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


(Mark One)
 X  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934
For the quarterly period ended September 30, 1996
                               ------------------
                                       OR

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

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


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


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


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




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



           Class                             Outstanding at November 8, 1996
--------------------------------             -------------------------------
Membership Common Stock, $25 par                      106,853 shares
value per share



                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>


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

           Item 1.  Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of September 30, 1996 and June 30, 1996.....................  3

           Condensed Consolidated Statements of Operations and Retained Margin for the three months
           ended September 30, 1996 and September 30, 1995......................................................  4

           Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1996
           and September 30, 1995...............................................................................  5

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

           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations....... 11


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

           Item 1.  Legal Proceedings..........................................................................  15

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


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

</TABLE>













                                        2

<PAGE>



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

                                                                   September 30,   June 30,
                                                                      1996           1996
                                                                   ------------- ----------
                                                                    (Unaudited) 
<S>                                                                 <C>          <C> 
ASSETS
------                                                              
Current Assets:
     Trade accounts receivable (including notes receivable of
       $36,151 and $35,182, respectively), less allowance for
       doubtful accounts of $10,054 and $10,062, respectively ...   $  173,127   $  207,304
     Leases receivable, less unearned income of $49,235 and
       $48,403, respectively ....................................      105,637      105,374
     Advances and other receivables .............................       34,017       35,914
     Inventories:
       Raw materials ............................................       11,777       16,161
       Finished goods ...........................................      136,075      128,770
       Goods in transit and supplies ............................        9,186       12,587
                                                                    ----------   ----------
         Total inventories ......................................      157,038      157,518
     Prepaid expenses ...........................................       54,625       58,380
                                                                    ----------   ----------
         Total current assets ...................................      524,444      564,490

Marketable securities available for sale ........................       35,238       34,115
Other security investments ......................................       43,959       42,406
Properties and equipment, net ...................................      227,562      237,015
Long-term leases receivable, less unearned income of
  $75,515 and $75,828, respectively .............................      279,307      268,815
Net pension asset ...............................................       88,430       85,181
Other assets ....................................................       11,379       12,249
                                                                    ----------   ----------
         Total assets ...........................................   $1,210,319   $1,244,271
                                                                    ==========   ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable ..............................................   $   79,100   $   62,200
     Current installments of long-term debt and subordinated debt      111,542      108,896
     Accounts payable ...........................................      100,432      117,457
     Other current liabilities ..................................       96,645      120,099
                                                                    ----------   ----------
         Total current liabilities ..............................      387,719      408,652

Long-term debt ..................................................      184,325      197,413
Subordinated debt ...............................................      413,475      400,284
Other liabilities ...............................................       65,744       66,664
                                                                    ----------   ----------
     Total liabilities ..........................................    1,051,263    1,073,013
Shareholders' equity:
  Preferred stock, net ..........................................       57,906       59,319
  Common stock, net .............................................        2,674        2,689
  Retained margin ...............................................       98,476      109,250
                                                                    ----------   ----------
     Total shareholders' equity .................................      159,056      171,258
                                                                    ----------   ----------
Commitments and contingencies
         Total liabilities and shareholders' equity .............   $1,210,319   $1,244,271
                                                                    ==========   ==========
</TABLE>







     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



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

                                                                       Three Months Ended
                                                                          September 30,
                                                                     ----------------------
                                                                        1996         1995
                                                                     ---------    ---------
<S>                                                                  <C>          <C> 
Net sales and revenues from:
     Product sales ...............................................   $ 333,179    $ 306,522
     Leasing operations ..........................................      12,962       11,214
     Insurance operations ........................................       6,043        6,887
                                                                     ---------    ---------
         Total net sales and revenues ............................     352,184      324,623

Cost and expenses from:
     Products and plant operations ...............................     318,780      290,124
     Leasing operations ..........................................       5,956        5,257
     Insurance operations ........................................       3,952        4,791
     Selling, general and administrative activities ..............      32,929       33,480
                                                                     ---------    ---------
         Total costs and expenses ................................     361,617      333,652

