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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(MARK ONE)
   X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE
  ---
       ACT OF 1934
       For the fiscal year ended June 24, 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            (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

                   333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
              (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 315-449-6436

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

     TITLE OF EACH CLASS          NAME OF EACH EXCHANGE ON WHICH REGISTERED
     -------------------          -----------------------------------------
           None                                    None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                      None

       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.
                                    X
                                   ---  ---
                                   Yes   No
       INDICATE BY CHECK MARK IF  DISCLOSURE OF  DELINQUENT  FILERS  PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED  HEREIN,  AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S  KNOWLEDGE,  IN ANY DEFINITIVE  PROXY OR INFORMATION
STATEMENTS  INCORPORATED  BY  REFERENCE  IN PART  III OF THIS  FORM  10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
                            ---
       STATE THE  AGGREGATE  MARKET  VALUE OF THE VOTING AND  NON-VOTING  COMMON
EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF SEPTEMBER 15, 2000.

               Membership Common Stock, $25 Par Value - $2,462,500

       INDICATE  THE NUMBER OF SHARES  OUTSTANDING  OF EACH OF THE  REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

           CLASS                         OUTSTANDING AT SEPTEMBER 15, 2000
           -----                         ---------------------------------
  Membership Common Stock,                         98,500 Shares
      $25 Par Value
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------



<PAGE>



                         FORM 10-K ANNUAL REPORT - 2000
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                              CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
                                                                                                              Page

                                                                PART I

<S>                 <C>                                                                                         <C>
Items 1 & 2.        Business and Properties
                         General.............................................................................    3
                         Agriculture.........................................................................    4
                         Country Products Group..............................................................    5
                         Energy..............................................................................    7
                         Leasing.............................................................................    7
                         Insurance...........................................................................    8
                         Discontinued Operations.............................................................    8
                         Human Resources.....................................................................    9
                         Administrative......................................................................    9
                         Regulation..........................................................................    9
                         Stockholder Membership and Control of Agway.........................................    9
                         Retained Earnings...................................................................   10
                         Patronage Refunds...................................................................   10
Item 3.             Legal Proceedings........................................................................   12
Item 4.             Submission of Matters to a Vote of Security Holders......................................   13

                                                                PART II

Item 5.             Market for the Registrant's Common Equity and Related Stockholder Matters................   13
Item 6.             Selected Financial Data..................................................................   13
Item 7.             Management's Discussion and Analysis of Financial Condition and Results of Operations....   14
Item 7a.            Quantitative and Qualitative Disclosures about Market Risk...............................   29
Item 8.             Financial Statements and Supplementary Data..............................................   32
Item 9.             Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....   32

                                                               PART III

Item 10.            Directors and Executive Officers of the Registrant.......................................   68
Item 11.            Executive Compensation...................................................................   71
Item 12.            Security Ownership of Certain Beneficial Owners and Management...........................   74
Item 13.            Certain Relationships and Related Transactions...........................................   74

                                                                PART IV

Item 14.            Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................   75

                    Signatures...............................................................................   84

</TABLE>


                                        2


<PAGE>



                                     PART I

ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


GENERAL

Agway Inc. was incorporated  under the Delaware General  Corporation Law in 1964
and is headquartered in DeWitt,  New York. Agway is an agricultural  cooperative
directly  engaged in  manufacturing,  processing,  distribution and marketing of
agricultural feed and agronomic products (seed and fertilizers) and services for
its  farmer-members  and other customers,  primarily in the northeastern  United
States and Ohio.  In addition,  Agway is involved in  repackaging  and marketing
produce and processing and marketing sunflower seeds. Agway,  through certain of
its  subsidiaries,  is involved in the distribution of petroleum  products;  the
installation  and  servicing  of  heating,   ventilation,  and  air-conditioning
equipment;  lease  financing;  the  underwriting  and sale of  certain  types of
property and casualty insurance;  and the sale of health insurance. In this Form
10-K, unless otherwise  indicated,  the "Company," "Agway," "we," or "our" refer
to Agway Inc. and its subsidiaries.

Operating as a  cooperative,  Agway is eligible to pay patronage  refunds to its
members and  "contract  patrons"  from  earnings on sales of patronage  eligible
products and services.  For income tax  purposes,  Agway is subject to corporate
income  tax at  applicable  tax  rates on all  taxable  income  remaining  after
deductions for patronage refunds, if paid.

Agway reports its operations principally in five business segments: Agriculture,
Country Products Group, Energy,  Leasing,  and Insurance.  As one of the largest
agricultural cooperatives in the United States, Agway deals in a wide variety of
product lines and market segments.  Many of its high-volume products are sold in
highly  competitive  markets  where  product  differentiation  is  difficult  to
achieve.  Agway strives to distinguish itself through superior customer service,
product selection, and product knowledge.

In October 1999,  Agway announced that it was converting its owned retail stores
into  dealer-owned  and operated  stores.  In June 2000,  the Company  signed an
agreement for the sale of its consumer wholesale dealer distribution business to
Southern States  Cooperative,  Inc.  (Southern  States).  The consumer wholesale
dealer distribution business is the wholesale procurement and supply system that
supports the Agway-owned  retail stores and Agway  dealer-owned  retail network.
Together these business activities comprise the business  historically  referred
to as the Agway retail services business.  As indicated by these above announced
activities,   Agway  is  discontinuing  its  retail  services  business.   These
operations are therefore reflected separately as discontinued operations in this
Form 10-K. See the  Discontinued  Operations  section of Business and Properties
and Note 18 to the financial statements for details.

Agway  Financial  Corporation  (AFC), a wholly owned  subsidiary of Agway,  is a
Delaware  corporation  incorporated  in 1986 with  principal  executive  offices
located in Wilmington,  Delaware. AFC's principal business activities consist of
securing  financing  through bank  borrowings  and  issuance of  corporate  debt
instruments to provide funds for general  corporate  purposes to Agway and AFC's
wholly owned  subsidiary,  Agway Holdings Inc.  (AHI),  and AHI's  subsidiaries.
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. Leasing and Insurance finance
their  activities  through  operations  or  with a  combination  of  short-  and
long-term credit facilities. Telmark's debt is not guaranteed by Agway.

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.



                                        3

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


AGRICULTURE

Agriculture  is comprised  principally of five  geographically-based  enterprise
units. Each unit is responsible for management,  operations, sales, billing, and
customer service within its geographic  territory.  The agricultural business is
focused on animal feed, agronomy, and farm services to farmers in their specific
geographic markets.

ANIMAL  FEEDS:  Agriculture  operates  17  feed  mills  and  10  grind  and  mix
facilities, principally in New York, Pennsylvania, and Vermont. These operations
manufacture  livestock and poultry feeds under Agway formula.  Products are sold
primarily through an Agway sales force, which actively calls on farmer-customers
and responds to customer inquiries. We expect that production capacity of animal
feeds will be sufficient to meet market needs of the enterprise  units. In 1999,
Agriculture  completed  construction  of a farm in Elba, New York,  which,  on a
contract basis for farmers,  custom raises heifers  in  an  environment  that is
designed to result in those heifers testing free of specific pathogens, with the
ultimate  goal  of  increasing  the  productivity  and  productive lives of such
heifers.  Additional "tested specific pathogen free" (TSPF(TM))  facilities have
been built or are under  construction in Easton, New York,  Hopkinton,  New York
and Newburg,  Pennsylvania.  In July 1999, management of the daily operations of
11 grain elevators was  decentralized  and reassigned to the enterprise units in
the  elevators'  respective  geographic  areas.  These  elevators  are now  used
principally for storage of grain for use in our feed mills.

AGRONOMY:  Agriculture  operates  121  agronomic  blending  plants  and  storage
facilities.  These operations  manufacture,  process,  and procure  crop-related
products to be sold as direct  shipments  to  farmer-customers,  farmer-dealers,
non- farmer customers, and wholesale accounts. The fertilizer operations in York
and East Berlin,  Pennsylvania,  manufacture yard and garden fertilizers sold to
dealers and  distributors on the East Coast.  At East  Liverpool,  Ohio, we have
fertilizer   grading  equipment  through  which  we  sell  fertilizer  to  other
commercial customers. Agriculture sources the majority of its fertilizer through
CF  Industries,  Inc., an  agricultural  cooperative  of which Agway is a member
eligible for patronage refunds.  Agriculture has a significant  investment in CF
Industries.

Crop-related products sold primarily for farm use include plant nutrients, lime,
crop  protectants,  and various seed  products.  The  agronomic  operations  are
seasonal in nature,  with the  majority  of sales and demand on working  capital
generated at the beginning of a growing  season,  which in the Northeast is late
winter and spring.  Agriculture's seed operations  produce,  import, and market,
primarily for commercial use,  agricultural,  vegetable,  and turf seeds through
facilities located in Hall, New York, and Elizabethtown,  Emmanus,  Mifflinburg,
and York,  Pennsylvania.  Agway believes that  production  capacity is currently
sufficient to meet the agronomic needs of Agway's market.

OTHER ACTIVITIES:  In addition to the  enterprise-managed  business  activities,
Agriculture has direct  marketing  operations  involved in the processing,  bulk
storage,  and retail and wholesale sales of seeds and bulk storage and wholesale
sales of fertilizer products. Agriculture additionally generates sales of animal
health products  directly to farmers through a mail-order  catalog  service.  In
September 1999, Agway acquired Brubaker Agronomic Consulting Services,  Inc., an
agricultural  consulting firm  specializing in crop,  turf,  natural  resources,
engineering and nutrient management plans.

Until July 1999,  the grain  marketing  business  consisted  of a central  grain
marketing   department   (the   department)   and  11  elevators  in  New  York,
Pennsylvania, and New Jersey. Historically, the department, on behalf of farmers
and others, bought and sold grains,  principally corn, soy complex, oats, wheat,
barley, and canola.  Commencing in July 1999, management of the daily operations
of the elevators was decentralized and reassigned to the enterprise units in the
elevators'  respective  geographic  areas.  The  duties of the  department  were
narrowed, reorganized, and assigned to new management; and the business activity
curtailed  from an  active  solicitation  of  business,  to  meeting  the  grain
marketing needs of local farmers and meeting the need for local grain by our own
feed mills. In May 2000, Agway announced a grain merchandising agreement with R.
F. Cunningham Co. Inc., a professional grain merchant company, pursuant to which
Agway  continues  to  purchase  grain  for  use in its  feed  mills,  and R.  F.
Cunningham   assumed  all  other  on-farm  grain   procurement   activities  and
relationships.



                                        4

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


AGRICULTURE (CONTINUED)

RESEARCH AND APPLIED TECHNOLOGY: The five enterprise units each conduct research
pertinent to their market. In 2000, the enterprise units assumed  responsibility
for the  activities  of the Agway  Coordinated  Dairy System,  which  activities
include  management  of the  TSPF(TM)  heifer farms and  collaboration  with the
Country  Products  Group in  development  and  distribution  of new animal  feed
products.

During the years ended June 2000,  1999 and 1998,  net  expenditures  of $2,400,
$1,300 and $400,  respectively,  were incurred by  Agriculture  on  agricultural
research activities.

COMPETITION:  In the animal feed business,  we are one of the largest  suppliers
based on sales  volume in the  northeastern  United  States  (Feed  Management).
Competition  exists with large national and regional feed  manufacturers as well
as with local  independent  mills. The market position held by Agway in the feed
business is significant,  resulting from  performance,  quality of its products,
research,   an  established   manufacturing  and  distribution   system,  and  a
knowledgeable work force.

In the agronomic business, our plant nutrient,  seed, crop protectant,  and lime
products  compete in the commercial farm market.  Although there are substantial
regional  variations in market share, our competitive  position is strong in the
commercial farm market.  Competition  varies  significantly  by product line and
consists of independent dealers and several nationally integrated  corporations.
We compete on the basis of technical  expertise and field application  services,
product  performance,  crop management  practices developed by Agway, and expert
assistance to the farmer in making crop management decisions.

COUNTRY PRODUCTS GROUP

Agway's  Country  Products  Group (CPG) is organized into three  divisions:  The
Produce Group, The Business Group, and The Investment Group. Agway believes that
all  operations  of  CPG  have  sufficient  capacity  to  meet  their  operating
requirements.

THE PRODUCE GROUP: The Produce Group (generally  marketed under the name Country
Best) operates a network of seventeen offices/facilities.  Facilities in DeWitt,
Elba,  Sterling and Chittenango,  NY; Winder,  Georgia;  and Plant City, Florida
specialize  in sizing  and  packing  potatoes,  onions  and corn  into  consumer
packages for sale to grocery store and food service  outlets.  A second facility
in Plant City,  Florida  specializes in handling and selling fresh  strawberries
and other  vegetables  primarily from Florida.  There are three farmers'  market
locations (Forest Park, Georgia; and Tampa and Plant City, Florida) which sell a
wide variety of produce to food service  distributors and grocery store outlets.
Produce  brokerage  locations  operate  out of  Calverton,  New  York;  Pompano,
Florida; and Idaho Falls, Idaho; and market a wide variety of produce across the
United States.  Truck brokerage offices are located in Forest Park,  Georgia and
Presque Isle,  Maine; and a seed and tablestock  potato marketing office is also
located  in Presque  Isle,  Maine.  During  2000,  CPG  purchased  the  majority
ownership of a full-line produce operation in Donna, Texas.

THE  BUSINESS  GROUP:  The Business  Group  consists of  operations  involved in
commodity processing and repack operations, manufacturing of bags, an investment
in a pet food manufacturer,  ProPet, LLC (ProPet), and an indirect investment in
an animal feed company,  Buckeye Feed Mills, Inc. (Buckeye Feeds). The commodity
processing and repack operations purchase certain commodities  produced by Agway
farmer-members and other farmers and conduct processing and repacking operations
as well as marketing,  sales,  and  distribution of the end products.  Principal
commodities  processed,  sold, and  distributed  include human edible  sunflower
seed,  bird food,  soybeans,  and edible dry  beans.  Sunflower  processing  and
storage facilities,  located at Grandin,  North Dakota, produce and market human
edible  sunflower  seed,  hulled millet,  wild bird food, and related  products.
Soybean  and edible dry bean  processing  plants are  located at  Caledonia  and
Geneva, New York. The multi-walled bag printing and manufacturing plant, located
in  Wapakoneta,  Ohio,  supplies  bags used by  internal  Agway  operations  and
external  customers,  including Pro- Pet and Buckeye Feeds.  CPG divested of its
pastry flour mill located in  Churchville,  New York, in May 2000 as a strategic
response to industry consolidation.

                                        5

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


COUNTRY PRODUCTS GROUP (CONTINUED)

THE INVESTMENT GROUP:  The  Investment  Group  consists  of  several  businesses
involved in new technologies to benefit agricultural and food businesses.

CPG  Nutrients,  a  division  of CPG,  headquartered  in  DeWitt,  New York,  is
exploring  opportunities  to apply  new  technologies  within  the  agricultural
industry and,  where  feasible and  practical,  to introduce  those products and
market them to national and international  agricultural customers. A facility in
Kittanning,  Pennsylvania,  is  providing  daily  production  of an animal  feed
product, OptigenTM 1200, a new controlled release nitrogen source.

Agway CPG Technologies International, headquartered in DeWitt, New York, invests
in post-harvest technologies such as the preservation of fruits and vegetables.

LifeRight Foods, LLC,  headquartered in Philadelphia,  Pennsylvania,  is a joint
venture  owned 45% by CPG.  The balance is owned 45% and 10% by two  independent
entities.  The  purpose of  LifeRight  Foods is to develop  and market  branded,
nutritionally  enriched  food  products  for the  retail  market.  This is to be
accomplished  through the  development  or license of animal feed products which
produce enhanced food products.

CPG worked with Cornell University and New York State Electric & Gas Corporation
to invest in a new  hydroponics  greenhouse in Ithaca,  New York,  where testing
continues on controlled environment agriculture.

CPG, through AHI,  currently owns  approximately  26% (2,000,000  shares) of the
outstanding common stock of Planet Polymer Technologies Inc. (Planet). Planet is
publicly  traded on the NASDAQ small cap market under the trading  symbol "Poly"
and is  located  in San  Diego,  California.  CPG  could  own a total  of 35% of
Planet's  outstanding common stock if existing warrants are fully exercised.  In
November  1998,  Planet  granted  Agway an  exclusive  worldwide  license to all
current and future products that utilize Planet's polymer coating technology for
agricultural and  food-related  purposes (other than products already covered by
existing  agreements).  In March 2000, Agway and Planet entered into sub-license
agreements  defining  sales  royalties  due  Planet  with  respect  to  Planet's
patented/patent  pending  coatings and/or polymer systems sold for use in animal
feed products and on fruits, vegetables, floral and nursery items.

During the years ended June 2000, 1999 and 1998,  expenditures of $500, $500 and
$0,  respectively,  were  incurred  by The  Investment  Group  on  research  and
development activities.

COMPETITION: CPG competes with a large number of firms of all sizes and types in
most of its product  categories.  The principal  factors of competition in these
operations  are  product   quality,   efficiencies   in  product   distribution,
concentration in selected markets, technology and current market pricing. In the
Produce  Group and in the dry beans and bag printing and  manufacturing  product
lines of the Business  Group,  CPG does not occupy a major  position in national
markets.  The bird food products are primarily marketed to the dealer system and
other  cooperatives,  and compete  based on product  quality.  The human  edible
sunflower seed and hulled millet are marketed internationally and compete on the
basis of product variety and quality.

CPG Nutrients  has no direct  competitors  in the market for  controlled-release
nitrogen  products  in the  animal  feed  area,  so  competition  will come from
indirect sources. As new products are developed, competitive factors may change.
CPG Technologies  International  competition comes from several types of coating
companies and producers of similar products,  some of which are much larger than
Technologies  and have had a long  history in the  industry.  Coatings of waxes,
shellacs,   anti-oxidants,   modified   atmosphere   films,   and  new   coating
developments, as well as products such as controlled atmosphere containers, film
liners,  and wax boxes,  all compete in the market for specialized  coatings and
films.  We compete on the basis of a new technology  bringing  improved  product
quality and performance over existing technologies.

                                        6

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


ENERGY

Agway Energy  Products LLC (AEP), a Delaware  limited  liability  company wholly
owned by AHI, is a full-service energy solutions provider to residential,  farm,
and commercial customers principally in New York, Pennsylvania,  New Jersey, and
Vermont. AEP serves the majority of its customer base by providing home comfort,
particularly in the area of heating,  ventilation,  and air conditioning  (HVAC)
equipment and fuels to power these systems.  AEP installs and services all types
of whole-house warm and cool air systems (furnaces,  boilers, air conditioners),
air cleaners, humidifiers,  de-humidifiers, hearth products, space heaters, room
air  conditioners,  and  water  systems.  Services  such as duct  cleaning,  air
balancing,  and energy audits are also offered.  AEP is also engaged in the sale
and  delivery of fuel oil,  kerosene,  propane,  gasoline  and diesel fuel (both
delivered direct to users and distributed  through AEP's service  stations),  as
well as natural gas and electricity where de-regulation  makes that possible.  A
product emphasis on oil and propane heating fuels creates seasonal  increases in
sales and  working  capital  requirements  in the fall and  winter  months.  All
products are purchased from numerous suppliers or through open-market purchases.

During  2000,  AEP owned and  operated,  within  its  geographic  territory,  95
distribution  and  sales  centers  and 7  terminals  with  storage  capacity  of
approximately 2.3 million barrels of product. As of June 2000, AEP sold 6 of its
7 terminals to Buckeye Partners,  L.P. (Buckeye).  This sale is part of Energy's
strategy to focus on growing its retail energy marketing business,  and the sale
is expected to have no negative impact on Energy's  customers or its operations.
The agreement with Buckeye  allows Energy to utilize these  terminal  facilities
for storage as part of its distribution  network.  AEP also distributes products
through  approximately 80 distributors and resellers.  Agway believes that these
facilities  are  sufficient to meet the current  operating  requirements  of the
business.

COMPETITION: The HVAC, fuel oil, propane, and power fuel industries in which AEP
competes  are  generally  fragmented  and  consist  of a large  number  of small
businesses.  Some  consolidation  in HVAC and  propane  has  created a number of
larger  competitors in these industries.  Power fuel competition  includes major
oil companies as well as smaller,  independent businesses.  Also, several large,
fully-integrated  competitors  have  emerged  offering  a similar  range of home
comfort  products  and  services.  These  competitors  have evolved from utility
companies  in the face of  deregulation  and the  corresponding  threat to their
traditionally captive customer base.

LEASING

Telmark LLC (Telmark), a Delaware limited liability company wholly owned by AHI,
and  Telmark's  consolidated  subsidiaries  finance  equipment,  buildings,  and
vehicles to farmers and other customers in rural communities.  Telmark employs a
captive  sales  force  as  its  primary  distribution  system  in  most  of  the
continental  United States.  Telmark offers financing in the continental  United
States through its Telmark Express program.  Telmark also transacts  business in
Canada through a separate  subsidiary,  Telease Financial Services,  Ltd. (TFS).
TFS is a Canadian  corporation which enters into certain lease transactions with
Canadian  customers.  Telmark  Lease  Funding I, II, and III,  Delaware  limited
liability  companies,  were  established  solely to enable lease  securitization
financings entered into during 1997, 1999, and 2000, respectively.

As of June 2000,  Telmark had approximately  $641,800 of leases outstanding with
persons  other than Agway and its  subsidiaries,  net of unearned  interest  and
finance charges of approximately  $239,400.  Telmark finances its operations and
lease portfolio  growth through  borrowings  under its lines of credit,  private
placements of debt with institutional investors, lease securitizations, or sales
of  debentures  to the  public.  As a result  of  Telmark  issuing  subordinated
debentures  to the  public,  it  files  its own  periodic  reports  with the SEC
pursuant to the Securities Exchange Act of 1934.

COMPETITION:   Telmark   competes   with   finance   affiliates   of   equipment
manufacturers,  agricultural financial  institutions,  other independent finance
and leasing  companies,  and commercial banks. Many of these  organizations have
substantial  financial and other  resources and, as a  consequence,  are able to
compete on a long-term basis within the market segment which Telmark serves.

                                        7

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


INSURANCE

Agway  Insurance  Company  (Insurance)  is a  New  York  property  and  casualty
insurance  company  wholly  owned by AHI.  This company is  authorized  to write
insurance as specified in the New York Insurance Law, Sections 1113 and 4102(c),
and  currently  writes  insurance  in  10  eastern  states  from  the  Insurance
headquarters in DeWitt,  New York.  Lines of insurance sold include  farmowners,
homeowners, farm commercial and personal auto liability and physical damage, and
miscellaneous  commercial  policies that support the  agricultural  marketplace.
Agway General Agency Inc.  (Agency)  markets  medical,  long-term care, life and
other  products  designed  by  non-affiliated  companies  for  the  agricultural
marketplace.  In addition, Agency provides administrative management services to
Agway business units including  claims,  risk,  facilities,  data processing and
payroll/benefits management.

COMPETITION:  Insurance  competes  with major direct  writers,  national  agency
companies,  and  smaller  regional  insurance  carriers.  Insurance  utilizes an
independent agency distribution system to market insurance products and services
for the  benefit  of the farm and rural  community.  Growth  opportunities  come
through the development of specialty  products for the  agricultural  community,
professional  agency  recruitment,  and  dedication  of  marketing  resources to
targeted rural markets.

