements.  Agway currently has accrued its
best estimate  relative to the cost of any additional  assessment,  containment,
removal or remediation actions regarding the property. However, it is reasonably
possible  that the results of ongoing  and/or  future  environmental  studies or
other  factors could alter this estimate and require the recording of additional
liabilities.  The extent or amount of such events  cannot be  estimated  at this
time.  However,  Agway believes that its past  experience  provides a reasonable
basis for its estimates recorded for this matter.




                                       24

<PAGE>



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


Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its annual  meeting of  shareholders  on October 17,  2000,  at
which a quorum was present in person or by proxy.  The following  Directors were
elected to three-year terms through November 2003:

<TABLE>
<CAPTION>

           Nominee                           In Favor                           Opposed
------------------------------     -----------------------------     -----------------------------
<S>                                           <C>                                <C>
Jeffrey B. Martin                             49,951                             1,973
Samuel F. Minor                               49,951                             1,973
Gary K. Van Slyke                             49,951                             1,973
Edwin C. Whitehead                            49,951                             1,973
Dennis C. Wolff                               49,951                             1,973
</TABLE>

Eligible  additional  votes totaling 18,087 were not received at the time of the
annual  meeting  and are not  included  as  either  votes in  favor or  opposed.
Additionally,   these  18,087  eligible   additional  votes  may  be  considered
abstentions  and were not included for purposes of  determining  a quorum at the
annual meeting.

The following is a list of Directors  whose terms as Directors  continued  after
the October 17, 2000, Annual Meeting:

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


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
Agway filed a report on Form 8-K on December 14, 2000,  announcing  the approval
of a plan to realign the Agriculture segment of Agway's business.

Agway filed a report on Form 8-K on January 11,  2001,  announcing a new process
for nominating and electing the Board of Directors.





                                       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    February 6, 2001                /s/ PETER J. O'NEILL
     ----------------------    ---------------------------------------
                                          Peter J. O'Neill
                                       Senior Vice President,
                                         Finance & Control,
                                  (Principal Financial Officer and
                                      Chief Accounting Officer)











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