Operating loss ...................................................      (9,433)      (9,029)
Interest expense, net ............................................      (6,559)      (6,920)
Other income, net ................................................         973        1,961
                                                                     ---------    ---------
Loss from continuing operations before income taxes ..............     (15,019)     (13,988)
Income tax benefit ...............................................       4,165        3,527
                                                                     ---------    ---------
Loss from continuing operations ..................................     (10,854)     (10,461)

Discontinued operations:

     Loss on disposal of Hood, net of tax expense of $39 .........                     (268)
                                                                     ---------    ---------
Net loss .........................................................   $ (10,854)   $ (10,729)

Retained Margin:
     Balance at beginning of period ..............................     109,250      102,532
     Adjustment to unrealized gains (losses) on available-for-sale
         securities, net of tax ..................................          80          (13)
                                                                     ---------    ---------
Balance at end of period .........................................   $  98,476    $  91,790
                                                                     =========    =========
</TABLE>















     See accompanying notes to condensed consolidated financial statements.
                                        4

<PAGE>



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

<TABLE>
<CAPTION>

                                                                 Three Months Ended
                                                                    September 30,
                                                               ---------------------
                                                                  1996        1995
                                                               ---------   ---------

<S>                                                            <C>         <C>     
Net cash flows (used in) provided by operating activities ..   $ (7,584)   $  8,498

Cash flows (used in) provided by investing activities:
     Purchases of property, plant and equipment ............     (1,898)     (3,444)
     Proceeds from disposal of businesses ..................      5,234
     Proceeds from disposal of property, plant and equipment      3,249       1,314
     Leases originated .....................................    (39,714)    (33,889)
     Leases repaid .........................................     27,298      20,732
     Proceeds from sale of marketable securities ...........      2,410       3,947
     Purchases of marketable securities ....................     (3,453)     (2,283)
     Net purchase of investments in related cooperatives ...     (1,553)        (46)
     Net changes in net assets of discontinued operations ..                   (390)
                                                               --------    --------

Net cash flows used in investing activities ................     (8,427)    (14,059)


Cash flows (used in) provided by financing activities:
     Net change in short-term borrowings ...................     16,900      14,200
     Proceeds from long-term debt ..........................      7,541         572
     Repayment of long-term debt ...........................    (17,840)    (10,260)
     Proceeds from sale of subordinated debt ...............     19,612      19,496
     Maturity and redemption of subordinated debt ..........     (6,343)    (13,273)
     Redemption of stock ...................................     (1,432)     (2,763)
     Cash dividends paid ...................................     (2,210)     (2,410)
     Other .................................................       (217)         (1)
                                                               --------    --------

Net cash flows provided by financing activities ............     16,011       5,561
                                                               --------    --------


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


Cash and equivalents at end of period ......................   $      0    $      0
                                                               ========    ========
</TABLE>












     See accompanying notes to condensed consolidated financial statements.
                                        5

<PAGE>



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

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
     Basis of Presentation
     The accompanying  unaudited condensed  consolidated financial statements of
     Agway Inc. (the  "Company") have been prepared in accordance with generally
     accepted accounting  principles for interim financial  information and with
     the   instructions   to  Form  10-Q  and  Article  10  of  Regulation  S-X.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by generally accepted accounting principles for complete financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal recurring  accruals)  considered  necessary for a fair  presentation
     have been  included.  Operating  results for the  three-month  period ended
     September 30, 1996 are not  necessarily  indicative of the results that may
     be expected for the year ending June 30, 1997 due to the seasonal nature of
     certain major segments of the Company's business.  For further information,
     refer to the consolidated  financial  statements and notes thereto included
     in the annual report on Form 10-K for the year ended June 30, 1996.

     Impairment of Long-Lived Assets
     In March 1995,  SFAS No. 121,  "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to Be Disposed Of," was issued.  Statement
     No.  121  requires  impairment  losses  to  be  measured  and  recorded  on
     long-lived  assets used in operations  when  indicators  of impairment  are
     present and the undiscounted  cash flows estimated to be generated by those
     assets are less than the assets'  carrying  amount.  Statement No. 121 also
     addresses  the  accounting  for  long-lived  assets that are expected to be
     disposed of. The Company adopted  Statement No. 121 as of July 1, 1996, the
     effect of which was approximately a $1,700 charge against pre-tax earnings.