DISCONTINUED OPERATIONS

In  April  1999,  the  former  Agway  retail  services   business   segment  was
consolidated into Agriculture, where the Agriculture geographic enterprise units
assumed  responsibility  for  managing  the  retail  operations,  including  the
wholesale dealer relationships and the wholesale  distribution  channel. At June
1999, the Agway retail services business  consisted of two major  components,  a
retail store distribution system and a wholesale  procurement and supply system.
The retail store distribution system was comprised of 157 Agway-operated  stores
and 306  franchise  representative  (dealer)  stores,  of which 27 were owned by
Agway and leased to dealers. In addition, Agway's retail services business owned
43 surplus properties. In total, Agway's retail store distribution system had an
interest  in  227  properties.  The  wholesale  procurement  and  supply  system
consisted of a long-term  contract for inventory storage and distribution with a
third party, as well as home  office  sales and  administrative  functions.  The
home office activity  included  signing up and maintaining the dealer  franchise
agreements, sales of merchandise to dealers and the procurement thereof, as well
as the performance of certain administrative functions.

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 the  next 1 1/2  years.  For  financial
reporting purposes,  this action was considered a business  restructuring within
the retail business of the Agriculture  segment because Agway, at that time, was
still committed to serving this retail  franchise  dealer  business.  As of June
2000, there remained 34 operating stores to be converted to dealers or otherwise
disposed  of,  46  properties  for  disposition  which are  currently  leased to
dealers,  and 69 closed  properties  for sale. 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 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,  are 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,  are  included in the loss on disposal of the retail
services business in the June 2000 statement of operations. Prior year financial
results  have been  reclassified  to reflect the retail  services  business as a
discontinued operation.

                                        8

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


HUMAN RESOURCES

As of June 2000, Agway and its subsidiaries employed approximately 5,600 people,
1,300 of whom were  part-time.  This  represents a decrease of 1,600 people from
June 1999, of whom 1,400 were part-time.  This decrease is substantially  due to
the  conversion  of the retail  store  distribution  system of Agway's  operated
retail  stores into dealer  owned and  operated  stores,  which began in October
1999. There are approximately 140 employees  represented by two different unions
with seven existing union contracts.  We enjoy satisfactory  relations with both
our union and  nonunion  employees as a result of  competitive  wage and benefit
programs.

ADMINISTRATIVE

Our principal administrative office is located at 333 Butternut Drive in DeWitt,
New York. It occupies  approximately  180,000 square feet under terms of a lease
with 7 remaining years with two 10-year renewal options. Agway believes that the
combination of its principal  administrative office and other satellite business
unit locations are sufficient for its operations.

REGULATION

Agway  and its  subsidiaries  are  subject  to  various  laws  and  governmental
regulations  concerning  employee  health,  product  safety,  and  environmental
matters.  These laws and regulations are enforced by federal government agencies
such as the Occupational Safety and Health  Administration  (OSHA), the Food and
Drug  Administration  (FDA) and the Environmental  Protection Agency (EPA). OSHA
monitors  employee safety and health  matters.  The FDA sets standards for foods
and other  products sold to consumers,  and the EPA creates rules to protect the
environment,  such as rules to  control  pollution  and to  reduce  exposure  to
chemicals.  Many states have  adopted  similar laws and  regulations,  which are
enforced by state agencies and some of which may be more burdensome than similar
federal requirements.

Agway believes its business,  as currently conducted,  is not adversely affected
by any of these laws and  regulations.  However,  these laws and regulations are
constantly changing and may impose greater requirements and expense on Agway and
its  subsidiaries in the future.  Currently,  Agway is negotiating  with various
government  agencies  concerning  the clean up of hazardous  waste sites.  These
sites  are   commonly   known  as  Superfund   sites  under  the   Comprehensive
Environmental  Response,  Compensation,  and Liability Act of 1980 (CERCLA). See
Legal Proceedings (Item 3).

STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY

Agway members are farmers or cooperative  organizations  of farmers who hold one
share of Agway's  Membership Common Stock and who purchase farm supplies or farm
services or market farm products through Agway or authorized dealers. Currently,
there are approximately 70,000 members. Each share of Membership Common Stock is
entitled  to one vote for the  election  of  directors  and for other  corporate
actions.

The  Membership  Common  Stock,  $25 par  value,  is held only by  active  Agway
members.  Agway also has preferred  stock.  Four different  series of Cumulative
Preferred  Stock  (Series A, Series B, Series B-1 and Series C), $100 par value,
are held by Agway members,  the Agway, Inc.  Employees' 40l(k) Thrift Investment
Plan and the general public.  Honorary  Member  Preferred Stock (Series HM), $25
par value,  is held only by former Agway  members (see Note 12 of the  financial
statements for further details of preferred stock).



                                        9

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY (CONTINUED)

Ownership of Membership Common Stock is different than ownership of common stock
in typical business  corporations because Agway is an agricultural  cooperative.
Membership  Common  Stock may only be  purchased by persons who qualify as Agway
members and is transferrable only with Agway's consent.  Membership Common Stock
indicates  membership  in Agway  rather than  indicating  a  significant  equity
interest in Agway. A holder of Membership Common Stock is limited to the $25 par
value of the  security,  plus  dividends  declared  and unpaid,  if any, for the
current year.  Dividends are limited to 8% of the par value of Membership Common
Stock and may be declared at the discretion of the Agway Board of Directors each
fiscal  year.  The  residual  equity in the net  assets of Agway is held for the
benefit of past and present member-patrons of Agway.

The  Board of  Directors  controls  the  affairs  and  business  of  Agway.  All
stockholder actions, except as otherwise provided by law, including the election
of  directors,  are  determined  by the vote of Agway  members  present by proxy
(another  person  authorized  by the  member to vote) or in person at the annual
meeting (or special meetings) of members. There are 15 directors on the Board of
Directors.  Once elected, a director holds office for a term of 3 years. Members
elect 5 directors each year at the annual  meeting to fill  vacancies  resulting
from the expiration of the terms of certain directors.

RETAINED EARNINGS

Retained Earnings (also sometimes  referred to as retained margins) are held for
the benefit of past and present  Agway  members.  Retained  Earnings are all net
earnings (gross receipts  reduced by all operating  expenses) of Agway remaining
after  payment  of income  taxes,  dividends  on issued and  outstanding  stock,
patronage  refunds,  and  all net  earnings  from  the  business  activities  of
predecessors in interest  (companies who were acquired by or merged into Agway),
kept as reasonable reserves. Retained Earnings consist of :

(1)    The portion of Member Earnings (net earnings based only on purchases from
       members) undistributed to members.

(2)    Net earnings based on nonmember purchases and marketing operations.

(3)    All other income, including earnings from non-agricultural  divisions and
       subsidiaries of Agway, dividends and interest from investments.

The Retained  Earnings of Agway will only be  distributed  to Agway members upon
dissolution  of  Agway.   According  to  the  By-laws  adopted  by  Agway,  upon
dissolution,  the Retained  Earnings will be distributed  proportionately  among
Agway's past and present members in accordance with their  interests,  after all
debts  are paid in full and any  amounts  due to  holders  of  preferred  stock,
revolving fund certificates, and common stock are paid.

PATRONAGE REFUNDS

The By-laws of Agway  provide that,  after the end of each fiscal year,  members
shall be paid  patronage  refunds in cash,  in an amount  equal to the  earnings
realized on a tax basis by Agway after  deduction  for  reasonable  reserves for
future operating expenses and amounts paid or set aside for payment of dividends
on issued and outstanding  stock of Agway. The total amount of patronage refunds
paid  must  not  exceed  the  total  earnings  attributable  to the sale of farm
supplies by Agway to members during the fiscal year. These patronage refunds are
based on sales of feed, agronomic products,  and selected eligible farm supplies
to members for the fiscal year. Each member's total patronage refund is based on
the  proportion of his/her  purchases of farm supplies made directly from Agway,
Agway dealer stores or other  authorized  dealers during the fiscal year, to the
total farm  supply  purchases  made by all  members in such year.  No  patronage
refunds are payable with  respect to the purchase of services for the  marketing
of farm  products  through  Agway,  unless  specified in a contract  between the
member and Agway.

                                       10

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


PATRONAGE REFUNDS (CONTINUED)

The By-laws of Agway also allow the Board of Directors to authorize  the payment
of patronage refunds to certain contract  patrons.  Contract patrons are persons
or  businesses,  other than  members,  who purchase  eligible farm supplies from
Agway. Payment of patronage refunds to contract patrons must be made on the same
terms and conditions as those specified above for members.  Examples of contract
patrons may be certain departments or agencies of state governments, the federal
government,  and charitable,  religious or educational  institutions that use or
produce  agricultural   products.   Business  with  contract  patrons  currently
represents less than 1% of Agway's annual sales volume.


                                       11

<PAGE>



ITEM 3.  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.  Agway and MTS  believe  the
relief  sought  by  Cooper  Industries,  Inc.,  et al.  is  unjustified  and are
contesting  the  allegations  in the  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,  will continue a ground water
monitoring  program and has implemented an activity and use limitation.  In June
2000, the subsequent  owner of the property  transferred it to a new owner.  The
new owner has  agreed to  cooperate  with  Agway in  complying  with the  MDEP's
requirements. In addition, Agway has negotiated a resolution of MDEP's claim for
past response/oversight  costs and interest related to the site. 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 August 1995,  the EPA notified  Agway that the EPA has reason to believe that
Agway is a PRP under CERCLA at the Tri-Cities Barrel site, Port Crane, New York.
In March  2000,  the EPA issued the Record of  Decision  (ROD) for the  Remedial
Design/Remedial  Action  (RD/RA) for the site.  The EPA has requested that Agway
and the other  PRPs  participate  in the  RD/RA.  A group of  cooperating  PRPs,
including Agway, have notified EPA of their intention to enter into negotiations
for a consent decree to perform the RD/RA.  In June 1997, the  cooperating  PRPs
agreed upon an allocation of  responsibility  for past and future  investigation
and remediation  costs.  Based on this allocation and the cost estimates for the
site, Agway has accrued its best estimate for any additional costs at the site.


                                       12

<PAGE>



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no items submitted to a vote of security holders for the three months
ended June 2000.

                                     PART II

ITEM 5.  MARKET FOR  THE  REGISTRANT'S  COMMON  EQUITY  AND  RELATED STOCKHOLDER
         MATTERS

(a)    Principal Market:
       There is no market for the equity  securities of Agway other than through
       its current practice of repurchasing  outstanding securities at par ($25)
       whenever registered holders thereof elect to tender them for redemption.
(b)    Approximate Numbers of Holders of Common Stock:
       The number of holders of record of Agway's Common Stock,  as of September
       15, 2000,  is 98,500,  of which 28,809  shares have been called for those
       holders no longer  meeting the  membership  eligibility  requirements  as
       identified in Section 2.1(a) in the By-Laws of Agway Inc.
(c)    Dividends Paid:
       An annual 6%  dividend,  or $1.50 per share,  was paid on Agway's  Common
       Stock in 2000 and 1999.
(d)    Limitations on Ownership and  Availability of Net Earnings  to Membership
       Common Stockholders:
       Refer to  Stockholder  Membership  and  Control  of Agway  and  Patronage
       Refunds under Business and Properties (Items 1 and 2).

ITEM 6.  SELECTED FINANCIAL DATA

The following Selected Financial Data of Agway and Consolidated Subsidiaries has
been   derived   from    consolidated    financial    statements    audited   by
PricewaterhouseCoopers  LLP, whose report for the three years ended June 2000 is
included  elsewhere in the Form 10-K, and should be read in conjunction with the
full consolidated  financial statements of Agway and notes thereto. The Selected
Financial Data for years prior to June 2000 has been reclassified to reflect the
Agway retail services business as a discontinued  operation.  See Note 18 to the
financial statements.
<TABLE>
<CAPTION>
                                             (In Thousands of Dollars Except Per Share Amounts)
                                ------------------------------------------------------------------------
                                                               Years Ended
                                ------------------------------------------------------------------------
                                 June 2000       June 1999      June 1998      June 1997      June 1996
                                -----------     -----------    -----------    -----------    -----------
<S>                             <C>             <C>            <C>            <C>            <C>
Net sales and revenues .....    $ 1,426,886     $ 1,221,466    $ 1,299,797    $ 1,391,986    $ 1,371,525
Earnings from continuing
    operations (1) .........    $     6,152     $    12,941    $    16,016    $     8,499    $     8,858
Net earnings (loss)(1)(2)(3)    $    (9,377)    $     1,795    $    41,145    $    10,670    $    12,662
Total assets ...............    $ 1,572,659     $ 1,437,172    $ 1,380,891    $ 1,261,763    $ 1,216,435
Total long-term debt .......    $   418,549     $   371,972    $   352,188    $   329,969    $   291,528
Total subordinated debt ....    $   474,874     $   486,303    $   462,196    $   438,127    $   414,927
Cash dividends per share
    of common stock ........    $      1.50     $      1.50    $      1.50    $      1.50    $      1.50
</TABLE>

(1)  The data reflects a credit  before  taxes from  business  restructuring  of
     $1,943 in 1996.

(2)  Effective  July 1,  1997,  Agway  changed  its  method of  determining  the
     market-related  value of its  plan  assets  under  Statement  of  Financial
     Accounting Standards (SFAS) No. 87, "Accounting for Pensions." A cumulative
     effect adjustment, net of tax, of $28,956 increased net earnings in 1998.

(3)  The data  reflects  after-tax  loss on disposal and loss from  discontinued
     retail  operations of $15,529,  $11,146 and $3,827 for 2000, 1999 and 1998,
     respectively.  The 1997 and 1996 data reflects after-tax earnings of $2,172
     and $2,289,  respectively,  from discontinued  retail operations.  The 1996
     data reflects an after-tax gain on sale of Hood of $1,515, net of operating
     losses until the time of sale.


                                       13

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

The following discussion refers to Agway Inc. and Consolidated  Subsidiaries and
should be read in  conjunction  with  Selected  Financial  Data (Item 6) and the
Consolidated   Financial  Statements  of  Agway  and  Notes  thereto  (Item  8),
specifically  Financial  Information  Concerning Segment Reporting (Note 14) and
Discontinued  Operations (Note 18). The purpose of this discussion is to outline
the most  significant  factors  having an impact upon the results of operations,
the  liquidity,  and the  capital  resources  of the Company for the three years
ended June 2000.  Agway  reports its  operations  principally  in five  business
segments:  Agriculture,  Country Products Group, Energy, Leasing, and Insurance.
The  consolidated  results and the Agriculture  business segment for all periods
discussed have been  reclassified to reflect the Agway Retail Services  business
as a discontinued operation.

RESULTS OF OPERATIONS

2000 COMPARED WITH 1999

CONSOLIDATED RESULTS
Agway's  net loss of $9,400 for 2000  reflects a decrease in earnings of $11,200
from net earnings of $1,800 in 1999. The net earnings from continuing operations
of $6,100 in 2000 decreased  $6,800 from the $12,900 net earnings in 1999.  This
$6,800 decrease was made up of a $10,200  decrease in pre-tax earnings offset by
a $3,400 decrease in tax expense.  The 2000 results have a $15,500 net loss from
discontinued  operations  as  compared  to  $11,100 in 1999.  (See  Discontinued
Operations section below.)

Consolidated  net sales and revenues  from  continuing  operations of $1,426,900
increased  $205,400  (17%)  compared to  $1,221,500  in 1999.  The  increase was
substantially  the result of increased sales in the Energy and Country  Products
Group (CPG) segments. The increase in Energy was principally due to increases in
the cost of  petroleum  products  over the  prior  year  combined  with a slight
increase in volume.  The increase in Country  Products Group sales resulted from
new  acquisitions  in CPG's Produce Group  operations.  These sales increases in
2000 were further enhanced by increased sales from Energy's heating, ventilation
and  air-conditioning  installation and service sales and growth in electric and
gas market  sales;  an increase in lease  revenues at Telmark;  and increases in
Agriculture's  national  commercial  vegetable  seed  operations,  new livestock
nutrition centers and heifer rearing services. These improvements were partially
offset by sales declines in Agriculture's  feed and agronomy  operations  which,
during 2000, faced continued  industry-wide  depressed  commodity pricing,  high
spring  rainfall in a significant  part of its planting  territory,  and planned
operational reductions in its grain marketing operations.  An additional decline
in sales was  experienced  in CPG's  sunflower  operation,  the result of a poor
sunflower seed crop in the fall of 1999.

Consolidated   operating  expenses  from  continuing  operations  of  $1,409,000
increased  $217,900  (18%)  compared  to  $1,191,100  in 1999.  The  increase in
operating  expense was substantially due to increased cost of products and plant
operations of $202,900  (20%) from the increase in Energy's  product costs noted
above and increased selling,  general and  administrative  activities of $12,600
(10%), principally in Agriculture and CPG.

Net interest expense from continuing  operations  increased $4,500 (17%) in 2000
as compared  to 1999.  Borrowing  levels were higher in 2000 as working  capital
requirements increased $47,400, principally as a result of Energy's high product
costs  substantially  driving up the carrying  value of  inventory  and accounts
receivable.

Other net income from continuing operations of $25,700 increased $6,800 (36%) in
2000 as compared  to $18,900 in 1999.  Other  income in 2000  included a $12,900
gain from the sale of six pipeline terminal storage facilities and $5,000 from a
negotiated  settlement in  Agriculture of amounts due the Company on claims from
prior years' business activity. The 1999 other net income included a $10,700 net
gain on sale of CPG's Allied Seed business.

Income tax expense from  continuing  operations of $6,900 in 2000 and $10,300 in
1999 results in effective  tax rates of 53% and 44%,  respectively.  State taxes
are a  significant  factor  in  the  effective  rate.  Agway  does  not  file  a
consolidated  return for state tax purposes and therefore  cannot  recognize the
benefit of operating losses of certain subsidiaries.  This fact combined with an
increase in  non-deductible  goodwill  relating to certain  acquisitions in 2000
increased the effective tax rate for 2000 as compared to the effective  rate for
1999.

                                       14

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

AGRICULTURE
Total  Agriculture  sales and revenues of $508,700 in 2000  decreased by $26,500
(5%) as compared to $535,200 in 1999. Total feed sales, including enterprise and
direct  marketing  sales,  decreased  $10,100 (4%) despite a 6% increase in feed
unit volume in 2000 as  compared to 1999.  The decline in feed sales in 2000 was
substantially  the  result  of a  planned  reduction  in grain  marketing  sales
combined with overall lower commodity  market pricing.  These declines more than
offset  sales  growth in the new  livestock  nutrition  centers  in 2000.  Total
agronomy sales  decreased  $14,100 (5%) in 2000 as compared to 1999. The decline
in agronomy  sales  resulted  from the  continued  industry-wide  low  commodity
pricing of  nitrogen  products.  Additionally,  high  rainfall  in the  northern
portion of Agway's  market  territory  during the spring  2000  planting  season
delayed  plantings  and  the  sale of  agronomy  products  such as  fertilizers,
pesticides and lime. The agronomy operations experienced sales growth in 2000 in
its national commercial vegetable seed and agronomy consulting  businesses which
partially  offset the sales declines  noted above.  The  Agriculture  farm store
sales  decreased  $3,800  (15%),  a direct result of closing  several  locations
during 2000.  Agriculture's  new TSPF(TM) (tested specific pathogen free) heifer
rearing services had its initial revenues of $1,100 during 2000.

Agriculture  loss  before  income  taxes of $13,500  increased  $1,100 (9%) from
$12,400 in 1999. The feed operations  pre-tax earnings increased $2,600 (29%) in
2000. The grain  marketing  unauthorized  speculative  positions,  as more fully
described in the 1999 Management Discussion and Analysis,  resulted in $8,600 in
pre-tax losses in 1999, and an additional $1,300 of pre-tax losses were incurred
in 2000 in closing the unauthorized speculative positions which were outstanding
at June 1999. The combined  enterprise and direct  marketing feed operations had
increased  costs of $4,400 in 2000 as  compared  to 1999 as a result of facility
improvements,  higher  production  costs from increased  unit volume,  and costs
relating to the discontinuation of the futures trading operations.  The agronomy
operations  pre-tax earnings decreased $3,500 (55%) in 2000 as compared to 1999.
The  decline was  substantially  the result of lost  margins  from the delays in
spring  2000  planting  noted  above  and  one-time  costs  associated  with the
acquisition of an agronomic  consulting  operation.  The new TSPF(TM) operations
reduced  earnings  by $1,600 in 2000 as  compared  to 1999 as the  research  and
development  costs to initiate  the  operation  of several new  facilities  were
greater than the revenues  generated.  Total  administrative  expenses more than
offset earnings from operations noted above. During 2000,  administrative  costs
increased  $4,400 as compared to 1999,  principally due to increases to bad debt
expense and lower interest  revenues.  This cost increase was offset by a $5,000
negotiated  settlement  for amounts due the Company on claims from prior  years'
business activity.  Finally, farm stores pre-tax losses were reduced by $800 due
to lower operational expenses.

COUNTRY PRODUCTS GROUP
Country  Products  Group  (CPG)  total  sales and  revenues  of $202,000 in 2000
increased  $30,300 (18%)  compared to $171,700 in 1999.  The growth in CPG sales
over  the  prior  year was  substantially  in the  Produce  Group,  where  sales
increased $35,400 due to the acquisition of new produce businesses in the second
half of 1999 and in the first half of 2000. Additionally, CPG's Investment Group
began commercial sales of Optigen(TM) 1200, a  controlled-release  nitrogen feed
product,  to dairy farmers in the Northeast  beginning in October 1999. Sales of
this new product  totaled  $1,700 for 2000. The growth in sales due to these new
operations was partially  offset by a $6,100 (10%) decline in the Business Group
sales and a $700  decrease  from the sale in the first quarter of 1999 of Allied
Seed. The decline in Business Group sales was substantially the result of a poor
sunflower  seed crop in the fall of 1999,  which was widespread in its territory
due to adverse growing conditions.

CPG  loss  before  income  taxes  of $2,900 in 2000 is a $15,000 (124%) decrease
in earnings compared to earnings before income taxes of $12,100 in 1999. Pre-tax
earnings declined in 2000 by $9,100 as compared to the prior year, primarily due
to the  differences  in  gains  resulting  from  the  sale of  certain  business
operations during each of those years. In 1999, CPG recognized a gain of $10,700
on the sale of Allied Seed. In fiscal 2000,  CPG  recognized a gain of $1,600 on
the sale of certain assets and its flour  operation.  The Business Group pre-tax
earnings  declined  $2,500 (93%) due to the  sunflower  operations  experiencing
lower margin from higher product and production  costs  associated with the poor
sunflower  seed crop  harvested in the fall of 1999.  The Produce  Group pre-tax
earnings declined $2,500 (64%). While increased produce sales provided increased
gross  margins,  these gross margins were at a lower  percentage  than the prior
year and were more than offset by  additional  costs,  principally  from the new
produce  operations.  CPG's  Investment Group had an increase in pre-tax loss in
2000 of $1,300 (37%) as compared to 1999. The increased loss in 2000 occurred as
the  Investment  Group  continues  to incur costs  related to several of its new
product initiatives.
                                       15

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


ENERGY

Energy total sales and revenues of $644,900 in 2000 increased  $193,000 (43%) as
compared to total sales and revenues of $451,900 in 1999. Overall,  sales dollar
increases  from petroleum  product volume  increases were $6,200 (1%) in 2000 as
compared to 1999. The volume increases were driven by higher wholesale volume of
diesel  fuel and  heating  oil and  continued  volume  growth in the  retail and
wholesale  propane  business.  Throughout  fiscal 2000,  the petroleum  industry
experienced significant increases in the pricing of product, particularly in the
first and third quarters of the fiscal year, primarily due to 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 $167,500
(38%) for 2000 as compared to 1999.  Additionally,  continued focus on growth of
the heating,  ventilation and  air-conditioning  installation and services sales
and in the electric and gas marketing business increased sales in 2000 by $7,200
(15%) and $12,100 (168%), respectively, as compared to 1999.

Earnings  before  income taxes of $22,000 for 2000  increased  $9,000 (69%) from
$13,000 in 1999. Overall,  gross margin dollars increased $7,200 (4%) in 2000 as
compared  to 1999 and were  substantially  driven  by the  continued  growth  in
heating, ventilation and air-conditioning  installation and service sales and an
increase in propane product  volumes with margins  comparable to the prior year.
The  improved  margins,  however,  were more than offset by  increases  in total
operating  expenses of $11,200 (7%) in 2000 as compared to 1999.  An increase in
payroll costs  associated with the increased  service sales and unit volume,  as
well as increased administrative costs, principally information system cost from
implementation of a new operating system,  and increased automotive fuels costs,
increased  total  operating  costs in 2000 as compared to 1999.  Finally,  other
revenue  was  substantially  increased  as a result of the June 2000 sale of six
pipeline terminal storage facilities to Buckeye Partners,  L.P.,  resulting in a
net gain to Energy of $12,900.  This sale is part of Energy's  strategy to focus
on  growing  its retail  energy  marketing  business,  and the sale will have no
negative  impact on Energy's  customers or its  operations.  The agreement  with
Buckeye allows Energy to utilize these  terminal  facilities for storage as part
of its distribution network.

LEASING

Leasing total revenues of $76,800 in 2000 increased  $6,800 (10%) as compared to
$70,000  in 1999.  The  increase  is  attributable  in part to a  $75,500  (14%)
increase in net leases and notes  during 2000 as compared to 1999.  Increases in
the lease  portfolio  from new booked volume of $282,100 in 2000 and $252,100 in
1999 exceeded lease  reductions  from collection and provision for credit losses
of $206,600  and  $196,700 in 2000 and 1999,  respectively.  The increase in new
booked volume in excess of leases repaid and bad debt  provisions had the effect
of  increasing  total  revenues.  Total  revenues as a percentage of average net
leases and notes decreased slightly from 13.1% in 1999 to 12.6% in 2000.

Lease  earnings  before income taxes of $20,100 in 2000  increased  $1,900 (10%)
from  $18,200 in 1999.  The 2000  increase  in total  revenues  noted  above was
partially  offset by  increases  in interest  expense and  selling,  general and
administrative  (SG&A)  costs  incurred  to generate  these  revenues in 2000 as
compared to 1999.  While the weighted average interest rate paid on debt remains
constant  in 2000 as  compared  to 1999 at 6.9%,  the  total  interest  costs of
$31,500  increased  $3,900  (14%) in 2000 as compared  to 1999 due to  increased
borrowings  required to finance the growth of the lease  portfolio  noted above.
The SG&A expenses of $17,300 in 2000 increased $1,100 (7%) from 1999,  primarily
the result of additional  personnel and incentive  costs  relating to additional
new leases  booked.  The provision for credit losses of $7,900 in 2000 decreased
$100 (1%) as compared to 1999 based on Telmark's  analysis of reserves  required
to provide for uncollectible receivables.  Telmark's allowance for credit losses
is based on a periodic review of the collection history of past leases,  current
credit  practices,  an analysis of  delinquent  accounts,  and current  economic
conditions.  At June 2000, the allowance for credit losses was $32,500  compared
to $30,000 at June 1999.  During  2000 and 1999,  the general  economy  remained
strong and the total value of non-earning accounts increased from $4,900 in 1999
to $6,000 in 2000 and as a  percentage  of lease  portfolio  remained at 0.9% in
both  years.  Reserves  are  established  at  a  level  management  believes  is
sufficient to cover estimated losses in the portfolio.



                                       16

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


INSURANCE

Insurance  Group  total net  revenues  of  $27,200 in 2000  decreased  $800 (3%)
compared to $28,000 in 1999. The decline was  experienced in net earned premiums
of Agway Insurance Company.  Reinsurance premiums, which reduce earned revenues,
were higher in 2000 as  compared to 1999.  The 1999  reinsurance  premiums  were
lower  due  to   favorable   claims   development   during   1999  in  the  1995
experienced-rated  reinsurance  contract.  In the Agency,  2000 revenues of $800
were at the same levels as in 1999.

Earnings  before  income  taxes of the Agway  Insurance  Company of $600 in 2000
decreased  $400 (40%) from $1,000 in 1999.  The decline in net earned  premiums,
combined with higher costs from new system implementation,  was partially offset
by  improved  claims  experience  in  2000  as  compared  to  1999.  The  Agency
experienced  a  pre-tax  loss of  $600 in  2000,  an  increased  loss of $100 as
compared to 1999. Higher salary and marketing  expenses cause the increased loss
in 2000.

DISCONTINUED OPERATIONS

As  disclosed  in  Business  and  Properties  (Items  1 and 2),  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 of Agway.  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,
are 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, are
included  in the loss on  disposal  of  retail  in the June  2000  statement  of
operations.  Prior year financial  results have been reclassified to reflect the
retail services business as a discontinued  operation.  The financial disclosure
impact of this decision is detailed in Note 18 to the financial statements.



                                       17

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

1999 COMPARED WITH 1998

RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

Agway's net  earnings  of $1,800 for 1999  decreased  by $39,300  (96%) from net
earnings of $41,100 in 1998. The 1998 net earnings  included  $29,000 net of tax
income  from the  cumulative  effect of a  pension  accounting  change,  $16,000
after-tax  earnings  from 1998  business  activity,  and a $3,800  net loss from
discontinued  operations.  (See the 2000 Management  Discussion and Analysis for
more discussion of the  discontinued  operations.)  The $3,100 reduction in 1999
earnings from business  activity includes a $7,000 reduction in pre-tax earnings
from continuing operations offset by a $3,900 decrease in taxes in 1999 compared
to 1998.  The  decrease  in  pre-tax  earnings  from  continuing  operations  is
principally  a result of  increased  losses of  $7,500  in  Agriculture's  grain
marketing  department and $10,500 in decreased  pension income.  These decreases
are  partially  offset by a $9,600 net increase in income  principally  from the
sale of Country  Products  Group's  Allied seed  business in 1999 as compared to
earnings from Allied's operation in 1998 as well as improved earnings in most of
Agway's other business  activities,  as discussed below. The decrease in pre-tax
earnings and the effects of legal entity  restructuring  caused the reduction to
tax expense in continuing  operations for 1999. An additional $7,300 decrease in
earnings from 1998 to 1999 resulted from  deteriorating  operating  results from
the discontinued retail operations.

On July  8,  1999,  Agway  announced  that it had  become  aware  of  accounting
irregularities in its grain marketing department (the department) and that Agway
had initiated an investigation. It was determined at that time that unauthorized
speculative  positions in commodity instruments were taken within the department
in violation of express  policies,  which  resulted in losses to Agway,  as more
fully described in the Agriculture segment discussion below.

Consolidated  net sales and revenues  from  continuing  operations of $1,221,500
decreased  $78,300 (6%) in 1999 compared to $1,299,800 in 1998. The decrease was
substantially the result of a $93,600 decrease in the sales of agricultural feed
and energy products used in Agway's business, as a result of a decrease in world
market  prices  for those  products.  Additionally,  sales  declined  in 1999 by
$21,900 due to the sale of CPG's  Allied seed  business in the first  quarter of
1999  and by  $6,500  in the  Agriculture  direct  marketing  operations.  These
declines,  among others, were partially offset by sales increases of $24,700 due
to volume improvements in the agricultural feed and energy businesses; increased
sales of $7,500 in CPG,  principally  in the sunflower  and produce  operations;
increased  revenue of $6,900 from Energy's HVAC  installation  and service sales
and growth in electric and gas marketing  sales;  and a $4,500 increase in lease
revenues at Telmark.

Consolidated   operating  expenses  from  continuing  operations  of  $1,191,000
decreased $65,800 (5%) compared to $1,257,000 in 1998. The decrease is primarily
due to  decreased  costs of  products  and  plant  operations  of  $83,600  (8%)
primarily from lower commodity  costs, as noted above. The decline was partially
offset by increased  selling,  general,  and  administrative  (SG&A) expenses of
$16,600 (16%)  substantially due to increased labor costs,  increased  marketing
costs and  increased  professional  services  associated  with several  projects
including year 2000 readiness.

Other income, net, from continuing  operations of $18,900 increased $6,600 (54%)
in 1999 as compared to $12,300 in 1998.  The increase is due to the gain on sale
of CPG's Allied seed  business,  which was partially  offset by lower  patronage
income from CF Industries in 1999 as compared to 1998.

Income tax expense from continuing  operations of $10,300 in 1999 and $14,200 in
1998 results in effective tax rates of 44% and 47%,  respectively.  The level of
the effective rate results substantially from state taxes. Agway does not file a
consolidated  return for state tax purposes and therefore  cannot  recognize the
benefit of operating losses of certain subsidiaries.  This fact combined with an
increase in  non-deductible  goodwill in 1999  increased the effective  rate for
1999 as compared to the effective rate for 1998. Tax expense associated with the
cumulative effect of accounting change adjustment in 1998 totaled $16,500 and is
reflected in the net cumulative  effect amount as disclosed in the  consolidated
statement of operations.

                                       18

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


AGRICULTURE

Total  Agriculture  sales and revenues of $535,200 in 1999  decreased by $16,000
(3%)  compared  to  $551,200  in  1998.  Volume  increases  in  enterprise  feed
operations of $21,700 were more than offset by pricing decreases in the feed and
agronomy sales of  Agriculture's  enterprise units in 1999 compared to 1998. The
pricing   decreases   reflect  the  world  market   conditions  of  agricultural
commodities.  The overall  enterprise  feed unit volume  increase of 10% in 1999
compared to 1998  reflects the  acquisition  of a new feed business in the first
quarter of 1999. The agronomy business unit volume increased in 1999 compared to
1998 and is led by  increased  seed corn units (5%) and soybean seed units (4%).
The service revenues in feed and agronomy  businesses  increased $700 in 1999 as
compared to 1998.

Direct  marketing  sales in 1999 decreased  $2,900 (5%) as compared to 1998. The
sales decrease was attributable to a decrease in grain marketing sales of $3,100
due to lower  wheat sales and lower  commodity  pricing as noted above and lower
sales in the  fertilizer  operations  of $5,400 due  substantially  to the lower
commodity  prices.  The sales  declines in grain  marketing  and the  fertilizer
operations  were  partially  offset by a $5,600  improvement  in the direct seed
operations as a result of the continued growth in the commercial  vegetable seed
business.

The  Agriculture  segment pre-tax loss of $12,400 in 1999 is $5,500 (79%) higher
than the $6,900 loss in 1998. Of the $5,500  increase in losses,  $7,500 is from
the grain  marketing  department.  As discussed more fully below,  Agriculture's
grain marketing department produced $8,600 in pre-tax losses in 1999 compared to
a $1,100 loss in 1998. The above increased  losses were partially  offset by the
improved operating results in 1999 achieved by the agricultural enterprises from
the sales of feed and agronomy products and services.

On June 28, 1999,  it was disclosed to Agway's  management  by personnel  within
Agriculture's  grain marketing  department (the  department) that records within
the department had been falsified to conceal losses from unauthorized  activity.
An  investigation,  under  guidance  from  external  legal counsel and including
internal legal counsel, internal financial staff, external auditors, and private
investigators,  has been conducted.  Reports on the investigation  findings have
been made directly to the Board of Directors.  The  investigation has determined
that  unauthorized  speculative  positions in commodity  instruments  were taken
within the department in violation of express policies, which resulted in losses
to Agway.  Through  falsification  of market  values  on  inventory  held and on
forward  contracts and improper  accounting for premiums on options sold, losses
were  concealed  within  the  department, resulting  in misreported  earnings by
Agway for the fourth  quarter  of the year  ended June 1998 and the first  three
quarters of fiscal 1999, which were corrected,  at the time of the filing of the
1999 annual report, by amending the annual and quarterly reports affected. In an
effort to recover these losses,  additional  speculative  positions in commodity
instruments were taken within the department throughout 1999. In addition, while
the  unauthorized  activity  was  occurring,  the  department  did not hedge its
inventory and forward contracts, in violation of express policies,  which led to
further losses from the department's  operations.  The 1999 loss includes $5,500
from  unauthorized   speculation  in  commodity   instruments  and  $3,100  from
operations,  due in part to violating  Agway policy by not hedging  positions in
inventory  and  forward  contracts.  To assure  adherence  to policies on use of
commodity instruments,  Agway has since reorganized the operating,  control, and
reporting structures of the department,  reassigned  management  responsibility,
and reduced the scope of its business  activity.  However,  during the period it
took to close the unauthorized  speculative  commodity  instrument positions and
hedge the open inventory and forward contract  positions,  further market losses
of approximately $1,300 were incurred,  which are reflected in Agway's Form 10-K
for the year ended June 2000.



                                       19

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


AGRICULTURE (CONTINUED)

Overall,  Agriculture  operations  product  margins in 1999 improved $7,200 (6%)
over 1998.  The feed and agronomy  businesses  improved  product  margins $9,400
(10%) in 1999 as compared to 1998. Feed product margins increased as a result of
the combined  increased feed tonnage,  improved pricing  strategies during 1999,
and the  acquisition  of a new  feed  business  in the  first  quarter  of 1999.
Agronomy product margins  increased from improved  margins in fertilizers,  lime
and  pesticides.  The  product  margin  improvements  in the feed  and  agronomy
businesses  were  partially  offset by a decline  of $1,600 in direct  marketing
product margins.  A $7,600 decrease in grain marketing  margins due to the grain
marketing  losses noted above is partially  offset by improved  margins from the
direct seed operations and by absence this year of the prior year's  unfavorable
experience with  exchange-traded  futures in our feed procurement  business.  In
addition to the improved product margins,  the feed and agronomy  businesses had
increased service revenues of $1,300 (6%) in 1999 over 1998.

Agriculture  operations  expenses  increased  $9,400 (7%) in 1999 as compared to
1998.  The increase is  substantially  due to increased  costs  associated  with
increased unit volume sales in the feed and agronomy businesses ($7,500) and the
seed and fertilizer operations ($2,500) of direct marketing.

Finally,  other  revenues  declined  $3,500 (62%) mainly due to lower  patronage
refunds from CF Industries,  and net interest costs  increased $800 (11%) due to
the increased costs of carrying higher asset levels in 1999 as compared to 1998.

COUNTRY PRODUCTS GROUP

Total sales and revenues of $171,700 in 1999 decreased  $14,400 (8%) compared to
$186,100 in 1998.  The sales and  revenues  from the  continuing  operations  of
Country  Products  Group (CPG)  showed a net  increase of $7,500 (5%) in 1999 as
compared to 1998.  The majority of the growth in sales came from two  divisions:
The Business Group ($5,600) and The Produce Group ($1,800). The Business Group's
sunflower  seed operation  experienced  increased bird food sales over the prior
year and increased  volume of human edible  sunflower  seed sales from increased
capacity from a new  processing  plant that became  operational  in 1999.  These
improvements were partially offset by lower sales in the flour operations due to
low wheat prices and in bean  operations  due to lower export  demand in 1999 as
compared to 1998.  The Produce  Group sales growth is  substantially  due to the
acquisition  of new  produce  businesses  during  the second  half of 1999.  The
overall  decrease  in CPG sales for 1999 is the result of the sale of the Allied
seed business in the first  quarter of 1999,  which lowered sales in the current
year by $21,900.

CPG pre-tax  earnings of $12,100 in 1999  increased  $5,900 (95%) from $6,200 in
1998.  The  increase in 1999  pre-tax  earnings  includes a net  improvement  in
pre-tax  earnings  of $9,600  from the sale of Allied  Seed which was  partially
offset by $2,300 in start-up costs  incurred in 1999 related to initiatives  for
future  growth in CPG's  Investment  Group and a $900  charge to reflect  equity
accounting for CPG's investment in Planet Polymer. The Business Group's bean and
flour operations and the Produce Group  operations  realized  increased  pre-tax
earnings of $900 due to stronger  gross margins during 1999 as compared to 1998.
Finally,  despite the increase in sales in the Business  Group's  sunflower seed
operation  noted  above,  higher cost of product in 1999 as compared to 1998 and
new expenses being incurred from the  implementation of the new processing plant
lowered pre-tax results in this business by $1,100.



                                       20

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


ENERGY

Total Energy sales and revenues of $451,900 in 1999  decreased  $53,200 (11%) as
compared to $505,100 in 1998.  The excess of supply in the world energy  markets
has driven competitive pricing down and reduced sales dollars by $62,900 in 1999
as  compared to 1998.  The  reduced  Energy  sales were  partially  offset by an
increase  in revenue of $6,900  from HVAC  installation  and  service  sales and
continued  growth in the new electric and gas marketing  business.  In addition,
sales increased  $3,000 from increased unit volume of liquid  petroleum  product
sales.  A 23%  increase  in sales of power  fuels to  commercial  customers  was
substantially  reduced by the  results of a decision  not to renew a  low-margin
commercial  contract  in heating oil and a  reduction  in sales of retail  power
fuels.  A planned  reduction in the number of retail  storage  tanks in place in
1999 as compared to 1998 decreased retail sales of power fuels.

Pre-tax earnings from operations of $13,000 for 1999 increased $5,000 (63%) from
$8,000 in 1998.  The same  imbalance  of supply and demand  noted above  reduced
energy  commodity  costs in 1999 over 1998 and along with increased HVAC and new
business  revenues  provided for increased overall gross margins on all products
of $12,300 (8%) as compared to 1998. The  improvements  to gross margins in 1999
were partially offset by a $9,000 (6%) increase over the prior year in operating
expenses.  The operating expense increase  resulted from increased  distribution
labor costs,  increased  marketing  costs and  increased  administrative  costs,
principally  information systems costs related to year 2000 readiness.  Interest
expense  declined  $2,800  in  1999  due to  lower  asset  levels  (particularly
inventory  and  receivables)  during 1999 as compared  to 1998.  Other  revenues
generated  from thruput  product in Energy's  system  decreased  $700 in 1999 as
compared to 1998.

LEASING

Total revenues of $70,000 in 1999  increased  $4,500 (7%) as compared to $65,500
in 1998. The increase is attributable in part to a $55,400 (11%) increase in net
leases  and  notes  during  1999 as  compared  to 1998.  Increases  in the lease
portfolio  from new  booked  volume of  $252,100  in 1999 and  $227,300  in 1998
exceeded  lease  reductions  from  collection and provision for credit losses of
$196,700  and $177,400 in 1999 and 1998,  respectively.  The net increase in new
booked  volume  has the  effect of  increasing  revenues.  Total  revenues  as a
percentage of average net leases and notes decreased from 13.5% in 1998 to 13.1%
in 1999.

Pre-tax earnings of $18,200 in 1999 increased $2,800 (18%) from $15,400 in 1998.
The 1999  increase  in total  revenues  noted  above  was  partially  offset  by
increases in interest  costs,  SG&A costs and in the provision for credit losses
in 1999 as compared to 1998.  While the  average  cost of interest  paid on debt
decreased from 7.2% to 6.9%,  the interest costs of $27,600  increased $700 (3%)
in 1999 as compared to 1998 due to increased  borrowings required to finance the
growth of the lease portfolio noted above.  The SG&A expenses of $16,200 in 1999
increased $600 (4%) from 1998,  primarily the result of additional personnel and
incentive  costs  relating to additional  new leases  booked.  The provision for
credit losses of $8,000 in 1999 increased $400 (5%) as compared to 1998 based on
Telmark's   analysis   of  reserves   required  to  provide  for   uncollectible
receivables.  Periodically,  Telmark  reviews its  allowance  for credit  losses
considering an analysis of delinquent  accounts,  current  economic  conditions,
estimated residual values and the creditworthiness of Telmark customers. At June
30,  1999,  the  total  value of  non-earning  accounts  increased  to $4,900 as
compared to $3,000 in 1998 and as a percentage  of lease  portfolio  was 0.6% in
1998 and 0.9% in 1999.


                                       21

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


INSURANCE

Total net revenues of $28,000 in 1999 increased $700 (3%) as compared to $27,300
in 1998.  The  increase  was  experienced  in the net earned  premiums  of Agway
Insurance  Company.  A reduction in the frequency  and severity of  catastrophic
claims and favorable claims development in the 1995 experience rated reinsurance
contract  resulted in lower  reinsurance  premium cost incurred by the Insurance
Company in 1999 as compared to 1998.  In Agency,  1999 revenues were at the same
levels as in 1998.

Pre-tax  earnings of the Insurance  Company of $1,000 increased $800 (400%) from
$200 in 1998. The improved earnings  resulted  principally from a return to more
historical  levels of  commission  expense as  compared  to a large  increase in
commission  expense in 1998.  The Agency  experienced  a pre-tax loss of $500 in
1999 and 1998.  This is  principally  related to  expenses  associated  with the
Agency's  provision  of  administrative  management  services to Agway  business
units.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

During the year ended June 2000, cash from sale of discontinued operations, from
sale of other  assets,  and from  external  borrowings  funded the growing lease
portfolio of Telmark,  the significant  working capital growth,  particularly in
Energy, capital improvements,  business acquisitions, and shareholder dividends.
During  the years  ended  June 1999 and 1998,  cash  generated  from  continuing
operations,  from sale of businesses and/or assets, and from external borrowings
was Agway's  major  source of funds to finance the growing  lease  portfolio  at
Telmark, capital improvements, business acquisitions, and shareholder dividends.
<TABLE>
<CAPTION>
                                                                   June 2000        June 1999        June 1998
                                                                 ------------      -----------      -----------
<S>                                                              <C>               <C>              <C>
Net cash flows from (used in):
       Continuing operating activities........................   $    (37,738)     $    31,007      $    40,331
       Discontinued operating activities......................         35,995             (391)             237
       Investing activities...................................        (95,291)         (78,576)         (78,296)
       Financing activities...................................        121,798           50,736           38,039
                                                                 ------------      ------------     -----------
Net increase (decrease) in cash and equivalents...............   $     24,764      $     2,776      $       311
                                                                 ============      ============     ===========
</TABLE>

CASH FLOWS FROM OPERATIONS

The $68,700 decline in net cash flows from continuing  operating activities from
a net cash inflow of $31,007 in 1999 to a net cash outflow of $37,738 in 2000 is
due substantially to a higher need for working capital. In 2000, working capital
needs increased  $47,400,  principally as a result of high energy product costs,
substantially   driving  up  the  carrying   value  of  inventory  and  accounts
receivable.  In  1999,  working  capital  reductions,  due  principally  to  low
agricultural and energy commodity prices, provided $15,300 of cash to continuing
operations.

The decline in net cash flows from continuing  operating activities of $9,300 in
1999 as compared to 1998 is due in part to $27,000  higher cash earnings in 1998
as compared  to 1999 and a lower need for working  capital of $17,700 in 1999 as
compared to 1998.






                                       22

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CASH FLOWS FROM INVESTING

The  most  significant  use of cash  over  the  past  three  years  has  been in
connection  with Agway's growing lease financing  business  (Telmark).  The cash
requirements  to fund  lease  origination  growth in excess of lease  repayments
amounted to $83,400,  $63,500 and $57,400 in 2000, 1999 and 1998,  respectively.
Capital expenditures and business acquisitions required cash of $32,700, $35,200
and $25,700 for 2000, 1999 and 1998, respectively.

Cash  flow  used in  investing  was  partially  funded  by cash  generated  from
investing  activities,  principally  the proceeds  from the disposal of business
and/or property and equipment, which amounted to a total of $23,200, $19,000 and
$4,600 in 2000, 1999 and 1998, respectively.