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


                                        6

<PAGE>



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

        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 the
     Company whose principal  business  activity is securing  financing  through
     bank borrowings and issuance of corporate debt instruments to provide funds
     for the Company and AFC's sole wholly owned subsidiary, Agway Holdings Inc.
     (AHI), and AHI's subsidiaries,  for general corporate purposes. The payment
     of principal  and interest on this debt is absolutely  and  unconditionally
     guaranteed by the Company. In an exemptive relief granted pursuant to a "no
     action  letter"  issued  by  the  staff  of  the  Securities  and  Exchange
     Commission,  AFC, as a separate  company,  is not required to file periodic
     reports with respect to these debt securities.  However, as required by the
     1934  Act,  the  summarized  financial   information   concerning  AFC  and
     Consolidated Subsidiaries is as follows:
<TABLE>
<CAPTION>

                                                                             Three Months Ended
                                                                                September 30,
                                                                       ---------------------------
                                                                            1996           1995
                                                                       ------------   ------------
<S>                                                                    <C>            <C>        
Net sales and revenues .............................................   $   239,482    $   221,429
Operating loss .....................................................        (1,267)        (1,042)
Loss from continuing operations ....................................        (2,816)        (7,433)
Net loss ...........................................................        (2,816)        (7,701)


                                                                       September 30,     June 30,
                                                                            1996           1996
                                                                       ------------   ------------
Current assets .....................................................   $   518,201    $   530,547
Properties and equipment, net ......................................       162,737        166,504
Noncurrent assets ..................................................       364,245        353,377
                                                                       -----------    -----------
    Total assets ...................................................   $ 1,045,183    $ 1,050,428
                                                                       ===========    ===========

Current liabilities ................................................   $   226,840    $   227,781
Long-term debt .....................................................       178,211        191,189
Subordinated debt ..................................................       413,475        400,284
Noncurrent liabilities .............................................        15,226         17,006
Shareholder's equity ...............................................       211,431        214,168
                                                                       -----------    -----------
Total liabilities and shareholder's equity .........................   $ 1,045,183    $ 1,050,428
                                                                       ===========    ===========
</TABLE>


                                        7

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS
     ----------------------
     Agway and AFC
     As of September 30, 1996, the Company had certain facilities available with
     various banking  institutions  whereby lenders have agreed to provide funds
     up to $254,000 to separately financed units of the Company as follows:  AFC
     - $50,000 and Telmark - $204,000. In addition,  AFC may issue up to $50,000
     of commercial  paper under the terms of a separate  agreement,  backed by a
     letter of credit.

     The  $50,000  line of  credit  available  to AFC and its  ability  to issue
     $50,000 of commercial paper require  collateralization using certain of the
     Company's accounts receivable and non-petroleum inventories ("collateral").
     Amounts which can be drawn under the AFC short-term  agreements are limited
     to a specific  calculation  based upon the collateral  available.  Adequate
     collateral  has existed  throughout the fiscal year to permit AFC to borrow
     amounts  to meet  the  ongoing  needs of the  Company  and is  expected  to
     continue to do so. In addition,  the agreements  include certain covenants,
     the most  restrictive  of which  requires the Company to maintain  specific
     quarterly  levels of  interest  coverage  and  monthly  levels of  tangible
     retained  margins.  The amounts  outstanding as of September 30, 1996 under
     AFC's $50,000 line of credit and $50,000  commercial paper were $10,900 and
     $50,000,  respectively. In November 1996, the Company renegotiated its line
     of credit facility to extend the  availability  through January 1, 1998 and
     to provide seasonal increases in the line of credit which will be available
     so that total  availability  under  AFC's line of credit  will  increase to
     $60,000 at June 1, 1997 and  $75,000 at  October  1,  1997.  The  Company's
     commercial  paper  program,  which expires  December 31, 1996, is currently
     being  renegotiated  so that it  parallels  the changes made to the line of
     credit   facility.   The  Company   expects  that  these  changes  will  be
     successfully  renegotiated.  The Company has ongoing  discussions  with its
     lenders and expects to continue to have appropriate and adequate  financing
     to meet its ongoing needs.