CASH FLOWS FROM FINANCING

Agway  finances its  operations  and the operations of all of its businesses and
subsidiaries  through Agway Financial  Corporation  (AFC).  External  sources of
short-term financing for Agway and its continuing  operations,  other than Agway
Insurance  Company and  Telmark,  include  revolving  credit  lines,  letters of
credit,  and a commercial  paper  program.  Insurance  finances  its  activities
through  operations.  Telmark's finance  arrangements are explained below. As of
June 2000,  Agway had certain  facilities  available  with banking  institutions
whereby  lenders  have  agreed to provide  funds up to  $401,700  to  separately
financed units of the Company as follows:  AFC - $65,000 and Telmark - $336,700.
In addition,  AFC may issue up to $50,000 of commercial paper under the terms of
a separate agreement, backed by a bank standby letter of credit.

AFC
The specifics of these AFC arrangements are as follows:
<TABLE>
<CAPTION>
                                                                Outstanding
                                          Available      -------------------------
                                          June 2000       June 2000      June 1999     Term Expires
                                         ----------      ----------     ----------     -------------
<S>                                      <C>             <C>            <C>            <C>
Short-term line of credit*............   $   65,000      $   51,900     $        0     December 2000
Commercial paper......................   $   50,000      $   50,000     $   38,500     December 2000
</TABLE>

*AFC's  short-term line of credit facility  decreases to $50,000 for August 2000
through  December 2000, to reflect the decline in seasonal  financing  needs and
expected financing requirements through that date.

The $65,000  short-term line of credit and the $50,000 commercial paper facility
available  to AFC at June  2000,  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  $3,000  and  $4,700  at June  2000 and  1999,  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 2000 to
permit AFC to borrow  amounts to meet the ongoing needs of Agway and is expected
to continue to do so. In addition, the agreements include certain covenants, the
most restrictive of which requires Agway to maintain  specific  quarterly levels
of interest  coverage,  monthly levels of tangible  retained  earnings,  monthly
current ratios, and limits available credit to a multiple of earnings as defined
in the agreement.  Other  covenants  limit capital  expenditures  to agreed upon
levels during the term of the  agreements,  require the monthly  maintenance  of
senior  liabilities to tangible  capital ratios as defined in the agreements and
the  maintenance of a minimum total of $425,000 in Agway preferred stock and AFC
subordinated   debt.  The  required   minimum  level  of  preferred   stock  and
subordinated debt has historically been at levels that do not interfere with the
normal volume of requests  Agway has received and  fulfilled to repurchase  such
securities at par value or principal amount prior to maturity.




                                       23

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CASH FLOWS FROM FINANCING (CONTINUED)

AFC (continued)
The  earnings  level as  measured  at June 2000 was not  adequate to support the
borrowing level under these agreements. Borrowing requirements since autumn 1999
have been and remain high relative to the prior year. This has principally  been
to support high working  capital  requirements,  particularly  in Agway's energy
business, where cost of petroleum products has increased accounts receivable and
inventory levels.  For the year ended June 2000, Agway did not meet the interest
coverage,  tangible  retained  earnings,  or  the  multiple  of  earnings  ratio
covenants set forth in the agreements.  Additionally, for the months of July and
August 2000, we did not meet the current ratio  covenant.  The banks have waived
violations of covenants and borrowing limits and have amended these measurements
and covenants to agreed upon levels of financial  performance  through  December
2000, the remaining term of these credit  arrangements.  These revised borrowing
limits and  financial  covenants  are  expected to  continue  to be  restrictive
through December 2000, and, given the historical volatility of Agway's operating
results, may be violated in the ensuing months.  Agway, however, is anticipating
a continuation of high-cost  petroleum  products through the winter of 2001 and,
accordingly,  has commenced  negotiations  with several  lenders to increase and
restructure its credit  facilities  effective  January 1, 2001. The restructured
credit facilities are anticipated to include increased lines of credit without a
commercial  paper program.  Agway's  existing  banks have expressed  interest in
participating in the  restructured  lines of credit at reduced levels from their
current  commitments.  AFC  annually  renews its lines of credit in the  quarter
ended  December 31. Agway expects to continue to have  appropriate  and adequate
financing to meet its ongoing needs.  However,  we are presently in negotiations
for these new  credit  facilities;  therefore,  there is no  assurance  that the
Company  will  achieve the desired  levels of  financing,  and the terms of such
financing, as unltimately negotiated, cannot be determined at this time.

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

In October 2000, $50,700 of subordinated money market certificates issued by AFC
will mature.  Agway expects to refinance this debt either through a new issue of
subordinated debt,  through cash from operations,  through sales of discontinued
assets, through short-term bank borrowings, or a combination thereof.

Telmark
Telmark finances its operations and lease portfolio growth  principally  through
payments  received on existing  leases,  which  totaled  $198,700,  $188,600 and
$169,800 in 2000,  1999 and 1998,  respectively.  Additionally,  Telmark's  cash
flows from  operations,  which were $24,400,  $22,800 and $21,200 for 2000, 1999
and 1998,  respectively,  as well as borrowings  under lines of credit,  private
placements  of debt with  institutional  investors,  sales of  debentures to the
public,  and lease-backed asset securitization all provide financing sources for
Telmark.

At June 2000,  Telmark has credit  facilities  available  from banks which allow
Telmark to borrow up to an aggregate of $336,700. Uncommitted short-term line of
credit agreements permit Telmark to borrow up to $86,700 on an  uncollateralized
basis with interest paid upon maturity.  The lines bear interest at money market
variable rates. A committed  $250,000  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 June 2000 and 1999 under the
short-term  lines of credit were $75,200 and $164,500,  respectively,  and under
the revolving  term loan facility were $35,000 and $156,300,  respectively.  The
portion of the

                                       24

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CASH FLOWS FROM FINANCING (CONTINUED)

Telmark (continued)
revolving  term  loan  that is  short  term at June  2000  and 1999 was $500 and
$8,300,  respectively.  Telmark  borrows  under  its  short-term  line of credit
agreement  and its  revolving  term  agreement  from  time  to time to fund  its
operations. Short-term debt serves as interim financing between the issuances of
long-term debt.  Telmark renews its lines of credit annually.  The $86,700 lines
of credit  all have terms  expiring  during  the next 12  months.  The  $250,000
revolving term loan facility is available through August 1, 2001.

At June 2000, Telmark also had balances  outstanding on uncollateralized  senior
note private placements totaling $122,000.  Interest is payable  semiannually on
each senior note.  Principal  payments are both semiannual and annual.  The note
agreements are similar to each other and each contains financial covenants based
on Telmark's  financial  statements,  the most restrictive of which prohibit (i)
tangible  net  worth  (defined  as  consolidated   tangible  assets  less  total
liabilities  (excluding  any notes payable to Agway  Holdings,  Inc.-AHI))  from
being less than an amount equal to or greater than the sum of $85,000,  plus 50%
of all net income (if a positive  number)  for all  fiscal  years  ending  after
January 1, 2000 (as of June 2000,  required minimum net worth is $90,900),  (ii)
the ratio of (a) total liabilities less subordinated notes payable to AHI to (b)
members' equity plus subordinated notes payable to AHI from exceeding 5:1, (iii)
the ratio of earnings  available  for fixed charges from being less than 1.25:1,
and (iv) equity distributions and restricted investments (as defined) made after
July 1, 1999, to exceed 50% of consolidated  net income for the period beginning
on July 1, 1999, through the date of determination,  inclusive. As of June 2000,
$900 of Telmark's member equity was free of this restriction. For the year ended
June 2000,  Telmark  complied with all its covenants  contained in its borrowing
arrangements.

Telmark,  through  three  wholly owned  special  purpose  subsidiaries,  has six
classes of lease-backed notes outstanding  totaling $118,300 and $58,800 at June
2000 and 1999, respectively,  payable to insurance companies.  Interest rates on
these classes of notes range from 6.5% to 9.1%. The notes are  collateralized by
leases,  which Telmark sold to these  subsidiaries,  having an aggregate present
value of contractual lease payments equal to the principal balance of the notes,
and the notes are further  collateralized by the residual values of these leases
and by segregated  cash  accounts.  The scheduled  maturity of these notes is in
varying amounts and dates through December 2008.

Telmark  registers  with the SEC from  time to time to offer  debentures  to the
public.  The  debentures  are unsecured and  subordinated  to all senior debt at
Telmark.  The  interest  on the debt is paid on  January 1, April 1, July 1, and
October 1 of each year and may,  at the  holder's  option,  be  reinvested.  The
offering of the debentures is not underwritten, and there can be no guarantee as
to the amount of debentures,  if any, that will be sold. Telmark's  subordinated
debentures  bear  interest at a rate that is the greater of the stated rate or a
rate based upon an average  discount rate for U.S.  Government  Treasury  Bills,
with maturities of 26 weeks.  Telmark debentures as of June 2000 are due between
March 2001 and March 2008 and bear a weighted  average interest rate of 8.1%. As
of June 2000,  approximately  $37,400 of debentures were outstanding under these
offerings.

Telmark  conducts  ongoing   discussions  and  negotiations  with  existing  and
potential  lenders for future  financing  needs.  Agway  believes  Telmark  will
continue to have appropriate and adequate  short-term and long-term financing to
meet its ongoing needs.



                                       25

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CASH FLOWS FROM FINANCING (CONTINUED)

Sources of longer-term financing of Agway include the following as of June 2000:
<TABLE>
<CAPTION>
Source of debt                                                      Agway           AFC          Telmark         Total
--------------                                                   ------------   ------------   ------------   ----------
<S>                                                              <C>            <C>            <C>            <C>
Banks - due 7/00 to 4/04 with interest
      from 5.57% to 8.58%.....................................   $         0    $       525    $   164,000    $  164,525
Insurance companies - due 7/00 to 2/07
      with interest from 6.47% to 9.05%.......................             0              0        240,256       240,256
Capital leases and other - due 2000 to 2018
      with interest from 7.5% to 10%..........................        11,336          2,432              0        13,768
                                                                 ------------   ------------   ------------   ----------
           Long-term debt.....................................        11,336          2,957        404,256       418,549
Subordinated money market certificates - due
      10/00 to 10/14 with interest from 4.5% to 9.5%..........             0        430,299              0       430,299
Subordinated debentures - due 2001 to 2008
      with interest at 6.0% to 8.75%..........................             0          7,177         37,398        44,575
                                                                 ------------   ------------   ------------   ----------
           Total subordinated debt............................             0        437,476         37,398       474,874
                                                                 ------------   ------------   ------------   ----------
                Total debt....................................   $    11,336    $   440,433    $   441,654    $  893,423
                                                                 ============   ============   ============   ==========
</TABLE>


                                       26

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


OTHER MATTERS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

Agway is including the following  cautionary statement in this Form 10-K 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.  Certain
factors  that  could  cause  actual  results  to differ  materially  from  those
projected  have been  discussed  herein and include the factors set forth below.
Other  factors  that could cause  actual  results to differ  materially  include
uncertainties of economic,  competitive and market decisions and future business
decisions,  all of which are difficult or impossible to predict  accurately  and
many of which are beyond the control of Agway.  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 "believe," "expect," and "anticipate" and similar expressions identify
forward-looking statements.

ENVIRONMENTAL ISSUES

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 at sites with underground
fuel  storage  tanks.  We  will  also  incur  other  expenses   associated  with
environmental  compliance.  As part of its  long-term  environmental  protection
program,  Agway spent  approximately  $400 in 2000 on capital  projects  related
principally to comply with  Pennsylvania  above-ground  storage tank regulation.
Agway  expects  to  have  approximate  expenses  in the  amount  of $500 in 2001
associated with this compliance.

At June 2000,  Agway was 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 we could be required to pay in excess of our 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 the determination of our 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   is   estimable.   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  reserves
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.



                                       27

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


YEAR 2000

The Company had no material  issues  relating to the  millennium  date change on
January 1, 2000,  the leap year on February  29,  2000,  or the  month-end,  the
quarter-end,  or year-end processing.  As previously disclosed,  Agway initiated
its year 2000 efforts in January  1996 and  completed  extensive  work to assure
that the Company's operations were not impacted by the century date change as of
January 1, 2000.  Our efforts  focused on  information  system  modification  or
replacement,  as well as a review of all other areas within the Company that may
be  impacted by this  event.  Business  contingency  and  continuity  plans were
developed, and a command center was established to monitor and react to critical
business  interruptions,  if any,  either prior or subsequent to the  millennium
date change.

The  Company's  cost of  conversion  and  testing of  existing  systems  and the
replacement  of  systems  was  approximately  $15,900,  of  which  85% has  been
capitalized.  Additionally,  the cost to have  remediated all other areas of the
Company was approximately $2,500 and was expensed when incurred.

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

AGRICULTURAL ECONOMY AND OTHER FACTORS

The financial  condition of Agway can be directly  affected by factors affecting
the agricultural economy, since these factors impact the demand for our products
and the  ability of our  customers  to make  payments  for  products or services
already purchased through credit extended by us. These factors may include:  (i)
changes in government  agricultural programs that may adversely affect the level
of  income  of  customers  of  Agway;  (ii)  weather-related   conditions  which
periodically  occur that can impact the agricultural  productivity and income of
the customers of Agway;  and (iii) the relationship of demand relative to supply
of agricultural  commodities  produced by customers of Agway.  Agway can also be
affected by major international  events, like the downturn in foreign economies,
which  can  affect  such  things  as  the  price  of  commodities  we use in our
operations as well as the general level of interest rates.

Federal  agricultural  legislation,  formally  known as The Federal  Agriculture
Improvement  and Reform Act of 1996,  replaced  the former  program of  variable
price-linked  deficiency  payments with fixed  payments to farmers which decline
over a seven-year  period.  This  legislation  also eliminated  federal planting
restrictions and acreage controls allowing farmers more flexibility to plant for
the market. The impact of this legislation on the agricultural  economy,  and on
the  financial  condition  of Agway,  is not expected to be  significant  in the
short-term.

The financial  condition of Agway Energy Products is impacted by factors such as
weather  conditions in the Northeast and the  relationship  of supply and demand
for  petroleum  products  worldwide as well as within  Agway's  market.  Agway's
agricultural and insurance  businesses can be impacted by weather  conditions as
well as from fluctuations in the economy in the northeastern United States that,
in  general,  affect  consumer  demand for  products.  To the extent  that these
factors adversely affect our customers,  the financial  condition of Agway could
be adversely affected.

FUTURE ACCOUNTING REQUIREMENTS

See Note 1 to consolidated financial statements.


                                       28

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)


Market risk represents the risk of loss that may impact the financial  position,
results  of  operations,  or cash  flows  of Agway  due to  adverse  changes  in
financial and commodity  market prices and rates.  We are exposed to market risk
in the areas of  interest  rates  and  commodity  prices.  These  exposures  are
directly  related to our normal funding and investing  activities and to our use
of agricultural and energy commodities in the operation of our business.

INTEREST RATE EXPOSURE

We do not use  derivatives or other interest rate  instruments to hedge interest
rate risk due to the fixed rate nature of the majority of our debt  obligations.
The following table provides  information about the other financial  instruments
that are sensitive to changes in interest  rates.  The table presents  principal
cash flows and related  weighted  average  interest  rates by expected  maturity
dates.
<TABLE>
<CAPTION>
                                                                                                                         Fair Value
                                     2001        2002        2003         2004        2005     Thereafter      Total     June 2000
                                  ----------  ---------   ---------   -----------  ----------  ----------   ----------   ----------
<S>                               <C>         <C>         <C>         <C>          <C>         <C>          <C>          <C>
ASSETS
Available-for-sale securities..   $   4,319   $   4,760   $   4,539   $    1,957   $   5,147   $   17,676   $   38,398   $   38,844
Weighted average interest rate.       6.13%       6.35%       6.41%        6.47%       6.07%        6.33%

LIABILITIES
Bank lines of credit - AFC.....      51,900                                                                     51,900   $   51,900
Weighted average interest rate.      10.15%

Bank lines of credit - Telmark.      75,676                                                                     75,676       75,676
Weighted average interest rate.       7.36%

Long-term debt, including
   current portion - Telmark...     132,773     104,257      85,010       69,842       8,648        3,726      404,256      411,071
Weighted average interest rate.       6.90%       6.98%       7.11%        6.87%       7.69%        7.75%

Subordinated debentures,
   including current portion -
   Telmark.....................       5,497       7,321      11,071        6,096                    7,413       37,398       35,950
Weighted average interest rate.       6.40%       6.94%       8.43%        8.25%                    8.75%

Commercial paper - AFC.........      50,000                                                                     50,000       50,000
Weighted average interest rate.       5.62%

Long-term debt, including
   current portion - Agway &
   AFC.........................       3,322       5,101       3,805          134         165          206       12,733       12,772
Weighted average interest rate.       8.61%       8.61%       8.46%        7.23%       7.59%        7.44%

Subordinated debentures,
   including current portion -
   AFC.........................                   3,062                    4,115                                 7,177        6,826
Weighted average interest rate.                   7.39%                    7.92%

Subordinated money market
   certificates, including
   current portion - AFC.......      51,628      48,444      35,197       39,306      18,041      237,683      430,299      394,194
Weighted average interest rate.       8.73%       8.27%       6.97%        8.13%       7.66%        7.79%
</TABLE>
Telmark, Agway's leasing business,  endeavors to limit the effects of changes in
interest  rates by matching as closely as  possible,  on an ongoing  basis,  the
maturity and repricing  characteristics  of funds  borrowed to finance its lease
activities  with  the  maturity  and  repricing  characteristics  of  its  lease
portfolio.  However,  a rise in interest  rate would  increase  the cost of that
portion of debt which is not  precisely  matched to the  characteristics  of the
portfolio.  Telmark  has a  formal  risk  management  policy  which  limits  the
short-term  exposure  to an  amount  which  is  immaterial  to  the  results  of
operations or cash flows.  Telmark  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 T-Bills, with maturities of 26 weeks. Based on the T-Bill rate
of 6.0% as of June 2000, as compared to the stated rates of the debentures which
range from 6.0% to 8.8% at June  2000,  we believe  that a  reasonably  possible
near-term change in interest rates and the conversion of debt to a variable rate
would not cause  material  near-term  losses in future  earnings  or cash flows.
Finally, for the portion of debt which is not precisely matched as of June 2000,
we do not believe that reasonably possible near-term increases in interest rates
will result in a material  near-term loss in future  earnings,  fair values,  or
cash flows of Agway.

                                       29

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)

INTEREST RATE EXPOSURE (CONTINUED)

AFC's subordinated money market certificates bear interest at a rate that is the
greater of the stated  rate or a rate  based  upon an average  discount  rate of
T-Bills,  with maturities of 26 weeks.  Based on the T-Bill rate of 6.0% at June
2000 as it compares to the stated rates of the money market  certificates  which
range from 4.5% to 9.5% at June 2000, we believe a reasonably possible near-term
increase in T-Bill rates and the conversion of AFC debt to a variable rate would
not cause material near-term losses in future earnings or cash flows.

The available-for-sale  securities listed above include cash equivalents and the
available for sale investment portfolio. The information disclosed above assumes
that  actual  call  and  prepayment   activity  will  differ  from   contractual
maturities.

COMMODITY PRICE EXPOSURE

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

In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally for gasoline,  distillate,  and propane.  They are entered into as a
hedge  against the price risk  associated  with Energy's  inventories  or future
purchases and sales of the commodities  used in its operations.  Generally,  the
price  risk  extends  for a  period  of one  year or  less.  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 2000,
exchange-traded  commodity  instruments were entered into to principally  manage
the price risk of sunflower  seeds which are  purchased  from growers by CPG and
sold to third-party producers.

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its commodity  instrument  positions as of June 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  position 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 does not reflect the offsetting
impact of market  price  changes  to the  underlying  commodities  for which the
commodity  instruments  are managing  the price risk.  As of June 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:
                                                2000                 1999
                                              ----------          ----------

           Energy..........................   $    4,800          $    1,100
           Country Products Group..........          300                   -
           Agriculture.....................            *                   *
           Grain Marketing (1).............            -               2,900

*     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)   As noted below, grain marketing activity was discontinued during 2000.

                                       30

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)


COMMODITY PRICE EXPOSURE (CONTINUED)

Through May 2000,  the  Agriculture  segment's  grain  marketing  business  used
exchange-traded  commodity  instruments to hedge inventory and forward  purchase
and sales contracts for grains,  principally corn, soy complex, oats, and wheat,
which  were  purchased  and  sold  by  the  grain   marketing   department  (the
department).  The  department  historically  entered into both forward  purchase
contracts  and forward  sales  contracts  (forward  contracts)  with farmers and
others  on a variety  of grain  products.  Agway  recorded  the grain  marketing
program  on  a  mark-to-market   basis  by  adjusting  all  outstanding  forward
contracts,   commodity  instruments,  and  inventory  values  to  market  value.
Effective  May  2000,  the  grain  marketing   business  ceased  operations  and
liquidated all commodity instrument positions.



                                       31

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                          INDEX TO FINANCIAL STATEMENTS

                                                                                                          PAGES
                                                                                                          -----
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES:
       <S>                                                                                                   <C>
       Agway Inc. Report on Financial Statements.........................................................    33

       Report of Independent Accountants.................................................................    34

       Consolidated Balance Sheets, June 24, 2000 and June 26, 1999......................................    35

       Consolidated Statements of Operations, fiscal years ended June 24, 2000, June 26, 1999
             and June 27, 1998...........................................................................    36

       Consolidated Statements of Comprehensive Income, fiscal years ended June 24, 2000,
             June 26, 1999 and June 27, 1998.............................................................    37

       Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended
             June 24, 2000, June 26, 1999 and June 27, 1998..............................................    38

       Consolidated Statements of Cash Flow, fiscal years ended June 24, 2000, June 26, 1999
             and June 27, 1998...........................................................................    39

       Notes to Consolidated Financial Statements........................................................    40

</TABLE>

ITEM 9. CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING   AND
        FINANCIAL DISCLOSURE

       There were no changes in or disagreements  with accountants on accounting
and financial disclosure.



                                       32

<PAGE>



                    AGWAY INC. REPORT ON FINANCIAL STATEMENTS


The  accompanying  consolidated  financial  statements have been prepared by the
Company in  conformity  with  accounting  principles  generally  accepted in the
United  States.  The integrity and  objectivity  of the data in these  financial
statements,  including estimates and judgments, are the responsibility of Agway,
as is all other information included in this annual report.

The   consolidated   financial   statements  of  Agway  Inc.  and   Consolidated
Subsidiaries  have  been  audited  by  PricewaterhouseCoopers  LLP,  independent
auditors,    whose    report    follows.    Agway   has   made    available   to
PricewaterhouseCoopers  LLP all of the Company's  financial  records and related
data, as well as the minutes of Directors' meetings. Furthermore, Agway believes
that all  representations  made to  PricewaterhouseCoopers  LLP during its audit
were valid and appropriate.

Agway  maintains a system of internal  accounting  controls  intended to provide
reasonable  assurance,  given the inherent  limitations of all internal  control
systems, at appropriate costs, that transactions are executed in accordance with
Company  authorization,  are properly  recorded  and  reported in the  financial
statements, and that assets are adequately safeguarded.

The Audit Committee of the Board of Directors, which consists of seven directors
who are not employees,  meets  periodically  with management and the independent
auditors   to  review   the   manner  in  which   they  are   performing   their
responsibilities  and to discuss auditing,  internal  accounting  controls,  and
financial  reporting matters.  The independent  auditors have free access to the
Audit Committee.



                                                   AGWAY INC.