     Annually,  Agway and AFC offer  subordinated  debentures  and  subordinated
     money market  certificates to the public. Of Agway's and AFC's subordinated
     debt at September  30, 1996,  $382,213 is redeemable in whole or in part at
     the principal amount plus accrued interest, prior to maturity dates, at the
     option  of  the  Company.   The  foregoing  debt  bears  interest   payable
     semi-annually  on  January  l and July 1 of each  year.  The  money  market
     certificates'  interest rate is at the greater of the quoted rate or a rate
     based upon the discount  rate for U. S.  Government  Treasury  Bills,  with
     maturities of 26 weeks.  In October  1996,  $14,700 of  subordinated  money
     market certificates issued by AFC matured.  The Company has refinanced this
     debt  through  the  issuance  of  subordinated  debt  and  short-term  bank
     borrowings.

     Telmark
     As of  September  30,  1996,  Telmark had two  separate  credit  facilities
     available  from banks which allow  Telmark to borrow up to an  aggregate of
     $204,000.  An  uncommitted  short-term  line of  credit  agreement  permits
     Telmark to borrow up to $4,000 on an  unsecured  basis with  interest  paid
     upon maturity.  The line bears interest at money market  variable  rates. A
     committed  $200,000 partially  collateralized  revolving term loan facility
     permits Telmark to draw short-term  funds bearing  interest at money market
     rates or draw long-term debt at rates  appropriate for the term of the note
     drawn.  The total amounts  outstanding as of September 30, 1996,  under the
     short-term  line of credit and the revolving term loan facility were $4,000
     and $156,200, 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 $4,000
     line of credit has been renewed  through  December  31, 1996.  The $200,000
     revolving  term agreement  loan facility is available  through  February 1,
     1998.

     At September 30, 1996,  Telmark also had balances  outstanding on unsecured
     senior  note  private  placements  totaling  $121,333.  Interest is payable
     semiannually  on each senior note.  Principal  payments are both semiannual
     and annual. The note agreements are similar to one another and each contain
     specific financial covenants.

                                        8

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     Telmark (continued)
     Telmark has registered with the SEC two shelf offerings of debentures.  The
     debentures are unsecured,  subordinated to all senior debt at Telmark,  and
     are not  guaranteed  by Agway nor any of Agway's  other  subsidiaries.  The
     interest on the debt is payable quarterly on January 1, April 1, July 1 and
     October 1. The offering of debentures is continuing and the proceeds of the
     offerings  will  be  used  to  provide   financing  for  Telmark's  leasing
     activities.

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

     Long-term  and  subordinated  debt  outstanding  at September  30, 1996, as
     compared to June 30, 1996, amounted to:
<TABLE>
<CAPTION>

                             Agway & AFC            Telmark                Total
                        -------------------   -------------------   -------------------
                           9/96       6/96      9/96       6/96       9/96       6/96
                        --------   --------   --------   --------   --------   --------
<S>                     <C>        <C>        <C>        <C>        <C>        <C>     
Long-term debt ......   $ 17,673   $ 18,666   $263,473   $273,000   $281,146   $291,666
Currently payable ...      6,033      6,065     90,788     88,188     96,821     94,253
                        --------   --------   --------   --------   --------   --------
Net long-term debt ..   $ 11,640   $ 12,601   $172,685   $184,812   $184,325   $197,413
                        ========   ========   ========   ========   ========   ========

Subordinated debt ...   $401,666   $390,669   $ 26,530   $ 24,258   $428,196   $414,927
Currently payable ...     14,721     14,643                           14,721     14,643
                        --------   --------   --------   --------   --------   --------
Net subordinated debt   $386,945   $376,026   $ 26,530   $ 24,258   $413,475   $400,284
                        ========   ========   ========   ========   ========   ========