                                                   BY   /s/ DONALD P. CARDARELLI
                                                            DONALD P. CARDARELLI
                                                               President and CEO
                                                                 August 30, 2000



                                                   BY      /s/  PETER J. O'NEILL
                                                                PETER J. O'NEILL
                                                           Senior Vice President
                                                               Finance & Control
                                                                 August 30, 2000


                                       33

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of Agway Inc.:

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under  Item  14(a)(1)  on page 75  present  fairly,  in all  material
respects,  the financial position of Agway Inc. and its subsidiaries at June 24,
2000 and June 26, 1999, and the result of their  operations and their cash flows
for each of the  three  fiscal  years in the  period  ended  June 24,  2000,  in
conformity with accounting  principles  generally accepted in the United States.
In addition,  in our opinion,  the financial  statement  schedules listed in the
index appearing  under Item 14(a)(2) on page 75 present fairly,  in all material
respects,  the information  set forth therein when read in conjunction  with the
related  consolidated  financial  statements.  These  financial  statements  and
financial   statement   schedules  are  the   responsibility  of  the  Company's
management;  our  responsibility  is to express  an  opinion on these  financial
statements and financial  statement  schedules based on our audits. We conducted
our audits of these statements in accordance with auditing  standards  generally
accepted in the United States,  which require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

As  discussed  in Note 13, the Company  changed its  accounting  for pensions in
1998.




/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP

Syracuse, New York
August 30, 2000



                                       34

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                     ASSETS

                                                                                    JUNE 24, 2000        JUNE 26, 1999
                                                                                   ---------------       -------------
<S>                                                                                <C>                   <C>
Current assets:
      Cash......................................................................   $       29,244        $      4,480
      Trade accounts receivable (including notes receivable of
           $38,755 and $40,585, respectively), less allowance for
           doubtful accounts of $7,204 and $6,139, respectively.................          210,598             162,411
      Leases receivable, less unearned income of $71,944 and $64,330,
           respectively.........................................................          152,255             131,577
      Advances and other receivables............................................           22,401              19,562
      Inventories...............................................................          111,940              86,630
      Prepaid expenses and other assets.........................................           43,273              49,473
                                                                                   ---------------       -------------
           Total current assets.................................................          569,711             454,133
Marketable securities...........................................................           36,254              35,099
Other security investments......................................................           51,472              51,010
Properties and equipment, net...................................................          175,784             176,261
Long-term leases receivable, less unearned income of $167,414 and
      $134,623, respectively....................................................          470,595             419,444
Net pension asset...............................................................          213,455             198,160
Other assets....................................................................           21,110              17,263
Net assets of discontinued operations...........................................           34,278              85,802
                                                                                   ---------------       -------------
           Total assets.........................................................   $    1,572,659        $  1,437,172
                                                                                   ===============       =============

<CAPTION>
                      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                                                                <C>                   <C>
Current liabilities:
      Notes payable.............................................................   $      177,576        $     81,800
      Current installments of long-term debt....................................          136,211              94,472
      Subordinated debt, current................................................           57,125              76,968
      Accounts payable..........................................................           94,046              85,179
      Other current liabilities.................................................          122,060             109,671
                                                                                   ---------------       ------------
           Total current liabilities............................................          587,018             448,090
Long-term debt..................................................................          282,338             277,500
Subordinated debt...............................................................          417,749             409,335
Other liabilities...............................................................          102,963             103,300
                                                                                   ---------------       ------------
           Total liabilities....................................................        1,390,068           1,238,225
Commitments and contingencies...................................................
Shareholders' equity:
      Preferred stock, less amount held in Treasury.............................           39,695              42,917
      Common stock ($25 par--300,000 shares authorized; 173,083 and 172,706
           shares issued, less amount held in Treasury).........................            2,473               2,506
      Accumulated other comprehensive income (loss).............................             (798)               (239)
      Retained earnings.........................................................          141,221             153,763
                                                                                   ---------------       ------------
           Total shareholders' equity...........................................          182,591             198,947
                Total liabilities and shareholders' equity......................   $    1,572,659        $  1,437,172
                                                                                   ===============       ============
</TABLE>

 The  accompanying  notes  are  an  integral  part of the consolidated financial
 statements.

                                       35

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                             JUNE 24, 2000      JUNE 26, 1999      JUNE 27, 1998
                                                             -------------      -------------      -------------
<S>                                                          <C>                <C>                <C>
Net sales and revenues from:
      Product sales (including excise taxes)..............   $   1,322,948      $  1,123,492       $  1,206,986
      Leasing operations..................................          76,785            70,006             65,476
      Insurance operations................................          27,153            27,968             27,335
                                                             -------------      ------------       ------------
           Total net sales and revenues...................       1,426,886         1,221,466          1,299,797
                                                             -------------      ------------       ------------

Cost and expenses from:
      Products and plant operations.......................       1,226,833         1,023,927          1,107,564
      Leasing operations..................................          31,536            27,626             26,871
      Insurance operations................................          15,663            17,152             16,653
      Selling, general and administrative activities......         134,980           122,406            105,818
                                                             -------------      ------------       ------------
           Total operating costs and expenses.............       1,409,012         1,191,111          1,256,906
                                                             -------------      ------------       ------------

Operating earnings........................................          17,874            30,355             42,891
Interest expense, net of interest income of $8,408,
      $8,641 and $9,545, respectively....................          (30,591)          (26,102)           (24,979)
Other income, net........................................           25,733            18,947             12,271
                                                             -------------      ------------       ------------
Earnings from continuing operations before income taxes..           13,016            23,200             30,183
Income tax expense.......................................            6,864            10,259             14,167
                                                             -------------      ------------       ------------

Earnings from continuing operations......................            6,152            12,941             16,016

Discontinued operations:
      Loss from operations, net of tax benefit of $7,313,
           6,086 and 2,090, respectively.................          (13,187)          (11,146)           (3,827)
      Loss on disposal of Retail, net of tax benefit
           of $1,278.....................................           (2,342)                0                 0
                                                             -------------      ------------       -----------
           Loss from discontinued operations.............          (15,529)          (11,146)           (3,827)

Earnings (loss) before cumulative effect of an accounting
      change.............................................           (9,377)            1,795            12,189
                                                             -------------      ------------       -----------

Cumulative effect of accounting change, net of tax
      expense of $16,500.................................                0                 0            28,956
                                                             -------------      ------------       -----------

Net earnings (loss)......................................    $      (9,377)     $      1,795       $    41,145
                                                             =============      ============       ===========


</TABLE>










The accompanying  notes  are  an  integral  part  of  the consolidated financial
statements.

                                       36

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                        JUNE 24, 2000        JUNE 26, 1999       JUNE 27, 1998
                                                                        -------------        -------------       -------------
<S>                                                                     <C>                  <C>                 <C>
Net earnings (loss) ...............................................     $     (9,377)        $     1,795         $    41,145

Other comprehensive income, net of tax:
      Unrealized gains (losses) on available-for-sale securities:
           Unrealized holding gains (losses) arising
               during period.......................................             (608)               (685)                660
           Reclassification adjustment for losses included in
               net income..........................................               49                  21                  45
                                                                        -------------        ------------        ------------
Other comprehensive income (loss) .................................             (559)               (664)                705
                                                                        -------------        ------------        ------------

Comprehensive income (loss)........................................     $     (9,936)        $     1,131         $    41,850
                                                                        =============        ============        ============
</TABLE>




































The  accompanying  notes  are  an  integral  part  of the consolidated financial
statements.

                                       37

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                         COMMON STOCK                       ACCUMULATED
                                                    ----------------------                    OTHER
                                                        (PAR VALUE $25)       PREFERRED    COMPREHENSIVE   RETAINED
                                                      SHARES      AMOUNT       STOCK         INC(LOSS)     EARNINGS        TOTAL
                                                    ---------   ----------   ----------     ----------    -----------   -----------
<S>                                                  <C>        <C>          <C>            <C>           <C>           <C>
Balance June 28, 1997............................    105,552    $    2,639   $   57,541     $    (280)    $  117,851    $  177,751

       Net earnings..............................                                                             41,145        41,145
       Dividends declared........................                                                             (3,634)       (3,634)
       Redeemed, net.............................     (2,714)          (68)      (9,670)                                    (9,738)
       Other comprehensive income................                                                 705              0           705
                                                    ---------   ----------   ----------     ---------     -----------   -----------

Balance June 27, 1998............................    102,838         2,571       47,871           425        155,362       206,229

       Net earnings..............................                                                              1,795         1,795
       Dividends declared........................                                                             (3,394)       (3,394)
       Redeemed, net.............................     (2,597)          (65)      (4,954)                                    (5,019)
       Other comprehensive income................                                                (664)             0          (664)
                                                    ---------   ----------   -----------    ----------    -----------   -----------

Balance June 26, 1999............................     100,241        2,506       42,917          (239)       153,763       198,947

       Net earnings..............................                                                             (9,377)       (9,377)
       Dividends declared........................                                                             (3,165)       (3,165)
       Redeemed, net.............................      (1,342)         (33)      (3,222)                                    (3,255)
       Other comprehensive income................                                                (559)                        (559)
                                                    ---------   ----------   -----------    ----------    -----------   -----------

Balance June 24, 2000............................      98,899   $    2,473   $   39,695     $    (798)    $   141,221   $  182,591
                                                    =========   ==========   ===========    ==========    ===========   ===========

</TABLE>

Common shares, purchased at par value, held in Treasury at year-end were: 74,184
in 2000;  72,465 in 1999;  69,427 in 1998. A common stock  dividend per share of
$1.50 was declared for 2000, 1999 and 1998.  Dividend payments are restricted to
a maximum of 8% of par value per annum. See Note 12 for the details of preferred
stock activity.






















The  accompanying  notes  are  an  integral  part  of the consolidated financial
statements.

                                       38

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                          JUNE 24, 2000        JUNE 26, 1999       JUNE 27, 1998
                                                                          -------------        -------------       -------------
<S>                                                                       <C>                  <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings (loss) ...............................................    $    (9,377)         $    1,795          $   41,145
   Adjustments to reconcile earnings to net cash:
        Net loss from discontinued operations.........................         15,529              11,146               3,827
        Depreciation and amortization.................................         26,171              21,079              23,640
        Receivables and other asset provisions........................         14,378              10,730              11,123
        Net pension income............................................        (19,563)            (21,368)            (31,909)
        Cumulative effect of accounting change, net of tax............              0                   0             (28,956)
        Patronage refund received in stock............................           (679)               (992)             (2,494)
        Deferred income tax expense (benefit).........................         (2,757)              3,841              25,485
        (Gain) loss on disposition of:
             Businesses...............................................         (1,098)            (11,097)                  0
             Other security investments...............................          1,044               1,267                   0
             Properties and equipment.................................        (13,995)               (655)                934
        Changes in assets and liabilities, net of effects of
        businesses acquired or sold:
             Receivables..............................................        (53,539)             18,522              (1,495)
             Inventory................................................        (25,671)              2,381               3,158
             Payables.................................................          9,004              (5,475)              3,056
             Other....................................................         22,815                (167)             (7,183)
                                                                          ------------         -----------         -----------
Net cash flows from (used in) continuing operations...................        (37,738)             31,007              40,331
Net cash flows from (used in) discontinued operations.................         35,995                (391)                237
                                                                          ------------         -----------         -----------
Net cash from (used in) operating activities..........................         (1,743)             30,616              40,568

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of properties and equipment..............................        (27,799)            (27,162)            (23,891)
   Cash paid for acquisitions.........................................         (4,950)             (8,030)             (1,796)
   Disposition of properties and equipment............................         20,591               4,811               4,556
   Purchases of marketable securities available for sale..............         (4,658)             (6,333)            (12,529)
   Sale of marketable securities available for sale...................          2,945               6,982              12,407
   Leases originated..................................................       (282,064)           (252,107)           (227,270)
   Leases repaid......................................................        198,698             188,637             169,827
   Purchases of investments in related cooperatives...................         (1,840)             (2,172)             (2,601)
   Proceeds from sale of investments in related cooperatives..........          1,171               2,648               3,001
   Proceeds from disposal of businesses...............................          2,615              14,150                   0
                                                                          ------------         -----------         -----------
Net cash flows used in investing activities...........................        (95,291)            (78,576)            (78,296)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net change in short-term notes payable.............................         95,776              16,480               5,510
   Proceeds from long-term debt.......................................        143,923             113,852             133,334
   Repayment of long-term debt........................................        (97,225)            (94,553)           (110,654)
   Proceeds from sale of subordinated debt............................        131,572             133,948             118,371
   Redemption of subordinated debt....................................       (143,001)           (109,842)            (94,302)
   Payments on capitalized leases.....................................         (2,716)               (598)               (540)
   Proceeds from sale of stock........................................             13                  45                  18
   Redemption of stock................................................         (3,269)             (5,064)             (9,755)
   Cash dividends paid................................................         (3,275)             (3,532)             (3,943)
                                                                          ------------         -----------         -----------
Net cash flows from financing activities..............................        121,798              50,736              38,039
                                                                          ------------         -----------         -----------

Net increase (decrease) in cash and equivalents.......................         24,764               2,776                 311
Cash and equivalents at beginning of year.............................          4,480               1,704               1,393
                                                                          ------------         -----------         -----------
Cash and equivalents at end of year...................................    $    29,244          $    4,480          $    1,704
                                                                          ============         ===========         ===========

</TABLE>
The  accompanying  notes  are an  integral  part  of  the consolidated financial
statements.

                                       39

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
Agway Inc. was incorporated  under the Delaware General  Corporation Law in 1964
and is headquartered in DeWitt,  New York. Agway is an agricultural  cooperative
directly  engaged in  manufacturing,  processing,  distribution and marketing of
agricultural feed and agronomic products (seed and fertilizers) and services for
its  farmer-members  and other customers,  primarily in the northeastern  United
States and Ohio.  In addition,  Agway is involved in  repackaging  and marketing
produce; and processing and marketing sunflower seeds. Agway, through certain of
its  subsidiaries,  is involved in the distribution of petroleum  products;  the
installation  and  servicing  of  heating,  ventilation,  and air-  conditioning
equipment;  lease  financing;  the  underwriting  and sale of  certain  types of
property and casualty insurance; and the sale of health insurance.

Fiscal Year
The fiscal year-end of Agway Inc. is on the last Saturday in June.  Fiscal years
ended June 24,  2000,  June 26, 1999 and June 27,  1998,  were  comprised  of 52
weeks. The fiscal year-end of certain of Agway's  subsidiaries,  including Agway
Energy Products LLC, Telmark LLC, and Agway Insurance  Company,  is June 30, and
these subsidiaries are consolidated on that basis.

Basis of Consolidation
The consolidated  financial  statements include the accounts of all wholly owned
subsidiaries.  All significant intercompany  transactions and balances have been
eliminated in consolidation.

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

Cash and Equivalents
Agway  considers  all  investments  with a maturity of three months or less when
purchased to be cash equivalents. Certain cash accounts amounting to $10,103 and
$4,480  at June  2000 and  1999,  respectively,  collateralize  certain  Telmark
lease-backed  notes  payable.  This cash is held in segregated  cash accounts by
Telmark pending  distribution and is restricted in its use.  Included in cash at
June 2000 is $19,141 received on June 30, 2000, for the sale of six terminals by
Agway Energy Products LLC. This cash was used to reduce debt on July 1, 2000.

Leases Receivable
Telmark lease  contracts,  which qualify as direct  finance leases as defined by
Statement of  Financial  Accounting  Standards  (SFAS) No. 13,  "Accounting  for
Leases," are  accounted  for by recording on the balance  sheet the total future
minimum lease  payments  receivable,  plus the estimated  unguaranteed  residual
value of leased  equipment,  less the  unearned  interest  and finance  charges.
Unearned  interest and finance charges  represent the excess of the total future
minimum lease payments,  plus the estimated unguaranteed residual value expected
to be  realized  at the end of the  lease  term  over  the  cost of the  related
equipment. Interest and finance charge income is recognized as revenue, by using
the interest  method over the term of the lease,  which for most  commercial and
agricultural  leases  is 60 months or less  with a  maximum  of 180  months  for
buildings.  Income recognition is suspended on all leases and notes which become
past due greater than 120 days.  Initial direct costs incurred in consummating a
lease are  capitalized  as part of the  investment in direct  finance leases and
amortized over the lease term as a reduction in the yield. Provisions for credit
losses are charged to income in amounts  sufficient to maintain the allowance at
a level considered adequate to cover losses in the existing  portfolio.  The net
investment  in a lease is charged  against the  allowance for credit losses when
determined to be uncollectible, generally within one year of becoming past due.



                                       40

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Inventories
Inventories  are  stated  at the  lower  of cost or  market,  except  for  grain
inventories   associated  with  Agriculture's  grain  marketing  program,  which
historically  were marked to market.  Effective  May 2000,  the grain  marketing
program  ceased  operations.  For those  inventories  stated at cost, we use the
average unit cost or the first-in, first-out method.

Commodity Instruments
Commodity  instrument  contracts designated at inception as a hedge, where there
is a direct  relationship  to the  price  risk  associated  with the  underlying
exposure,  are  accounted for under the deferral  method,  with gains and losses
from hedging  activity and premiums  paid for option  contracts  included in the
cost of  sales  as  those  inventories  are  sold or as the  anticipated  hedged
transaction  occurs.  Gains  and  losses  on  early  terminations  of  commodity
instrument  contracts  designated as hedges are deferred and included in cost of
sales  in the  same  period  as the  hedged  transaction.  Commodity  instrument
contracts not designated as effective  hedges of firm commitments or anticipated
underlying transactions are marked to market at the end of the reporting period,
with the resulting gains or losses recognized in cost of sales.

Marketable Securities
All marketable debt securities relate entirely to Agway's Insurance  operations,
are classified as available for sale, and are carried at fair value.  Unrealized
gains and losses,  net of tax, are reported in accumulated  other  comprehensive
income (loss).

Other Security Investments
Other security  investments  consist of capital stock of a cooperative  bank and
other cooperative  suppliers  acquired at par or stated value. This stock is not
traded and is  historically  redeemed on a periodic basis by the issuer at cost.
By its nature,  this stock is held to  redemption  and is  reported at cost.  We
believe it is not  practical  to  estimate  the fair value of these  investments
since there is no established  market and it is inappropriate to estimate future
cash flows which are largely  dependent  on future  earnings of the  cooperative
bank and other cooperative suppliers.

Patronage refunds received from the cooperative bank are recorded as a reduction
of interest expense and totaled  approximately $1,200, $1,400 and $1,600 for the
years ended June 2000, 1999 and 1998,  respectively.  Patronage refunds received
on the stock of other cooperatives are reflected in other income.

Properties and Equipment
Properties and equipment are recorded at cost. Depreciation and amortization are
charged to operations,  principally on a straight-line basis, over the estimated
useful lives of the properties and equipment, and over the term of the lease for
capital  leases.  Ordinary  maintenance and repairs are charged to operations as
incurred.  Gains and losses on disposition or retirement of assets are reflected
in income as incurred.

Other Assets
Other assets  include  approximately  $15,800 and $14,000 at June 2000 and 1999,
respectively,  of  costs in  excess  of the fair  value of net  tangible  assets
acquired in purchase  transactions  (goodwill)  as well as acquired  non-compete
agreements, customer lists, and trademarks. Goodwill and other intangible assets
are amortized on a straight-line  basis ($3,000 over 1 to 10 years,  $9,700 over
15 to 20 years,  and $3,100 over 40 years).  Amortization  included in operating
results totaled  approximately $2,000, $1,500 and $1,200 for fiscal years ending
June  2000,  1999  and  1998,  respectively.   Other  assets  are  reviewed  for
impairment, as described under Impairment of Long-Lived Assets below.



                                       41

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles to be held and used by an
entity  are  to be  reviewed  for  impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If the sum of the expected future  undiscounted cash flows is less
than the carrying amount of the asset, an impairment loss is recognized.  Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.  The  pre-tax  charge for  impairment  is  included  in other
income, net, on the consolidated statements of operations and totaled $400, $700
and $2,200 in 2000, 1999 and 1998, respectively.

Environmental Remediation Costs
Agway accrues for losses associated with environmental  remediation  obligations
when such losses are probable and reasonably  estimable.  Accruals for estimated
losses from environmental  remediation  obligations  generally are recognized no
later than  completion  of the remedial  feasibility  study.  Such  accruals are
adjusted as further  information  develops  or  circumstances  change.  Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties are considered in determining the Company's accrual for these losses.

Excise Taxes
Excise taxes included in product sales were approximately  $68,900,  $61,200 and
$62,900 for the years ended June 2000, 1999 and 1998, respectively.

Advertising/Research and Development Costs
Agway  expenses  advertising  and  research  and  development  costs as they are
incurred.  Advertising  expense for the years ended June 2000, 1999 and 1998 was
approximately  $13,200,  $11,600  and $9,300,  respectively.  Net  research  and
development costs were approximately $2,900, $1,800 and $400 for the years ended
June 2000, 1999 and 1998, respectively.

Income Taxes
Agway is subject to income  taxes on all  income not  distributed  to patrons as
patronage  refunds  and  provides  for  income  taxes  in  accordance  with  the
provisions of SFAS No. 109,  "Accounting  for Income Taxes." Under the liability
method specified by SFAS No. 109,  deferred tax assets and liabilities are based
on the  difference  between the financial  statement and tax basis of assets and
liabilities  as measured by the tax rates that are  anticipated  to be in effect
when these differences  reverse.  The deferred tax provision  represents the net
change in the assets and liabilities for deferred tax. A valuation  allowance is
established  when it is necessary  to reduce  deferred tax assets to amounts for
which realization is reasonably assumed. The provision for income taxes has been
allocated  between   continuing  and  discontinued   operations  for  all  years
presented.

Patronage Refunds
Patronage  refunds  are  declared  and paid at the  discretion  of the  Board of
Directors in accordance  with the  provision of the By-laws of Agway.  Patronage
refunds are based on taxable earnings on patronage  business and, when declared,
are paid in cash.

Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported  amounts of revenues and expenses  during the
reporting period. Actual results could differ from those estimates.



                                       42

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Future Accounting Requirements
The Financial  Accounting  Standards Board issued SFAS No. 133,  "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 (as amended by SFAS
No. 137) is  effective  for all fiscal  quarters of all fiscal  years  beginning
after June 15, 2000, (July 1, 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.  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  instrument  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,  or a forecasted  transaction,
changes in the fair value of the derivative instrument will be reported in other
comprehensive income. The gains and losses on the derivative instrument that are
reported in other  comprehensive  income will be 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 all hedges will be  recognized in
current-period earnings.

The  Company  estimates  that  on  July 1, 2000,  it  will  record a  net-of-tax
cumulative-effect  loss of  $1,100 to  recognize  at fair  value the time  value
component of all option  contracts  which are excluded  from the  assessment  of
hedge effectiveness. The Company also estimates that it will record a net-of-tax
cumulative-effect  gain of $3,100 in other comprehensive  income to recognize at
fair value all derivative  instruments that are designated as cash-flow  hedging
instruments.