</TABLE>



                                        9

<PAGE>

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

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

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

     The Company  continually  monitors its operations with respect to potential
     environmental  issues,  including changes in legally mandated standards and
     remediation   technologies.   Agway's  recorded  liability  reflects  those
     specific  issues where  remediation  activities are currently  deemed to be
     probable and where the cost of remediation  is estimable.  Estimates of the
     extent of the Company's degree of  responsibility  relating to a particular
     site and the method and ultimate  cost of  remediation  require a number of
     assumptions  for  which  the  ultimate  outcome  may  differ  from  current
     estimates.  At September 30, 1996, the Company had been designated as a PRP
     under CERCLA or as a third party to the original PRPs in several  Superfund
     sites.  The liability  under CERCLA is joint and several,  meaning that the
     Company  could  be  required  to pay in  excess  of its pro  rata  share of
     remediation costs. The Company's understanding of the financial strength of
     other PRPs at these Superfund sites has been considered, where appropriate,
     in the  Company's  determination  of its estimated  liability.  The Company
     believes  that  its  past  experience   provides  a  reasonable  basis  for
     estimating  its liability.  As additional  information  becomes  available,
     estimates are adjusted as necessary.  While the Company does not anticipate
     that any such adjustment would be material to its financial statements,  it
     is  reasonably   possible   that  the  result  of  ongoing   and/or  future
     environmental  studies or other  factors could alter this  expectation  and
     require the  recording of additional  liabilities.  The extent or amount of
     such events,  if any,  cannot be estimated at this time.  The settlement of
     the reserves  established will cause future cash outlays over approximately
     five years based upon current  estimates,  and it is not expected that such
     outlays will materially impact the Company's liquidity position.

     As part of its  long-term  environmental  protection  program,  the Company
     estimates that during fiscal 1997 and 1998 approximately  $1,300 and $3,700
     per year will be spent, respectively, on capital projects for environmental
     protection.  These  estimates  include the additional  capital  required to
     comply with EPA  Underground  Storage  Tank (UST)  regulations  that become
     effective  in  December  1998.  Presently,  the  total  additional  capital
     required  to  comply  with  the  EPA UST  regulations  is  estimated  to be
     approximately  $3,700. The total capital requirements may change due to the
     actual number of USTs actively in use on the effective date.

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

5.   SUBSEQUENT EVENT
     ----------------
     On October 31, 1996,  the Company's  Country  Products  Group (CPG) entered
     into  an  agreement  with  five  other  cooperative  organizations  to form
     Pro-Pet,  L.L.C.,  of which CPG will be a one-sixth  owner.  As part of the
     formation of this joint venture, CPG sold its pet food manufacturing brands
     and  business,  including  its St.  Marys,  Ohio,  pet food  plant,  to the
     venture.  The  proceeds  from  the  sale,  net of a  reinvestment  into the
     venture,  totaled  approximately  $7,500,  and the gain on sale  was  fully
     offset by losses  experienced  from the  closing of a second pet food plant
     that had also been a part of Agway's pet food manufacturing business. Agway
     will  continue to purchase its pet food product from Pro-Pet,  L.L.C.,  and
     this change in manufacturing  ownership will not materially  affect Agway's
     retail pet food business.

                                       10
<PAGE>
                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

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

RESULTS OF OPERATIONS
---------------------
The  Company's net sales and revenues and  operating  results are  significantly
impacted by seasonal  fluctuations  due to the nature of its  operations and the
geographic  location of its service area,  which is primarily  the  Northeastern
United States.  Agriculture and Retail net sales and revenues are  traditionally
higher in the spring as  customers  acquire  products  to  initiate  the growing
season.  Energy  realizes  significantly  higher net sales and  revenues  in the
winter  months due to cold  winter  conditions.  Leasing and  Insurance  are not
materially impacted by seasonal fluctuations.

                          Results by Operating Segment
                          ----------------------------
<TABLE>
<CAPTION>
                                                                   Three Months Ended
                                                          ------------------------------------ 
                                                                                    $ Increase
                                                           9/30/96      9/30/95     (Decrease)
                                                          ----------   ----------   ----------
<S>                                                       <C>          <C>          <C>
Net Sales and Revenues
----------------------
Agriculture ...........................................   $ 168,862    $ 164,457    $   4,405
Retail ................................................      63,096       58,445        4,651
Energy ................................................     107,943       97,479       10,464
Leasing ...............................................      13,317       11,526        1,791
Insurance .............................................       6,314        7,243         (929)
Other (a) .............................................      (7,348)     (14,527)       7,179
                                                          ---------    ---------    ---------
                                                          $ 352,184    $ 324,623    $  27,561
                                                          =========    =========    =========
Margin (Loss) from Continuing Operations
----------------------------------------
   before Income Taxes
   -------------------
Agriculture ...........................................   $  (8,739)   $  (6,506)   $  (2,233)
Retail ................................................         687          134          553
Energy ................................................      (4,898)      (4,772)        (126)
Leasing ...............................................       2,785        2,434          351
Insurance .............................................         (64)         (29)         (35)
Other...............................................(a)       1,769        1,671           98
                                                          ---------    ---------    ---------
Operating margin (loss) plus other income, net ........      (8,460)      (7,068)      (1,392)
Interest (expense), net of interest income ............      (6,559)      (6,920)         361
                                                          ---------    ---------    ---------
                                                          $ (15,019)   $ (13,988)   $  (1,031)
                                                          =========    =========    =========
</TABLE>
(a) Represents unallocated corporate items and intersegment eliminations.