                                       43

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


2.  AGWAY FINANCIAL CORPORATION

Agway  Financial  Corporation  (AFC), a wholly owned  subsidiary of Agway,  is a
Delaware  corporation  incorporated  in 1986 with  principal  executive  offices
located in Wilmington,  Delaware. AFC's principal business activities consist of
securing  financing  through bank  borrowings  and  issuance of  corporate  debt
instruments to provide funds for general  corporate  purposes to Agway and AFC's
wholly  owned  subsidiary,  Agway  Holdings  Inc.  (AHI),  and  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,  as of the fiscal year
ended, is as follows:
<TABLE>
<CAPTION>
                                                                          June 2000          June 1999        June 1998
                                                                        -------------      ------------      ------------
<S>                                                                     <C>                <C>               <C>
Net sales and revenues................................................  $    801,350       $   580,883       $   625,555
Operating earnings....................................................        32,933            46,120            46,248
Net earnings (loss)...................................................         6,886            (6,659)             (765)


                                                                          June 2000          June 1999
                                                                        -------------      ------------
Current assets........................................................  $    690,935       $   567,602
Properties and equipment, net.........................................        79,178            86,018
Noncurrent assets.....................................................       618,303           557,688
                                                                        -------------      ------------
Total assets..........................................................  $  1,388,416       $ 1,211,308
                                                                        =============      ============

Current liabilities...................................................  $    112,259       $    67,391
Short-term notes payable..............................................       177,576            81,800
Current portion of long-term debt.....................................       190,524           169,236
Long-term debt........................................................       273,814           264,021
Subordinated debt.....................................................       417,749           409,335
Noncurrent liabilities................................................        13,904            23,262
Shareholder's equity..................................................       202,590           196,263
                                                                        -------------      ------------
Total liabilities and shareholder's equity............................  $  1,388,416       $ 1,211,308
                                                                        =============      ============
</TABLE>



                                       44

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


3.  LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Net investments in leases at fiscal year-end were as follows:
<TABLE>
<CAPTION>
                                                                            June 2000          June 1999
                                                                          -------------      -------------
<S>                                                                       <C>                <C>
Leases (minimum payments):
      Commercial and agricultural....................................     $    860,788       $    740,012
      Retail.........................................................           20,388             28,349
                                                                          -------------      -------------
          Total leases...............................................          881,176            768,361
Unearned interest and finance charges................................         (239,358)          (198,953)
Net deferred origination costs.......................................           13,568             11,591
                                                                          -------------      -------------
      Net investment.................................................          655,386            580,999
Allowance for credit losses..........................................          (32,536)           (29,978)
                                                                          -------------      -------------
      Net leases receivable..........................................     $    622,850       $    551,021
                                                                          =============      =============
</TABLE>
Included  within  the  above  are  estimated  unguaranteed  residual  values  of
leased  property  approximating  $92,700  and  $82,100  at June  2000 and  1999,
respectively.  Additionally,  as of June  2000  and  1999,  the  recognition  of
interest income was suspended on approximately $6,000 and $4,900,  respectively,
of net leases.

Contractual maturities of leases (minimum payments) over the next five years and
thereafter  are as follows at June 2000:  $236,900  in 2001;  $188,500  in 2002;
$141,000 in 2003; $99,200 in 2004; $62,700 and 2005; and $152,800 thereafter.


4.  INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                            June 2000         June 1999
                                                                          -------------      ------------
<S>                                                                       <C>                <C>
Finished goods.......................................................     $    101,859       $     77,911
Raw materials........................................................            7,982              6,892
Supplies.............................................................            2,099              1,827
                                                                          -------------      -------------
      Total inventories..............................................     $    111,940       $     86,630
                                                                          =============      =============


</TABLE>




                                       45

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


5.  MARKETABLE SECURITIES

All marketable debt securities relate entirely to Agway's  insurance  operations
and are classified as available-for-sale marketable securities. At June 2000, we
did not  hold  any debt  from a  single  issuer  that  exceeded  10  percent  of
shareholders' equity. Marketable securities are summarized as follows:
<TABLE>
<CAPTION>
                                                                                    Gross          Gross
                                                                   Amortized      Unrealized     Unrealized       Fair
                                                                     Cost            Gains         Losses         Value
                                                                 -------------   ------------   ------------   ----------
<S>                                                              <C>             <C>            <C>            <C>
June 2000
---------
U.S. government securities and obligations....................   $      5,236    $         9    $      (202)   $    5,043
Mortgage-backed securities....................................         14,256             21           (294)       13,983
Corporate securities..........................................         17,972              0           (744)       17,228
                                                                 -------------   ------------   ------------   -----------
      Total available-for-sale marketable securities..........   $     37,464    $        30    $    (1,240)   $   36,254
                                                                 =============   ============   ============   ===========

                                                                                      Gross         Gross
                                                                    Amortized      Unrealized    Unrealized       Fair
                                                                      Cost            Gains        Losses         Value
                                                                 -------------   ------------   ------------   -----------
June 1999
---------
U.S. government securities and obligations....................   $      3,842    $        12    $       (95)   $    3,759
Mortgage-backed securities....................................         13,116             40           (136)       13,020
Corporate securities..........................................         18,504             36           (220)       18,320
                                                                 -------------   ------------   ------------   -----------
      Total available-for-sale marketable securities..........   $     35,462    $        88    $      (451)   $   35,099
                                                                 =============   ============   ============   ===========
</TABLE>
The cost of  securities  sold is based on the  specific  identification  method.
Realized gains and losses, declines in value judged to be  other-than-temporary,
and interest and dividends are included in income.  Gross gains of approximately
$0, $4 and $81 were realized on sales of debt securities in 2000, 1999 and 1998,
respectively.  Gross  losses  realized  on  sales  of  debt  securities  totaled
approximately $74, $36 and $150 in 2000, 1999 and 1998, respectively.

The amortized cost and the fair value of  available-for-sale  debt securities at
June 2000, by contractual  maturity,  are shown below.  Expected maturities will
differ from contractual  maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                                                                                 Amortized        Fair
                                                                                                    Cost          Value
                                                                                                ------------   -----------
<S>                                                                                             <C>            <C>
Due within one year or less.................................................................    $     1,199    $    1,198
Due after one year through five years.......................................................          7,070         6,894
Due after five years through ten years......................................................         13,624        13,033
Due after ten years.........................................................................         15,571        15,129
                                                                                                ------------   -----------
                                                                                                $    37,464    $   36,254
                                                                                                ============   ===========
</TABLE>

                                       46

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


6.  OTHER SECURITY INVESTMENTS

Other security investments consist of the following:
<TABLE>
<CAPTION>
                                                                                  June 2000          June 1999
                                                                                -------------      -------------
<S>                                                                             <C>                <C>
CF Industries, Inc...........................................................   $     25,260       $     25,260
CoBank, ACB..................................................................         16,648             17,445
Other........................................................................          9,564              8,305
                                                                                -------------      -------------
                                                                                $     51,472       $     51,010
                                                                                =============      =============
</TABLE>

7.  PROPERTIES AND EQUIPMENT

Properties and equipment,  at cost,  including  capital  leases,  consist of the
following at:
<TABLE>
<CAPTION>
                                                                 Owned             Leased            Combined
                                                             -------------      -------------      ------------
June 2000
---------
<S>                                                          <C>                <C>                <C>
Land and land improvements................................   $     21,381       $          0       $    21,381
Buildings and leasehold improvements......................         93,290              7,061           100,351
Machinery and equipment...................................        307,372                473           307,845
Capital projects in progress..............................         13,720                  0            13,720
                                                             -------------      -------------      ------------
                                                                  435,763              7,534           443,297
Less: accumulated depreciation and amortization...........        263,624              3,889           267,513
                                                             -------------      -------------      ------------

Properties and equipment, net.............................   $    172,139       $      3,645       $   175,784
                                                             =============      =============      ============


                                                                 Owned              Leased            Combined
                                                             -------------      -------------      ------------
June 1999
---------
Land and land improvements................................   $     21,801       $          0       $    21,801
Buildings and leasehold improvements......................         90,609              4,466            95,075
Machinery and equipment...................................        306,957                473           307,430
Capital projects in progress..............................         16,736                  0            16,736
                                                             -------------      -------------      ------------
                                                                  436,103              4,939           441,042
Less: accumulated depreciation and amortization...........        261,231              3,550           264,781
                                                             -------------      -------------      ------------

Properties and equipment, net.............................   $    174,872       $      1,389       $   176,261
                                                             =============      =============      ============
</TABLE>

Depreciation  and  amortization  expense  relating to  properties  and equipment
amounted to approximately  $24,200,  $19,600 and $22,400 in 2000, 1999 and 1998,
respectively.


                                       47

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


8.  INCOME TAXES

The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
                                                                    June 2000          June 1999          June 1998
                                                                ----------------    ---------------    --------------
<S>                                                             <C>                 <C>                <C>
Continuing operations:
       Current:
           Federal..........................................    $         7,968     $        4,844     $        1,283
           State............................................              1,653              1,574              3,899
      Deferred..............................................            ( 2,757)             3,841              8,985
                                                                ----------------    ---------------    ---------------
                                                                $         6,864     $       10,259     $       14,167
                                                                ================    ===============    ===============

Discontinued operations:
      Current:
           Federal..........................................    $        (7,968)    $       (6,099)    $       (2,414)
           State............................................               (448)              (397)                41
      Deferred..............................................               (175)               410                283
                                                                ----------------    ---------------    ---------------
                                                                $        (8,591)    $       (6,086)    $       (2,090)
                                                                ================    ===============    ===============
</TABLE>
The deferred tax provision on the cumulative effect of accounting change in 1998
was $16,500.

The effective  income tax rate on earnings  from  continuing  operations  before
income taxes differs from the federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
                                                                    June 2000          June 1999          June 1998
                                                                ----------------    ---------------    --------------
<S>                                                             <C>                 <C>                <C>
Statutory federal income tax rate...........................               35.0%              35.0%             35.0%

Tax effects of:
      State income taxes, net of federal benefit (1)........               12.6                6.0              11.5
      Nondeductible items (2)...............................                5.1                3.5               2.1
      Other items...........................................                0.0               (0.3)             (1.7)
                                                                ----------------    ---------------    --------------
           Effective income tax rate........................               52.7%              44.2%             46.9%
                                                                ================    ===============    ==============
</TABLE>

(1)   For state income tax  purposes,  Agway does not file  combined  income tax
      returns and is therefore  unable to  recognize  the benefit of certain net
      operating losses incurred by subsidiaries.

(2)   Nondeductible items are principally related to goodwill amortization.

                                       48

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


8.  INCOME TAXES (CONTINUED)

The components of the deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
                                                                                  June 2000      June 1999
                                                                                  ----------     ----------
<S>                                                                               <C>            <C>
Deferred tax assets:
      Net operating loss (NOL) carryforward....................................   $   23,251     $   15,214
      Medical liabilities......................................................       10,433          9,517
      Other liabilities........................................................       13,268         10,750
      Self-insurance reserves..................................................        9,406          8,268
      Alternative minimum tax (AMT) credit carryforward........................        6,005          6,005
      Deferred compensation....................................................        4,854          4,977
      Inventory allowance......................................................        3,172          3,249
      Accounts receivable allowance............................................        2,704          2,315
      Environmental liabilities................................................        2,297          2,129
      Investment tax credit (ITC) carryforward.................................        1,604          1,604
                                                                                  -----------    -----------
           Total deferred tax asset............................................       76,994         64,028
                                                                                  -----------    -----------

Deferred tax liabilities:
      Pension assets...........................................................       76,729         71,231
      Excess of tax-over-book depreciation.....................................       17,617         14,975
      Net leasing activity.....................................................        6,748         (1,123)
      Prepaid medical expenses.................................................        1,039          6,212
      Other assets   ..........................................................        1,120          1,749
                                                                                  -----------    -----------
           Total deferred tax liability........................................      103,253         93,044
                                                                                  -----------    -----------
                Net deferred tax liability.....................................   $  (26,259)    $  (29,016)
                                                                                  ===========    ===========
</TABLE>
Agway's  net  deferred  tax  liability  at  June  2000  and 1999  of $26,259 and
$29,016,  respectively,  consists of a net current  asset of $28,887 and $22,316
included  in prepaid  expenses  and a net  long-term  liability  of $55,146  and
$51,332 included in other liabilities, respectively. Based on Agway's history of
taxable earnings and our expectations for the future,  management has determined
that  operating  income will more likely than not be sufficient to recognize all
of its net deferred tax assets.

At June 2000, the federal AMT credit can be carried  forward  indefinitely.  The
net operating loss (NOL) carryforward  expires at various intervals between 2010
and 2020, and the ITC carryforward expires in 2002 and 2003.


                                       49

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


9.  SHORT-TERM NOTES PAYABLE

As of June 2000, Agway had certain  facilities  available with various financial
institutions  whereby  lenders  have  agreed to provide  funds up to $401,700 to
separately  financed  units of Agway as  follows:  AFC - $65,000  and  Telmark -
$336,700.  The AFC amount is a $65,000  short-term line of credit.  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.  Letters  of credit of
$23,000,  which are primarily used to back general  liability  claims,  are also
available  to AFC.  At June  2000,  letters of credit  issued  for that  purpose
totaled  approximately  $17,900.  The  carrying  amounts of  Agway's  short-term
borrowings approximate their fair value and were as follows:
<TABLE>
<CAPTION>
                                                                    AFC
                                                                 (excluding
                                                                  Telmark)        Telmark          Total
                                                                 ------------   ------------    ----------
June 2000
---------
<S>                                                              <C>            <C>             <C>
Bank lines of credit..........................................   $    51,900    $    75,676     $  127,576
Commercial paper..............................................        50,000              0         50,000
                                                                 ------------   ------------    -----------
                                                                 $   101,900    $    75,676     $  177,576
                                                                 ============   ============    ===========
Weighted average interest rate................................         7.93%          7.36%
                                                                 ============   ============

                                                                    AFC
                                                                  (excluding
                                                                   Telmark)       Telmark          Total
                                                                 ------------   ------------    -----------
June 1999
---------
Bank lines of credit..........................................   $         0    $    43,300     $  43,300
Commercial paper..............................................        38,500              0        38,500
                                                                 ------------   ------------    -----------
                                                                 $    38,500    $    43,300     $  81,800
                                                                 ============   ============    ===========
Weighted average interest rate................................           5.0%          5.8%
                                                                 ============   ============
</TABLE>
The interest  rate charged on  commercial  paper and bank lines of credit ranged
from 5.02% to 10.15% at June 2000.

The $65,000  short-term line of credit and the $50,000 commercial paper facility
available to AFC at June 2000 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 $3,000 and $4,700 at June 2000 and 1999,  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 2000 to permit AFC
to borrow amounts to meet the ongoing needs of Agway and is expected to continue
to do so. In  addition,  the  agreements  include  certain  covenants,  the most
restrictive  of which requires Agway to maintain  specific  quarterly  levels of
interest coverage, monthly levels of tangible retained earnings, monthly current
ratios and  limits  available  credit to  a  multiple  of earnings as defined in
the agreement.  Other covenants limit capital expenditures to agreed upon levels
during  the  term  of  the  agreements,  require  the  monthly   maintenance  of
senior  liabilities to tangible  capital ratios as defined in the agreements and
the  maintenance of a minimum total of $425,000 in Agway preferred stock and AFC
subordinated debt. The required minimum level of preferred stock on 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.

                                       50

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


9.  SHORT-TERM NOTES PAYABLE (CONTINUED)

The  earnings  level  as  measured  at June 2000 was not adequate to support the
borrowing level under these agreements. Borrowing requirements since autumn 1999
have been and remain high relative to the prior year. This has principally  been
to support high working  capital  requirements,  particularly  in Agway's energy
business, where cost of petroleum products has increased accounts receivable and
inventory levels.  For the year ended June 2000, Agway did not meet the interest
coverage,  tangible  retained  earnings,  or  the  multiple  of  earnings  ratio
covenants set forth in the agreements.  Additionally, for the months of July and
August  2000,  Agway did not meet the  current  ratio  covenant.  The banks have
waived  violations  of covenants  and  borrowing  limits and have amended  these
measurements  and  covenants  to agreed  upon  levels of  financial  performance
through  December  2000,  the  remaining  term  of  these  credit  arrangements.
These revised borrowing limits and financial  covenants are expected to continue
to be restrictive through December 2000, and, given the historical volatility of
Agway's  operating  results,  may be  violated  in the  ensuing  months.  Agway,
however,  is anticipating a continuation of high-cost petroleum products through
the winter of 2001 and,  accordingly,  has commenced  negotiations  with several
lenders to increase and restructure its credit  facilities  effective January 1,
2001. The restructured  credit  facilities are anticipated to include  increased
lines of credit without a commercial paper program.  Agway's existing banks have
expressed  interest  in  participating  in the  restructured  lines of credit at
reduced levels from their current  commitment.  AFC annually renews its lines of
credit in the  quarter  ended  December  31.  Agway  expects to continue to have
appropriate and adequate financing to meet its ongoing needs.  However, we are
presently in negotiations for these new credit facilities, therefore,  there  is
no assurance that the Company will achieve the desired levels  of financing, and
the terms of such financing, as ultimately negotiated, cannot  be  determined at
this time.

Telmark  borrows under  short-term  line of credit  agreements 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.  The current
uncommitted  short-term line of credit agreements permit Telmark to borrow up to
$86,700 on an uncollateralized basis with interest paid upon maturity. The lines
bear interest at money market  variable  rates. A committed  $250,000  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 facility is  collateralized  by
Telmark's  investment  in the bank stock,  which has a book value of $13,600 and
$12,800 at June 2000 and 1999,  respectively.  The  $86,700  lines of credit all
have terms expiring during the next 12 months. The total amounts  outstanding as
of June 2000 and 1999 under the  short-term  lines of credit  were  $75,200  and
$500,  respectively,  and under the  short-term  component of the revolving term
loan  facility  were  $35,000  and  $8,300,  respectively.  The  portion  of the
revolving  term loan that is long  term at June 2000 and 1999 was  $164,000  and
$148,000, respectively.



                                       51

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


10.  DEBT

Long-Term Debt:

Long-term debt consists of the following at June 2000:
<TABLE>
<CAPTION>
                                                                                   AFC
                                                                                (excluding
                                                                    Agway        Telmark)       Telmark        Total
                                                                 ------------   -----------   -----------   -----------
<S>                                                              <C>            <C>           <C>           <C>
Notes payable - banks (a) .................................      $         0    $      525    $  164,000    $  164,525
Notes payable - insurance companies (b)(c) ................                0             0       240,256       240,256
Other......................................................            9,776         2,432             0        12,208
                                                                 ------------   -----------   -----------   -----------
Subtotal long-term debt, excluding capital leases..........            9,776         2,957       404,256       416,989
Obligations under capital leases...........................            1,560             0             0         1,560
                                                                 ------------   -----------   -----------   -----------
Total long-term debt.......................................           11,336         2,957       404,256       418,549
Less: current portion......................................            2,812           626       132,773       136,211
                                                                 ------------   -----------   -----------   -----------
                                                                 $     8,524    $    2,331    $  271,483    $  282,338
                                                                 ============   ===========   ===========   ===========

Long-term debt consists of the following at June 1999:
                                                                                    AFC
                                                                                (excluding
                                                                      Agway      Telmark)       Telmark        Total
                                                                 ------------   -----------   -----------   -----------
Notes payable - banks (a)..................................      $         0    $    1,225    $   148,000   $  149,225
Notes payable - insurance companies (b)(c).................                0             0        204,801      204,801
Other......................................................           14,002         2,263              0       16,265
                                                                 ------------   -----------   -----------   -----------
Subtotal long-term debt, excluding capital leases..........           14,002         3,488        352,801      370,291
Obligations under capital leases...........................            1,681             0              0        1,681
                                                                 ------------   -----------   -----------   -----------
Total long-term debt.......................................           15,683         3,488        352,801      371,972
Less: current portion......................................            2,204           807         91,461       94,472
                                                                 ------------   -----------   -----------   -----------
                                                                 $    13,479    $    2,681    $   261,340   $  277,500
                                                                 ============   ===========   ===========   ===========
</TABLE>



                                       52

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


10.  DEBT (CONTINUED)

(a)   The portion of Telmark's revolving term loan facility that is long term at
      June 2000 of $164,000  bears interest at fixed rates ranging from 5.56% to
      7.67%,  payments commencing July 2000 with final installments due in April
      2004.  As of June 2000,  under an AFC loan  agreement  bearing an interest
      rate of 8.58%,  principal of $525 is payable in quarterly  installments of
      $175  commencing  August 2000 and ending in February 2001. (See Note 9 for
      discussions of  collateralization  and/or financial  covenants relating to
      Telmark's and AFC's notes payable to banks.)

(b)  At June 2000, Telmark  also  had  balances outstanding  on uncollateralized
     senior note private placements totaling   $122,000.   Interest  is  payable
     semiannually  on each senior note.  Principal  payments are both semiannual
     and annual. The note agreements are similar to each other and each contains
     financial  covenants  based on  Telmark's  financial  statements,  the most
     restrictive   of  which   prohibit  (i)  tangible  net  worth  (defined  as
     consolidated  tangible assets less total  liabilities  (excluding any notes
     payable to Agway Holdings, Inc.-AHI)), from being less than an amount equal
     to or  greater  than the sum of  $85,000,  plus 50% of all net income (if a
     positive  number) for all fiscal years ending after  January 1, 2000 (as of
     June 2000  required  minimum net worth is  $90,900),  (ii) the ratio of (a)
     total  liabilities less  subordinated  notes payable to AHI to (b) members'
     equity plus subordinated notes payable to AHI from exceeding 5:1, (iii) the
     ratio of earnings  available for fixed charges from being less than 1.25:1,
     and (iv) equity distributions and restricted  investments (as defined) made
     after July 1, 1999, from exceeding 50% of  consolidated  net income for the
     period  beginning  on July 1,  1999,  through  the  date of  determination,
     inclusive.  As of June 2000,  $900 of Telmark's  member  equity was free of
     this restriction.  For the year ended June 2000,  Telmark complied with all
     its covenants contained in its borrowing arrangements.

(c)   Telmark, through three wholly owned special purpose subsidiaries,  has six
      classes of lease-backed notes outstanding totaling $118,300 and $58,800 at
      June 2000 and 1999, respectively, payable to insurance companies. Interest
      rates on these  classes of notes  range  from 6.5% to 9.1%.  The notes are
      collateralized by leases, which Telmark sold to these subsidiaries, having
      an aggregate  present value of  contractual  lease  payments  equal to the
      principal  balance of the notes, and the notes are further  collateralized
      by the residual  values of these leases and by segregated  cash  accounts.
      The  scheduled  maturity  of these  notes is in varying  amounts and dates
      through December 2008.



                                       53

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

10.  DEBT (CONTINUED)

Subordinated Debt:
Subordinated debt consists of the following at June 2000:
<TABLE>
<CAPTION>
                                                                         AFC
                                                                      (excluding
                                                                       Telmark)          Telmark           Total
                                                                     ------------     -------------     -----------
<S>                                                                  <C>              <C>               <C>
Subordinated debentures, due 2001 to 2008,
      interest at a weighted average rate of 8.0%
      with a range of 6.0% to 8.75%............................      $     7,177      $     37,398      $    44,575
Subordinated money market certificates,
      due 2000 to 2014, interest at a weighted average
      rate of 8.0% with a range of 4.5% to 9.5%................          430,299                 0          430,299
                                                                     ------------     -------------     -----------
Total long-term subordinated debt..............................          437,476            37,398          474,874
Less:  current portion.........................................           51,628             5,497           57,125
                                                                     ------------     -------------     -----------
                                                                     $   385,848      $     31,901      $   417,749
                                                                     ============     =============     ===========

Subordinated debt consists of the following at June 1999:
                                                                         AFC
                                                                     (excluding
                                                                       Telmark)          Telmark           Total
                                                                     ------------     -------------     -----------
Subordinated debentures, due 1999 to 2003,
      interest at a weighted average rate of 8.1%
      with a range of 7.0% to 8.5%.............................      $    19,711      $     37,633      $    57,344
Subordinated money market certificates,
      due 1999 to 2013, interest at a weighted average
      rate of 8.0% with a range of 4.5% to 9.5%................          428,959                 0          428,959
                                                                     ------------     -------------     -----------
Total long-term subordinated debt..............................          448,670            37,633          486,303
Less:  current portion.........................................           58,768            18,200           76,968
                                                                     ------------     -------------     -----------
                                                                     $   389,902      $     19,433      $   409,335
                                                                     ============     =============     ===========
</TABLE>
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 in Note 9, as ultimately negotiated,  may cause AFC to limit or
cease its past practices with regard to the repurchase of subordinated debt. The
AFC subordinated debt bears interest payable  semiannually on January 1 and July
1 of each year and for Telmark is payable  quarterly on January 1, April 1, July
1, and  October  1. The  interest  rates of AFC money  market  certificates  and
Telmark's  debentures are at 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.