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

Consolidated Results
--------------------
The sales  increase of $27,600  (9%) for the first  quarter of fiscal  1997,  as
compared to the first  quarter in the prior  year,  was the result of (1) higher
sales prices charged by Agway Agricultural  Products (AAP) for feed products and
by Energy for heating oil due to an increase in the cost of these products;  (2)
delayed spring sales of crop-related services; (3) volume increases in pet food,
bird seeds and lawn & garden seeds; and (4) increased  revenues as the result of
a higher  average net lease  investment at Telmark.  These  increases were after
considering  sales declines due to the sale of businesses of CPG during 1996 and
the first quarter of 1997.

Loss from continuing  operations before tax increased $1,000 (7%) to $15,000 for
the first  quarter of 1997 as compared  to the first  quarter in the prior year.
The operating results from ongoing operations improved $1,000.  However,  during
the first quarter of 1997, the adoption of a new accounting pronouncement on the
impairment of long-lived  assets  negatively  impacted  results by approximately
$1,700,  and one-time  net charges for the exiting of the pet food  business and
the transfer of ARS distribution center management totaled approximately $1,000.
These charges were partially offset by improved  operational results experienced
by CPG due to divested lines of business not incurring  losses in fiscal 1997 as
they had done in the first quarter of the prior year.

                                       11
<PAGE>



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

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


Agriculture
-----------
Agriculture  consists  of Agway  Agricultural  Products  (AAP)  and the  Country
Products  Group (CPG).  Total net sales and  revenues  for the first  quarter of
fiscal 1997 of $168,900  increased  $4,400 (3%) as compared to the first quarter
of fiscal 1996.  This increase  resulted  from a $14,300  (13%)  increase in AAP
sales in the first quarter of fiscal 1997, as compared to the same period during
the prior year, as a result of increased  feed product prices and delayed spring
sales of crop-related services which increased the first quarter 1997 sales. The
AAP sales increase was offset by CPG  experiencing  an overall  decline in total
net sales and revenues of $9,900 (19%) in the first  quarter of 1997 as compared
to the same period during the prior year. The reduction represents the effect on
sales  volume from lines of business  sold during  fiscal 1996,  which  included
Pro-Lawn,  laboratory  animal diet and  Sacramento  Valley  Milling,  as well as
Roberts  Seed  which  was  sold in the  first  quarter  of  fiscal  1997.  These
divestitures were part of CPG's strategic plan. These reductions in sales levels
at CPG were  partially  offset by the improved  volumes in CPG's ongoing  flour,
bean,  produce  and  sunflower  operations  during the first  quarter of 1997 as
compared to the first quarter of the prior year.

The net loss before income taxes of Agriculture increased $2,200 (34%) to $8,800
for the first  quarter of 1997 as compared  to the same period  during the prior
year. AAP's net loss before income taxes of $8,700 for the first quarter of 1997
is  $1,100  (15%)  higher  than the same  period  during  the  prior  year.  AAP
enterprise operations  experienced  significantly  improved operating results in
the first quarter of 1997, as compared to the same period during the prior year,
which  were more than  offset  by  decreased  gross  margins,  due to  increased
commodity costs and adverse  experience with  exchange-traded  futures,  and the
impact  of  adopting  a  new  accounting  pronouncement  on  the  impairment  of
long-lived  assets.  CPG  experienced a $100 loss for the first quarter of 1997,
which is a $1,100  (106%)  decline from a $1,000  margin in the first quarter of
the prior year. This decline was  attributable to the decision to sell CPG's pet
food  manufacturing  brands and business and the associated net asset write-down
and other  one-time  costs.  These  charges  were  partially  offset by improved
operating results from having divested of businesses that incurred losses in the
first  quarter of the prior  year.  The  operating  results  from CPG's  ongoing
businesses  on a combined  basis  resulted  in  positive  results  for the first
quarter of 1997, consistent with the prior year.