Maturities:
Aggregate annual  maturities on long-term debt during the next five years ending
June and thereafter are as follows:
<TABLE>
<CAPTION>
                                                     Capital                                           Subordinated
                                                      Leases           Borrowings          Total            Debt
                                                   -----------        -------------     ------------    -----------
<S>                                                <C>                <C>               <C>             <C>
2001...........................................    $      190         $    136,095      $   136,285     $   57,125
2002...........................................           248              109,358          109,606         58,827
2003...........................................           248               88,814           89,062         46,268
2004...........................................           248               69,976           70,224         49,517
2005...........................................           248                8,813            9,061         18,041
Thereafter.....................................         1,069                3,933            5,002        245,096
Imputed interest...............................          (691)                   0             (691)             0
                                                   -----------        -------------     ------------    -----------
Total..........................................    $    1,560         $    416,989      $   418,549     $  474,874
                                                   ===========        =============     ============    ===========
</TABLE>

                                       54

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


11.  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 at sites with underground
fuel  storage  tanks.  We  will  also  incur  other  expenses   associated  with
environmental  compliance.  As part of its  long-term  environmental  protection
program,  Agway spent  approximately  $400 in 2000 on capital  projects  related
principally to comply with  Pennsylvania  above-ground  storage tank regulation.
Agway  expects  to  have  approximate  expenses  in the  amount  of $500 in 2001
associated with this compliance.

At June 2000,  Agway is  designated as a PRP under CERCLA or as a third party by
the original PRPs in several  Superfund  sites.  The  liability  under CERCLA is
joint and several, meaning that we could be required to pay in excess of our 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 the determination of our 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   is   estimable.   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  reserves
established  will cause  future cash outlays over at least five years based upon
current  estimates,  and it is not expected  that such  outlays will  materially
impact Agway's liquidity position.

Other
Agway is also subject to various  investigations,  claims, and legal proceedings
covering  a wide  range of  matters  that  arise in the  ordinary  course of 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
Agway. Agway 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 results of operations, financial position, or liquidity of Agway.

Commitments  to extend  credit  at  Agway's  leasing  subsidiary,  Telmark,  are
agreements  to  lend to a  customer  as long as  there  is no  violation  of any
condition  established  in  the  contract.   Commitments  generally  have  fixed
expiration dates or other termination clauses. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily  represent  future cash  requirements.  Outstanding  commitments  to
extend lease financing at June 2000 approximated $4,400.

Rent  expense  for the years  ended June 2000,  1999 and 1998 was  approximately
$16,500,  $14,700 and  $12,400,  respectively.  Future  minimum  payments  under
noncancelable operating leases approximate $11,500, $11,300, $10,400, $9,400 and
$8,500  for  the  years  ending  June  2001  through  2005,  respectively,   and
approximately $10,200 thereafter.


                                       55

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


12.  PREFERRED STOCK

Values are whole numbers except where noted as (000s).
<TABLE>
<CAPTION>
                                                                                  Preferred Stock
                                            -------------------------------------------------------------------------------
                                                                     Cumulative
                                            -----------------------------------------------------   Honorary       Dollar
                                                6%             8%           8%             7%        Member        Amount
                                             Series A      Series B     Series B-1      Series C    Series HM     in 000s
                                            -----------   -----------   -----------   -----------   ----------   ----------
<S>                                         <C>           <C>           <C>           <C>           <C>          <C>
Par Value.................................  $      100    $      100    $      100    $      100    $      25
                                            ===========   ===========   ===========   ===========   ==========
Shares Authorized.........................     350,000       250,000       140,000       150,000       80,000
                                            ===========   ===========   ===========   ===========   ==========
Shares Outstanding:
   Balance June 1997......................     229,939       237,227        18,360        89,242        2,554    $   57,541
      Issued (redeemed), net..............     (76,763)       (1,081)         (350)      (18,506)          27        (9,670)
                                            -----------   -----------   -----------   -----------   ----------   ----------
   Balance June 1998......................     153,176       236,146        18,010        70,736        2,581    $   47,871
      Issued (redeemed), net..............     (19,405)       (1,357)            0       (28,782)           3        (4,954)
                                            -----------   -----------   -----------   -----------   ----------   ----------
   Balance June 1999......................     133,771       234,789        18,010        41,954        2,584    $   42,917
      Issued (redeemed), net..............     (10,451)       (2,044)            0       (19,702)        (100)       (3,222)
                                            -----------   -----------   -----------   -----------   ----------   ----------
   Balance June 2000......................     123,320       232,745        18,010        22,252        2,484    $   39,695
                                            ===========   ===========   ===========   ===========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                   Preferred Stock
                                            ------------------------------------------------------------------
                                                                     Cumulative
                                            -----------------------------------------------------   Honorary
                                                 6%            8%           8%            7%         Member
                                             Series A      Series B     Series B-1     Series C     Series HM
                                            -----------   -----------   -----------   -----------   ----------
<S>                                         <C>           <C>           <C>           <C>           <C>
Annual Dividends Per Share:
   June 1998..............................  $     6.00    $     8.00    $     8.00    $     7.00    $    1.50
   June 1999..............................  $     6.00    $     8.00    $     8.00    $     7.00    $    1.50
   June 2000..............................  $     6.00    $     8.00    $     8.00    $     7.00    $    1.50

Shares Held in Treasury (purchased at
  par value):
   June 1998..............................     196,823        13,854       121,990        79,274          970
   June 1999..............................     216,228        23,565       121,990       108,056        1,070
   June 2000..............................     226,681        25,610       121,990       127,763        1,202
</TABLE>
There  are  10,000  shares  of  authorized  preferred  stock  undesignated as to
series,  rate, and other  attributes.  The Series A preferred stock has priority
with  respect to the  payment of  dividends.  Agway  maintains  the  practice of
providing a market by repurchasing, at par, preferred stock as the holders elect
to  tender  the  securities  for  repurchase,  subject  to Board  of  Directors'
approval.  As discussed in Note 9, Agway is  presently in  negotiations  for new
credit facilities and, depending on the outcome of these negotiations, may limit
or cease its practice of repurchasing  preferred  stock. The Series HM preferred
stock may be issued  only to former  members of Agway and no more than one share
of such  stock may be  issued  to any one  person.  The  preferred  stock has no
pre-emptive or conversion rights.
                                       56

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS

Pension Plan
The  Employees'  Retirement  Plan of Agway Inc.  is a  non-contributory  defined
benefit pension plan covering the majority of employees of Agway Inc. The plan's
benefit formulae through June 1998 based payment to retired employees  generally
upon years of  credited  service and a  percentage  of  qualifying  compensation
during the final years of employment. Effective July 1, 1998, the plan's benefit
formulae  base payment on a pension  equity  formula and also include  incentive
compensation as pensionable earnings for all employees. Generally, pension costs
are funded  annually at no less than the amount required by law and no more than
the  maximum  allowed  by  federal  income tax  guidelines.  The vested  benefit
obligation  is based on the  actuarial  present  value of the benefits  that the
employee would be entitled to at the expected retirement date.

The majority of the plan's  investments  consist of U.S.  government  and agency
securities,  U.S.  corporate bonds, U.S. and foreign  equities,  equity and bond
funds and  temporary  investments  (short-term  investments  in demand notes and
money market  funds).  At June 2000 and 1999,  retirement  plan assets  included
Agway debt  securities and preferred stock with estimated fair values of $15,100
and $18,600, respectively.

The Employees'  Retirement Plan of Agway Inc. has assets that exceed the benefit
obligation.  The following tables set forth the plan's funded status and amounts
recognized in Agway's consolidated financial statements at June 2000 and 1999 as
a net pension asset.  The net pension income is summarized for each of the three
years ended June 2000:
<TABLE>
<CAPTION>
                                                                                      2000                 1999
                                                                                   ------------        ------------
<S>                                                                                <C>                 <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year.........................................   $   345,917         $   332,719
Service cost (with interest)....................................................         9,975               9,835
Interest cost...................................................................        24,661              23,948
Amendments.....................................................................              0              24,772
Curtailment.....................................................................           458                   0
Actuarial (loss) gain...........................................................        (6,738)            (11,042)
Benefits paid...................................................................       (35,770)            (34,315)
                                                                                   ------------        ------------
Benefit obligation at end of year...............................................   $   338,503         $   345,917
                                                                                   ============        ============

Change in Plan Assets
---------------------
Fair value of plan assets at beginning of year..................................   $   578,975         $   582,988
Actual return on plan assets....................................................        26,428              30,302
Benefits paid...................................................................       (35,770)            (34,315)
                                                                                   ------------        ------------
Fair value of plan assets at end of year........................................   $   569,633         $   578,975
                                                                                   ============        ============

Funded status...................................................................   $   231,130         $   233,058
Unrecognized prior service cost.................................................        23,219              31,621
Unrecognized net gain...........................................................       (40,894)            (61,814)
Unrecognized net transition obligation..........................................             0              (4,705)
                                                                                   ------------        ------------
Net pension asset...............................................................   $   213,455         $   198,160
                                                                                   ============        ============
</TABLE>


                                       57

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS (CONTINUED)

Pension Plan (continued)
<TABLE>
<CAPTION>
                                                                              2000             1999             1998
                                                                        --------------     ------------     ------------
<S>                                                                     <C>                <C>              <C>
Components of Net Pension Income
--------------------------------
Service cost (with interest)..........................................  $       9,975      $     9,835      $     5,373
Interest cost.........................................................         24,661           23,948           22,547
Expected return on plan assets........................................        (53,350)         (53,682)         (54,078)
Amortization of:
    Transition obligation.............................................         (4,705)          (4,705)          (4,705)
    Prior service cost................................................          4,134            4,566            2,314
    Actuarial gains and losses........................................           (278)          (1,330)          (3,360)
Recognized curtailment (gain)/loss....................................          4,268                0                0
                                                                        --------------     ------------     ------------
Net pension income....................................................  $     (15,295)     $   (21,368)     $   (31,909)
                                                                        ==============     ============     ============

Weighted-Average Assumptions as of June 30
------------------------------------------
Discount rate.........................................................           7.75%            7.50%            7.00%
Expected return on plan assets........................................           9.75%            9.50%           10.25%
Rate of compensation increase.........................................           5.00%            5.00%            5.00%
</TABLE>

Effective  July 1, 1998,  Agway  amended its  pension  plan to include a pension
equity formula,  as well as to recognize  incentive  compensation as pensionable
compensation for all employees.  This amendment increased the benefit obligation
and unrecognized  prior service cost by approximately  $24,800.  The net pension
income for 1999 and in future years is reduced as a result of this amendment.

Effective  July  1,  1997,   Agway  changed  its  method  of   determining   the
market-related   value  of  the  retirement  plan  assets  under  SFAS  No.  87,
"Accounting for Pensions," from a calculated value (one that recognized  changes
in fair market  value of assets  over a number of years) to a fair market  value
method,  which is considered a preferable method to that previously applied. The
cumulative effect of this change in accounting  principle in 1998, net of tax of
$16,500, was $28,956.

In October 1999,  Agway's Board of Directors  approved a plan to restructure the
Company's  retail  operations by converting the majority of the  Agway-owned and
operated retail stores into  dealer-owned and operated stores.  As a result of a
large number of Agway employees  leaving the Company,  a curtailment of both the
pension  and  postretirement   benefit  plans  occurred.   The  impact  of  this
curtailment was as follows:

                                                   Pension     Postretirement
                                                 -----------   --------------
Change in benefit obligation..................   $       458     $      424
Curtailment charge............................   $     4,268     $    1,451





                                       58

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS (CONTINUED)

Postretirement Benefits
Agway  provides  postretirement  health  care and  life  insurance  benefits  to
eligible  retirees and their  dependents.  Eligibility for benefits depends upon
age and years of service.  Agway's  postretirement benefit plans are not funded.
The accrued  postretirement benefit cost expected to be paid in the next year is
in other current  liabilities,  while the remaining  amount is included in other
liabilities.   The   reconciliation  of  funded  status  and  the  net  periodic
postretirement   benefit  cost  recognized  in  Agway's  consolidated  financial
statements at June 2000, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
                                                                                                     2000              1999
                                                                                                -------------      -------------
<S>                                                                                             <C>                <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year......................................................   $    (43,937)      $     (43,985)
Service cost (with interest).................................................................           (685)               (699)
Interest cost................................................................................         (3,118)             (3,028)
Plan participant contributions...............................................................         (1,502)             (1,563)
Actuarial loss...............................................................................          2,360                (528)
Curtailment..................................................................................            424                   0
Benefits paid................................................................................          5,754               5,866
                                                                                                -------------      --------------
Benefit obligation at end of year............................................................   $    (40,704)      $     (43,937)
                                                                                                =============      ==============

Funded status................................................................................   $    (40,704)      $     (43,937)
Unrecognized prior service cost..............................................................          1,038               1,261
Unrecognized net loss........................................................................         (2,067)                717
Unrecognized net transition obligation.......................................................         15,042              17,583
                                                                                                -------------      --------------
Accrued postretirement benefit cost..........................................................   $    (26,691)      $     (24,376)
                                                                                                =============      ==============
<CAPTION>


                                                                              2000                   1999               1998
                                                                          --------------        -------------      --------------
<S>                                                                       <C>                   <C>                <C>
Components of Net Periodic Postretirement Benefit Cost
------------------------------------------------------
Service cost (with interest)...........................................   $         685         $        699       $         601
Interest cost..........................................................           3,118                3,028               3,110
Amortization of:
    Transition obligation..............................................           1,188                1,255               1,255
    Prior service cost.................................................             125                  132                 132
    Gains and losses...................................................               0                    0                   0
Recognized curtailment (gain)/loss.....................................           1,451                    0                   0
                                                                          --------------        -------------      --------------
Net periodic postretirement expense....................................   $       6,567         $      5,114       $       5,098
                                                                          ==============        =============      ==============
</TABLE>
In determining the benefit  obligation,  the weighted average discount rate used
was 7.75% and 7.5% at June 2000 and 1999, respectively. Assumed health care cost
trend rates have a  significant  effect on the amounts  reported  for the health
care plans. A one percentage  point change in the assumed health care cost trend
rates would have the following effect:
<TABLE>
<CAPTION>
                                                                                                   1% Point           1% Point
                                                                                                   Increase           Decrease
                                                                                                ------------       --------------
<S>                                                                                             <C>                <C>
As of June 2000
---------------
Effect on total of services and interest cost components.....................................   $       196        $        (168)
Effect on year-end benefit obligation........................................................         1,310               (1,142)
</TABLE>

                                       59

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS (CONTINUED)

Postretirement Benefits (continued)
For  measurement  purposes,  the  assumed  health  care cost  trend rate used to
measure Agway's accumulated benefit obligation for persons under age 65 was 6.8%
for June 2000 and 7.5% for June 1999. The health care cost trend rate assumption
for fiscal  2001 and  forward at June 2000  decreases  gradually  until the year
2004, when the ultimate trend rate is then fixed at 5%. For persons over age 65,
Agway has an insured medical program limiting Agway's subsidy to a per month/per
retiree basis.

See Pension Plan section of this footnote for  discussion of the  postretirement
plan curtailment in 2000.

Employees' Thrift Investment Plan
The  Agway  Inc.   Employees'  401(k)  Thrift   Investment  Plan  is  a  defined
contribution plan covering a substantial  majority of employees of Agway and its
subsidiaries.  Under the plan,  each  participant may invest up to 15% of his or
her salary,  of which a maximum of 6% qualifies for Agway matching.  Participant
contributions  are invested at the option of the  participant in any combination
of four funds.

Agway will  contribute an amount of at least 10%, but not more than 50%, of each
participant's regular  contributions,  as defined, up to 6% of his or her salary
on an annual basis. Agway  contributions to this plan for years ended June 2000,
1999 and 1998 were approximately  $1,600, $1,300 and $1,300,  respectively.  For
the years  ended  June  2000,  1999 and 1998,  the Board of  Directors  of Agway
approved an additional match of 20% to supplement the minimum contribution level
of 10%.

                                       60

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


14.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING

Agway reports its operations principally in five business segments as follows:

(1)     AGRICULTURE  engages in the manufacturing,  processing,  marketing,  and
        direct  distribution of various animal feeds,  crop inputs,  fertilizers
        and  farm  supplies  and  services  for  its  farmer-members  and  other
        customers  primarily in the  northeastern  United  States and Ohio.  The
        former Retail  segment that was combined with  Agriculture in April 1999
        is reflected as a discontinued  operation in these financial  statements
        and is not  included in the results of the  Agriculture  segment for all
        years presented.

(2)     COUNTRY  PRODUCTS  GROUP engages in the  manufacturing,  processing  and
        repacking of a variety of  agricultural  products  marketed  directly to
        consumers, retailers, wholesalers and processors. Country Products Group
        also is involved in the exploration and development of new  technologies
        to benefit agricultural and food businesses.

(3)     ENERGY operates a full-service energy company which markets and services
        heating,  ventilation  and  air-conditioning  equipment.  Energy is also
        engaged  in the  sale  and  delivery  of fuel  oil,  kerosene,  propane,
        gasoline and diesel fuel, as well as natural gas and  electricity  where
        de-regulation makes that possible.

(4)     LEASING,  through Telmark LLC, is principally engaged in the business of
        leasing  agricultural-related  equipment,  vehicles,  and  buildings  to
        farmers and other  customers in rural  communities.  Interest income for
        the  Leasing  segment is reported  as net sales and  revenues.  Interest
        expense is reported as cost and expenses from leasing  operations  (cost
        of sales).

(5)     INSURANCE,  through Agway Insurance  Company,  underwrites  property and
        casualty  insurance.  Agway  General  Agency Inc.,  also included in the
        Insurance segment,  markets medical,  long-term care, and life and other
        products  designed  by  non-affiliated  companies  for the  agricultural
        marketplace.  In addition,  Agency  provides  administrative  management
        services to Agway business units,  including claims,  risk,  facilities,
        data processing, and payroll/benefits management.

Total sales and revenues of each industry  segment includes the sale of products
and services to unaffiliated  customers,  as reported in the Agway  consolidated
statements of operations,  as well as sales to other segments of Agway which are
competitively priced.

The Other  category  within  the  summary  of  business  segments  includes  net
corporate  expenses,  pension income,  intersegment  eliminations,  interest and
taxes.






                                       61

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


14.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
                                                Country
                                                Products
Year ended June 2000           Agriculture       Group          Energy        Leasing      Insurance      Other(a)    Consolidated
--------------------           ------------   ------------   ------------   -----------   -----------   -----------   ------------
<S>                            <C>            <C>            <C>            <C>           <C>           <C>           <C>
Net sales and revenues to
  unaffiliated customers.....  $   488,417    $   190,221    $   644,455    $   76,626    $   27,153    $       14    $  1,426,886
Intersegment sales and
  revenues...................       20,268         11,780            438           159             0       (32,645)              0
                               ------------   ------------   ------------   -----------   -----------   -----------   ------------
   Total sales and revenues    $   508,685    $   202,001    $   644,893    $   76,785    $   27,153    $  (32,631)   $  1,426,886
                               ============   ============   ============   ===========   ===========   ===========   ============

Operating earnings (loss)....  $   (13,016)          (384)         9,001        20,059            30         2,184          17,874
Interest income..............        5,767            153             34             0             0         2,454           8,408
Interest expense.............      (13,263)        (2,902)        (5,664)            0            (7)      (17,163)        (38,999)
Other income, net............        6,972            248         18,655             0            17          (159)         25,733
                               ------------   ------------   ------------   -----------   -----------   -----------   ------------
Earnings (loss) before
  income taxes...............  $   (13,540)   $    (2,885)   $    22,026    $   20,059    $       40    $  (12,684)   $     13,016
                               ============   ============   ============   ===========   ===========   ===========   ============

Total assets.................  $   293,559    $    71,636    $   177,804    $  670,364    $   54,160    $  304,836    $  1,572,659
Depreciation and amortization       10,778          4,413          8,839           385            98         1,658          26,171
Capital expenditures.........       18,372          2,083          6,342             0            28           974          27,799

                                                 Country
                                                 Products
Year ended June 1999           Agriculture       Group          Energy         Leasing     Insurance     Other(a)     Consolidated
--------------------           ------------   ------------   ------------   -----------   -----------   -----------   ------------
Net sales and revenues to
  unaffiliated customers.....  $   512,071    $   160,153    $   451,284    $   70,006    $   27,968    $      (16)   $  1,221,466
Intersegment sales and
  revenues...................       23,163         11,572            613             0             0       (35,348)              0
                               ------------   ------------   ------------   -----------   -----------   -----------   ------------
    Total sales and revenues   $   535,234    $   171,725    $   451,897    $   70,006    $   27,968    $  (35,364)   $  1,221,466
                               ============   ============   ============   ===========   ===========   ===========   ============

Operating earnings (loss)....  $    (8,565)   $     2,950    $    12,992    $   18,201    $      130    $    4,647    $     30,355
Interest income..............        6,467             10            614             0             0         1,551           8,642
Interest expense.............      (12,529)        (2,239)        (5,119)            0           (12)      (14,845)        (34,744)
Other income, net............        2,168         11,355          4,538           (43)          378           551          18,947
                               ------------   ------------   ------------   -----------   -----------   -----------   -------------
Earnings (loss) before
  income taxes...............  $   (12,459)   $    12,076    $    13,025    $   18,158    $      496    $   (8,096)   $     23,200
                               ============   ============   ============   ===========   ===========   ===========   =============

Total assets.................  $   269,884    $    64,365    $   133,624    $  596,905    $   55,578    $  316,348    $  1,436,704
Depreciation and amortization        6,598          3,959          8,506           493            92         1,431          21,079
Capital expenditures.........       13,943          4,707          5,002           511            89         2,910          27,162

</TABLE>


                                       62

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


14.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
                                               Country
                                               Products
Year ended June 1998           Agriculture      Group        Energy         Leasing      Insurance     Other(a)    Consolidated
--------------------           -----------   -----------   -----------   ------------   ----------   -----------   ------------
<S>                            <C>           <C>           <C>           <C>            <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers.....  $   531,910   $   170,398   $   504,702   $    65,445    $   27,335   $         7   $  1,299,797
Intersegment sales and
  revenues...................       19,319        15,685           398            31             0       (35,433)             0
                               -----------   -----------   -----------   ------------   ----------   -----------   ------------
   Total sales and revenues    $   551,229   $   186,083   $   505,100   $    65,476    $   27,335   $   (35,426)  $  1,299,797
                               ===========   ===========   ===========   ===========    ==========   ===========   ============

Operating earnings (loss)....  $    (7,115)  $     7,702   $     9,879   $    15,412    $     (436)  $    17,449   $     42,891
Interest income..............        7,144           182           778             0             0         1,441          9,545
Interest expense.............      (12,642)       (2,825)       (7,884)            0            (7)      (11,166)       (34,524)
Other income, net............        5,665         1,170         5,272             0           173            (9)        12,271
                               -----------   -----------   -----------   -----------    ----------   -----------   ------------
Earnings (loss) before
  income taxes...............  $    (6,948)  $     6,229   $     8,045   $    15,412    $     (270)  $     7,715   $     30,183
                               ===========   ===========   ===========   ===========    ==========   ===========   ============

Total assets.................  $   264,150   $    61,743   $   141,469   $   524,797    $   56,014   $   332,087   $  1,380,260
Depreciation and amortization       10,278         2,947         8,668           607            78         1,062         23,640
Capital expenditures.........        9,472         4,540         5,631           471           297         3,480         23,891
</TABLE>

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





                                       63

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


15.  OTHER INCOME (EXPENSE)

The components of other income (expense) for the years ended June 2000, 1999 and
1998 are summarized below:
<TABLE>
<CAPTION>
                                                                              2000          1999           1998
                                                                        -------------    -----------    -----------
<S>                                                                     <C>              <C>            <C>
Patronage refund income...............................................  $        787     $    1,231     $    4,344
Rent and storage revenue..............................................         2,964          3,155          3,935
Gain (loss) on disposition of:
      Businesses......................................................         1,098         11,097              0
      Other security investments......................................        (1,044)        (1,267)             0
      Properties and equipment........................................        13,995            655            934
Negotiated settlement.................................................         5,049              0              0
Other, net............................................................         2,884          4,076          3,058
                                                                        -------------    -----------    -----------
                                                                        $     25,733     $   18,947     $   12,271
                                                                        =============    ===========    ===========

16.  SUPPLEMENTAL DISCLOSURES ABOUT CASH FLOWS

                                                                              2000           1999          1998
                                                                        -------------    -----------    -----------
Additional disclosure of operating cash flows:
 Cash paid during the year for:
           Interest...................................................  $     38,905     $   35,310     $   34,474
                                                                        =============    ===========    ===========
           Income taxes...............................................  $      2,727     $    2,586     $    3,253
                                                                        =============    ===========    ===========

Additional disclosure for non-cash investing and financing activities:

      Dividends declared but unpaid at fiscal year-end................  $      1,592     $    1,702     $    1,840
                                                                        =============    ===========    ===========
</TABLE>
17.  FINANCIAL AND COMMODITY INSTRUMENTS

FINANCIAL INSTRUMENTS

Fair Value
Carrying amounts of trade notes and accounts receivable,  financial  instruments
included in other  assets and other  liabilities,  notes  payable,  and accounts
payable  approximate  their fair values because of the short-term  maturities of
these  instruments.  The fair value of Agway's  long-term debt and  subordinated
debentures  is  estimated  based on  discounted  cash  flow  computations  using
estimated  borrowing rates available to Agway ranging from 7.7% to 10.0% in 2000
and 6.2% to 9.0% in 1999.