Retail
------
Total net sales and revenues for Agway Retail  Services (ARS)  increased  $4,700
(8%) to  $63,100  during  the first  quarter  of 1997 as  compared  to the first
quarter of the prior year. This increase was the result of increases in sales of
pet food,  bird seeds and lawn & garden seeds.  The sales of these products were
enhanced by a trade show held in June 1996,  where no such show was held at that
time in the prior year.  Additionally,  this increase is after  considering  the
declines in sales  associated with planned product mix changes that reduced high
dollar  value/lower  margin  power  equipment in favor of smaller per unit value
products with higher turnover and margins.

The margin before taxes of $700 represents a $600 increase in results during the
first quarter of 1997 as compared to the first  quarter of the prior year.  This
increase was  attributable  to improved  margins through product mix and pricing
strategies which have changed since the prior year as noted above.  These margin
improvements were partially offset by overall  increases in expenses.  Increases
in  manufacturing  and  administrative  expenses were  experienced  in the first
quarter of 1997, as compared to the same period in the prior year, partly due to
one-time  costs  associated  with  the  transfer  of  ARS  distribution   center
management to a third party vendor.  These  one-time costs were greater than the
reductions  in  selling  and  distribution  expense  experienced  from  improved
management of these costs.








                                       12

<PAGE>



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

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


Energy
------
Net sales and  revenues  increased  $10,500  (11%) to $107,900  during the first
quarter of fiscal 1997 as compared to the same period during the prior year. The
increase was  attributable  to 10%-12% price  increases in heating oils,  diesel
fuel and  propane in the first  quarter of 1997 as  compared  to the same period
during the prior year. These price increases resulted from strong demand and low
inventories  in the  marketplace.  The unit volume for all products in the first
quarter of 1997 increased 2% over the same period during the prior year.

Energy's operating loss of $4,900 in the first quarter of 1997 represents a $100
(3%) increase over the first quarter of the prior year. A slight  improvement in
gross  margins  and an  increase  in other  revenues  was more  than  offset  by
increased operating expenses during the first quarter of 1997 as compared to the
same period in the prior year.

Leasing
-------
Total  revenues for Telmark for the first  quarter of 1997 of $13,300  increased
$1,800 (16%) as compared to the first  quarter of the prior year.  The increased
revenues were the result of a higher average net investment in leases during the
first  quarter  of 1997 as  compared  to the first  quarter  of the prior  year.
Telmark's  investment in net leases and notes of $385,000 at September 30, 1996,
is an increase of $40,600 (12%) from September 30, 1995.

Telmark's  operating income for the first quarter of 1997 of $2,800 represents a
$400 (15%) improvement over the first quarter of the prior year. The increase is
due primarily to the larger lease  portfolio in the first quarter of fiscal 1997
as compared to the first quarter in the prior year. Revenues associated with the
larger portfolio grew at a faster rate than the level of expenses.

Insurance
---------
Net revenues (earned premiums) of Insurance totaled $6,300 for the first quarter
of 1997,  which  represents a $900 (13%)  decline from the first  quarter of the
prior year. The decline is the result of increased reinsurance costs required to
limit the Company's potential loss experience.

Insurance  operating loss totaled $64 for the first quarter of 1997,  which is a
$35 (123%)  increase from the first  quarter of the prior year.  Losses and loss
development  significantly  improved  in  the  first  quarter  of  fiscal  1997,
decreasing  approximately  18% over the first  quarter of the prior  year.  This
improvement, however, was offset by the lower net earned premiums and a decrease
in capital gains on investment sales in the first quarter of 1997 as compared to
the first quarter in the prior year.


                                       13

<PAGE>



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

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


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash Flows from Operating Activities
Cash flows from operating  activities  for the three months ended  September 30,
1996  decreased  approximately  $16,000 as  compared to the three  months  ended
September  30,  1995.  The decline in operating  cash flows,  as compared to the
prior year,  resulted  principally  from  fluctuations  in working capital items
(more specifically, inventory and other assets and liabilities).

Cash Flows from Investing Activities
Net cash flows used in the Company's investing activities totaled  approximately
$8,400 for the three months ended September 30, 1996, as compared to $14,100 for
the three months ended  September  30, 1995.  The Company has a growing  leasing
business and cash required to fund lease  origination  growth in excess of lease
repayments  and leases  sold  amounted  to $12,400  for the three  months  ended
September  30, 1996 and $13,200 for the three months ended  September  30, 1995.
Additionally,  proceeds of $5,200  from  business  sold during the three  months
ended  September  30, 1996 were a source of cash that was not  generated  in the
same period in the prior year.

Cash Flows from Financing Activities
The Company  finances its  operations  and the  operations of all its continuing
businesses and subsidiaries, except Telmark and Agway Insurance Company, through
Agway Financial  Corporation (AFC). External sources of short-term financing for
the Company and all its other  continuing  operations  include  revolving credit
lines,  letters of credit,  and  commercial  paper  programs.  Telmark and Agway
Insurance  Company finance  themselves  through  operations or direct  borrowing
arrangements. Each is financed with a combination of short- and long-term credit
facilities.  In  addition,  Telmark  has  occasionally  sold blocks of its lease
portfolio.  Sources  of  longer-term  financing  include  the  following  as  of
September 30, 1996:
<TABLE>
<CAPTION>

Source of debt                                        Agway & AFC      Telmark         Total
--------------                                        -----------     --------       --------
<S>                                                    <C>            <C>            <C>
Banks - due 11/96 to 2/01 with interest
  from 6.0% - 8.5% .............................       $  3,150       $142,000       $145,150
Insurance companies - due 11/96 to 11/00
  with interest from 5.9% - 9.2% ...............                       121,333        121,333
Capital leases & other - due 1996 to 2007
  with interest from 6% to 12% .................         14,523            140         14,663
                                                       --------       --------       --------
    Long-term debt .............................         17,673        263,473        281,146
Subordinated money market certificates  - due
  10/96 to 10/08 with interest from 4.5% - 9.5%         378,768         26,530        405,298
Subordinated debentures  - due 1999 to 2003 with
  interest at 7.0% to 8.5% .....................         22,898                        22,898
                                                       --------       --------       --------
    Total debt .................................       $419,339       $290,003       $709,342
                                                       ========       ========       ========
</TABLE>

For a complete  description  of the  Company's  credit  facilities  available at
September  30, 1996,  see  Footnote 3 to the  condensed  consolidated  financial
statements.



                                       14

<PAGE>



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


Item 1.  Legal Proceedings
--------------------------
In August 1995, the  Environmental  Protection  Agency (EPA) notified Agway that
the EPA has reason to  believe  that Agway is a  potentially  responsible  party
(PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act  (CERCLA) at the  Tri-Cities  Barrel  Site,  Port Crane,  New York.  The EPA
requested  that  Agway  and  other  PRPs  participate  in the  ongoing  Remedial
Investigation/Feasibility  Study (RI/FS) for the Tri-Cities  Barrel Site.  Agway
believes that its  involvement at the Tri-Cities  Barrel Site is minimal.  Agway
has had further  discussions with other PRPs who have been  participating in the
ongoing  RI/FS and decided to  participate  at this time.  In September  1996, a
number of PRPs, including Agway, entered into an Administrative Order or Consent
for Removal Action with the EPA for the site.

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
There were no reports on Form 8-K required to be filed during the first  quarter
ended September 30, 1996.



                                       15

<PAGE>


SIGNATURES
----------

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                             AGWAY INC.
                                  --------------------------------
                                           (Registrant)





Date   November 11, 1996              /s/ PETER J. O'NEILL
     --------------------         --------------------------------
                                          Peter J. O'Neill
                                       Senior Vice President,
                                         Finance & Control,
                                      Treasurer and Controller
                                  (Principal Financial Officer and
                                      Chief Accounting Officer)










                                       16