The carrying amounts and estimated fair values of Agway's significant  financial
instruments  held for purposes  other than trading at June 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
                                                                    2000                            1999
                                                         ----------------------------     --------------------------
                                                           Carrying          Fair           Carrying        Fair
                                                            Amount           Value           Amount        Value
                                                         -----------     ------------     ------------   -----------
<S>                                                      <C>             <C>              <C>            <C>
Liabilities:
Long-term debt (excluding capital leases).............   $   416,989     $    423,843     $   370,291    $  378,572
Subordinated debentures...............................       474,874          436,970         486,303       481,775
</TABLE>
                                       64

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


17.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

FINANCIAL INSTRUMENTS (CONTINUED)

Fair Value (continued)
Agway  determines the fair value of its  exchange-traded  contracts based on the
settlement  prices for open contracts,  which are established by the exchange on
which the instruments are traded.  The fair value of Agway's  over-the-  counter
contracts is determined  based on quotes from brokers.  The margin  accounts for
open commodity futures and option contracts,  which reflect daily settlements as
market values change, are recorded in advances and other receivables. The margin
account  represents  Agway's  basis  in  those  contracts.  As  of  June  2000,
the  carrying  and fair value of Agway's  investment  in  commodity  futures and
option contracts  was  a  gain  of $5,300 and $8,200, respectively.  As  of June
1999, the carrying and fair value of Agway's investment in commodity futures and
option contracts was a loss of $3,700 and $2,000, respectively.

Off-Balance-Sheet Risk
In the normal  course of  business,  Agway has  letters  of credit,  performance
contracts,  and other  guarantees  that are not  reflected  in the  accompanying
consolidated  balance sheets. In the past, no significant  claims have been made
against these financial instruments.  Management believes that the likelihood of
performance under these financial instruments is minimal and expects no material
losses and/or cash requirements to occur in connection with these instruments.

Agway's leasing subsidiary,  Telmark,  is a party to financial  instruments with
off-balance-sheet  risk in the normal  course of business to meet the  financing
needs  of  its  leasing  customers.   These  financial  instruments  consist  of
commitments to extend credit not  recognized in the balance sheet.  In the event
of  nonperformance  by the other party to the financial  instrument,  the credit
risk is limited to the  contractual  amount of  Telmark's  commitment  to extend
credit.  Telmark  uses  the  same  credit  and  collateral  policies  in  making
commitments as it does for on-balance-sheet instruments.

Credit and Market Risk
Agway, operating as an agricultural  cooperative primarily in the Northeast, has
a  concentration  of  accounts  and lease  receivables  due from  farmer-members
throughout the region.  This concentration of agricultural  customers may affect
Agway's overall credit risk in that the repayment of  farmer-member  receivables
may be affected  by  inherent  risks  associated  with (1) the overall  economic
environment of the region; (2) the impact of adverse regional weather conditions
on crops;  and (3)  changes  in the  level of  government  expenditures  on farm
programs and other changes in government  agricultural  programs that  adversely
affect the level of income of  farmers.  Agway  mitigates  this  credit  risk by
analyzing farmer-member credit positions prior to extending credit and requiring
collateral on long-term arrangements and for the underlying asset in the case of
Telmark's lease contracts.

Energy  extends  unsecured  credit  to  petroleum  wholesalers  and  residential
fuel-oil  customers.  The credit  function  within  the  Energy and  Agriculture
businesses  manages  credit  risk  associated  with these trade  receivables  by
routinely assessing the financial strength of its customers.

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




                                       65

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


17.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

COMMODITY INSTRUMENTS

In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally for gasoline,  distillate,  and propane.  They are entered into as a
hedge  against the price risk  associated  with Energy's  inventories  or future
purchases and sales of the commodities  used in its operations.  Generally,  the
price risk extends for a period of one year or less.

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.  All transactions  involving derivative  financial  instruments in the
feed  business  are  required  to have a direct  relationship  to the price risk
associated with existing inventories or future purchase or sale of its products.

In the Agriculture segment's grain marketing business, exchange-traded commodity
instruments have been  historically used to hedge inventory and forward purchase
and sales contracts for grains,  principally corn, soy complex, oats, and wheat,
which are purchased and sold by the grain marketing department (the department).
In  May  2000,  the  Company  ceased  all  operations  of  the  grain  marketing
department. As of June 2000, there were no outstanding commodity instruments.

In the CPG segment,  exchange-traded  commodity instruments are used principally
to manage the price risk of confection and bakery kernel  sunflower  seeds,  and
foreign currency forward contracts are entered to manage fluctuations in foreign
currency denominated sales transactions.

18.  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 the next 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 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,  are 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,  are  included in the loss on disposal of the retail
services business in the June 2000 statement of operations. Prior year financial
results  have been  reclassified  to reflect the retail  services  business as a
discontinued operation.

The net  sales  and  revenues  from  discontinued  operations  (retail  services
business) were approximately  $222,400,  $285,200 and $290,800 in 2000, 1999 and
1998,  respectively.  Interest  expense  allocated  to  discontinued  operations
totaled $4,100, $6,200 and $5,800 in 2000, 1999 and 1998, respectively.


                                       66

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


18.  DISCONTINUED OPERATIONS (CONTINUED)

A summary of net assets of discontinued  operations at June 2000 and 1999 was as
follows:
<TABLE>
<CAPTION>
                                                                                      2000              1999
                                                                                  ------------     -----------
<S>                                                                               <C>              <C>
Accounts receivable.............................................................  $     22,982     $    26,967
Inventory.......................................................................        18,408          59,436
Property, plant and equipment, net..............................................        18,989          39,164
Other assets, net...............................................................        23,370           7,536
Accounts payable and accrued expenses...........................................       (49,413)        (44,014)
Long-term liabilities...........................................................           (58)         (3,287)
                                                                                  ------------     -----------
Net assets of discontinued operations...........................................  $     34,278     $    85,802
                                                                                  ============     ===========
</TABLE>

                                       67

<PAGE>



                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

The  directors of Agway  determine  Agway policy and are nominated on a district
representation  basis by committees  representing  members within each district.
Each of the  following  directors is a full-time  farmer and has been engaged in
full-time farming during the past five years:
<TABLE>
<CAPTION>
                                                                                           Year
                                                                                          Became
                                                                                             A
           Name              Age   Office                    Name of Farm                 Director      Term Expires
           ----              ---   ------                    ------------                 --------      ------------
<S>                           <C>                            <C>                            <C>         <C>
Gary K. Van Slyke(1)          57   Chairman of the           VanSlyke's Dairy Farm          1994        October 2000
                                   Board and Director
Andrew J. Gilbert             41   Vice Chairman of the
                                   Board and Director        Adon Farms                     1995        October 2001
Keith H. Carlisle             58   Director                  Carlisle Farms, Inc.           1995        October 2001
D. Gilbert Couser             59   Director                  Couser Farm                    1995        October 2001
Ralph H. Heffner              62   Director                  Jersey Acres Farms Inc.        1973        October 2000
Robert L. Marshman            61   Director                  Marshman Farms                 1989        October 2002
Jeffrey B. Martin             41   Director                  Martin Farms                   1997        October 2000
Samuel F. Minor               62   Director                  The Spring House               1987        October 2000
Richard H. Skellie            56   Director                  Richland Farms                 1999        October 2002
Carl D. Smith                 65   Director                  Hillacre Farms                 1984        October 2002
Thomas E. Smith               65   Director                  Lazy Acres Dairy               1986        October 2001
Joel L. Wenger                69   Director                  Weng-Lea Farms                 1987        October 2002
Edwin C. Whitehead            59   Director                  White Ayr Farms                1994        October 2000
William W. Young              47   Director                  Will-O-Crest Farm              1989        October 2001
</TABLE>

Gary K. Van Slyke, Chairman of the Board of Directors, earned $55,900 and Andrew
J. Gilbert,  Vice Chairman of the Board of Directors,  earned  $39,900 for their
services for the year ended June 2000.  Effective  July 1, 1998, the Chairman is
paid at an annual effective rate of $60,000 and the  Vice-Chairman is paid at an
annual  effective rate of $45,000.  All other directors will receive $25,000 per
year, paid quarterly,  for  participation  on the Agway Inc. Board. In addition,
each Board Committee Chairman earned an additional annual retainer fee of $3,000
and each  director  of Agway Inc.  who was also a member of the Agway  Insurance
Company or Telmark LLC Board of Directors  earned an additional  $400 or $1,000,
respectively;  a fee of $200 was also earned by such directors for each day they
were  involved in business  for the Company  other than the days where the Agway
Inc.  Board of Directors was in session.  Expenses of Board members  incurred in
connection with Company business are reimbursed by Agway.

Any  director of Agway may elect to defer  compensation  for  distribution  at a
later date.  Deferred  amounts earn interest and may be paid in a lump sum or in
annual installments over a period of up to 20 years.

A retirement  benefit plan for Board members requires annual payments to retired
or permanently  disabled  directors who served a minimum of six full years as of
December 31, 1995. The benefit is computed at $250 for each full year of service
and is paid to the director or surviving  spouse for a period equal to the years
served on the Board through December 31, 1995, the date the plan was terminated.
All earned  benefits as of December 31, 1995,  will be paid when due. As of June
2000,   the  present  value  of   accumulated   benefits  under  this  plan  was
approximately $465,900.

(1)    All correspondence in relation to operational matters should be addressed
       to  D.P. Cardarelli, President  and  Chief Executive Officer, Agway Inc.,
       P.O. Box 4933, Syracuse, New York 13221.

                                       68

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS

The  executive  officers  of Agway  provide  operating  control to carry out the
policies  established  by the Board of Directors and serve at the  discretion of
the Board with no guarantee  of  employment.  There are no  full-time  executive
officers  of Agway who are  members  of the Board of  Directors.  The  principal
occupation of all  executive  officers of Agway for the past five years has been
as an officer or  employee  of the Agway.  The  following  is a listing of these
officers as of July 1, 2000:
<TABLE>
<CAPTION>
                                                                                                 Years Served
       Name                   Age       Office                                                    As Officer
       ----                   ---       ------                                                    ----------
<S>                           <C>       <C>                                                          <C>
Donald P. Cardarelli          44        President and Chief Executive Officer                         9
Daniel J. Edinger             49        President, Telmark LLC                                        2
John F. Feeney                39        Corporate Controller                                          1
Robert A. Fischer, Jr.        52        President, Agriculture & Retail Group                         5
David M. Hayes                56        Senior Vice President, General Counsel and Secretary         19
Stephen H. Hoefer             45        Senior Vice President, Public Affairs                         6
Michael R. Hopsicker          35        President, Agway Energy Products LLC                          4
Dennis J. LaHood              54        President, Country Products Group                             5
Karen J. Ohliger              38        Treasurer                                                     1
Peter J. O'Neill              53        Senior Vice President, Finance & Control                     11
William L. Parker             53        Vice President and Chief Information Officer                  5
Gerald R. Seeber              53        Senior Vice President, Administrative Services and
                                          President, Agway Insurance Group                            2
G. Leslie Smith               57        Vice President and Chief Investment Officer                   3
Michael P. Spyker             50        Vice President, Membership                                    -

</TABLE>
More detailed biographies of each person listed above are set forth below:

Mr. Cardarelli served as General Manager and CEO from January 1995 and President
from February 1995 to present.

Mr. Edinger served as President, Telmark LLC, from February 1988 to present.

Mr. Feeney served as Director, Corporate  Reporting, from July  1995  to  August
1998; and as Corporate Controller from August 1998 to present.

Mr.  Fischer has served as President,  Milford  Fertilizer  Company,  since June
1970; as Vice President, Agway Agricultural Products, from February 1995 to July
1, 1997;  as President,  Agway  Agricultural  Products,  from July 1997 to March
1999; and as President, Agriculture & Retail Group from March 1999 to present.

Mr. Hayes served as Senior Vice President, General  Counsel  and Secretary, from
July 1992 to present.

Mr. Hoefer  served  as  Vice  President, Public  Affairs, from June 1994 to July
1997; and as Senior Vice President, Public Affairs, from July 1997 to present.

Mr. Hopsicker served as Director,  Financial Planning,  Finance & Control,  from
December  1994 to October  1995; as Director,  Business  Development,  ARS, from
October 1995 to April 1996; as Vice President, Agway Energy Products, from April
1996 to July 1997; and as President,  Agway Energy  Products LLC, from July 1997
to present.

Mr. LaHood served as Vice President,  Country Products Group, from February 1995
to July  1997;  and as  President,  Country  Products  Group,  from July 1997 to
present.

Ms. Ohliger served as Assistant Treasurer from  September  1992  to August 1998;
and as Treasurer from August 1998 to present.

                                       69

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS (CONTINUED)

Mr. O'Neill served as Senior Vice  President,  Finance & Control,  Treasurer and
Controller,  from  November 1994 to August 1998;  and as Senior Vice  President,
Finance & Control, from August 1998 to present.

Mr. Parker served as Vice President, Information Services, from  September  1994
to May 1996; and as Vice President, Chief  Information Officer, from May 1996 to
present.

Mr. Seeber served as President, Agway Insurance Group, from October 1993 to July
1997; and as Senior Vice President, Administrative Services and President, Agway
Insurance Group, from July 1997 to present.

Ms. Smith served as Director,  Trust  Investments,  from September 1993 to April
1997;  and as Vice  President  and  Chief  Investment  Officer  from May 1997 to
present.

Mr. Spyker has served as Seed Business Unit Manager since July 1995; and as Vice
President, Membership, from January 2000 to present.


                                       70

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

The  following  table  sets forth  information  regarding  annual and  long-term
compensation  for services in all  capacities  to Agway for the years ended June
2000,  1999 and 1998 of those  persons  who  served as (i) the  chief  executive
officer  (CEO) at any time during the year,  and (ii) the other four most highly
compensated executive officers of Agway (other than the CEO) who were serving in
such capacity at June 2000.
<TABLE>
<CAPTION>
                                        SUMMARY COMPENSATION TABLE
-------------------------------------------------------------------------------------------
                                           Annual Compensation (4)
                                           -----------------------
Name and                                                                   ALL OTHER
Principal Position             YEAR       SALARY(1)     BONUS(1)(2)      COMPENSATION(3)
-------------------------------------------------------------------------------------------
<S>                            <C>        <C>             <C>                  <C>
Donald P. Cardarelli           2000       $521,548             $0              $19,771
   President and CEO           1999        478,276        154,530               18,057
                               1998        425,390        327,600               11,500

Daniel J. Edinger              2000        224,637        184,950                5,017
   President,                  1999        199,710        155,040                3,764
   Telmark LLC                 1998        178,853        105,240                3,033

Robert A. Fischer, Jr.         2000        350,385              0               58,743
   President,                  1999        316,442         40,000               63,480
   Agriculture & Retail        1998        294,423        124,000              116,476
   Group

Dennis J. LaHood               2000        316,173              0                4,963
   President,                  1999        252,639        211,800                3,009
   Country Products            1998        220,407        175,515                2,998
   Group

Peter J. O'Neill               2000        304,703         46,050                9,436
  Senior Vice President,       1999        290,212         60,000                6,999
  Finance & Control            1998        266,165        130,000                4,060

</TABLE>

(1)    Salary and bonus are used in determining the average  annual compensation
       pursuant to the Employees' Retirement Plan of Agway Inc.,  effective July
       1,  1998  (see  page  72).  This  amount  includes  all  deferred amounts
       under the Agway Inc. Employees' 401(k) Thrift Investment Plan, Agway Inc.
       Employees' Benefit Equalization Plan, and  the Milford Fertilizer Company
       Employees' Profit Sharing and Savings Plan.
(2)    Members  of the chief  executive  officer's  staff  and other  executives
       designated   by  Agway's  chief   executive   officer  are  eligible  for
       participation in the Agway Inc. management  incentive policy.  Contingent
       upon each  individual's  performance  as  determined by the President and
       CEO, Agway's net earnings,  and other performance factors,  each eligible
       executive  may be paid a bonus.  Bonuses are reflected in the fiscal year
       earned regardless of payment date.
(3)    Amounts shown for all officers, except Mr. Fischer, include contributions
       made by Agway to the Agway Inc. Employees'  401(k)Thrift Investment Plan,
       the Agway  Inc.  Employees'  Benefit  Equalization  Plan,  the Agway Inc.
       Employees'  Deferred  Compensation  Program,  and any other  payments not
       appropriately  characterized  as  salary or bonus.  With  respect  to Mr.
       Fischer,  amounts  include  payments  to the Milford  Fertilizer  Company
       Employees' Profit Sharing and Savings Plan, term life insurance premiums,
       and reportable savings interest.
(4)    There were  no  perquisites paid by Agway  in  excess  of  the  lesser of
       $50,000 or 10% of  an  executive's  total  salary and bonus for the years
       disclosed.

                                       71

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN

The  Employees'  Retirement  Plan of  Agway  Inc.  (the  Retirement  Plan)  is a
non-contributory  defined  benefit  plan  covering  nearly  all  employees.  The
Retirement Plan was amended  effective July 1, 1998, to include a pension equity
formula,  as  well  as  to  recognize  incentive   compensation  as  pensionable
compensation  for all employees.  It provides for retirement  benefits up to the
limits provided by law, based upon average annual  compensation  received during
the  highest 36  consecutive  months in the last 10 years of service and credits
earned for years of service  with Agway.  Full credits are earned for service on
and after July 1,  1998,  and  credits  equal to  approximately  3/4 of the full
credits are earned for service prior to July 1, 1998.  The benefit is defined as
an account balance and can be paid out as a lump sum or an annuity.  An employee
is 100% vested in his benefit  after  completing 5 years of service or attaining
age 55 after completing one year of service.

The following  table shows  estimated  annual  benefits  payable upon retirement
using the credit  formula in effect for service  after June 27,  1998,  based on
certain 3-year average remuneration levels and years-of-service classifications.
Under  the  formula,  base  credits  are  applied  to the total  average  annual
compensation  and excess credits are applied to the average annual  compensation
in excess of one-half the Social  Security Wage Base. In developing  this table,
both base and  excess  credits  have been  applied to the total  average  annual
compensation.  Further,  the table was developed assuming a normal retirement at
age 65 and an annuity conversion factor based on a 6% interest rate.
<TABLE>
<CAPTION>
                                                          PENSION PLAN TABLE
                                                             (NEW FORMULA)
                                                       YEARS OF CREDITED SERVICE
--------------------------------------------------------------------------------------------------------------------
     3-YEAR AVERAGE
      REMUNERATION          5           10           15             20             25           30            35
--------------------------------------------------------------------------------------------------------------------
       <S>               <C>         <C>          <C>            <C>            <C>           <C>           <C>
       $300,000          $21,200     $ 40,300     $  59,400      $  77,100      $  94,800     $111,000      $127,300
        350,000           24,800       47,000        69,300         89,900        110,600      129,500       148,500
        400,000           28,300       53,700        79,200        102,800        126,400      148,000       169,700
        450,000           31,800       60,500        89,100        115,600        142,100      166,500       190,900
        500,000           35,400       67,200        99,000        128,500        157,900      185,100       212,200
        550,000           38,900       73,900       108,900        141,300        173,700      203,600       233,400
        600,000           42,400       80,600       118,800        154,200        189,500      222,100       254,600
        650,000           46,000       87,300       128,700        167,000        205,300      240,600       275,800
        700,000           49,500       94,100       138,600        179,900        221,100      259,100       297,000
        750,000           53,000      100,800       148,500        192,700        236,900      277,600       318,200
        800,000           56,600      107,500       158,400        205,600        252,700      296,100       339,500
        850,000           60,100      114,200       168,300        218,400        268,500      314,600       360,700
        900,000           63,600      120,900       178,200        231,300        284,300      333,100       381,900
        950,000           67,200      127,700       188,100        244,100        300,100      351,600       403,100
</TABLE>
Active  participants  are  entitled  to  receive no less than the value of their
benefits  accrued  under the old  Retirement  Plan benefit  formula which was in
effect through June 27, 1998. In addition,  most active  participants  whose age
plus  service  totaled 55 years or more as of July 1,  1998,  will  receive  the
greater of the benefit  determined under the new formula described above, or the
benefit determined had the old formula remained in effect (grandfathered).

The  old  Retirement   Plan  benefit   formula  is  based  upon  average  annual
compensation  received  during the highest 60 consecutive  months in the last 10
years of service and credited years of service.  Optional earlier retirement and
other  benefits are also  provided.  The old formula  pays a monthly  retirement
benefit based on the greater amount  calculated under two formulas.  The benefit
amount under one formula is subject to an offset for Social Security Benefits.



                                       72

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN (CONTINUED)

The following  table shows  estimated  annual  benefits under the old Retirement
Plan formula in effect for service before July 1, 1998,  based on certain 5-year
average remuneration levels and years-of-service classifications.  The table was
developed  assuming a normal retirement at age 65 and does not reflect an offset
for up to 50% of  the  Social  Security  benefit,  subject  to  certain  minimum
benefits.
<TABLE>
<CAPTION>
                                                          PENSION PLAN TABLE
                                                             (OLD FORMULA)
                                                       YEARS OF CREDITED SERVICE
-------------------------------------------------------------------------------------------------------------------
     5-YEAR AVERAGE
      REMUNERATION       5             10            15            20            25           30            35
-------------------------------------------------------------------------------------------------------------------
       <S>            <C>          <C>           <C>           <C>            <C>          <C>           <C>
       $300,000       $24,000      $  48,000     $  72,000     $  96,000      $120,000     $144,000      $168,000
        350,000        28,000         56,000        84,000       112,000       140,000      168,000       196,000
        400,000        32,000         64,000        96,000       128,000       160,000      192,000       224,000
        450,000        36,000         72,000       108,000       144,000       180,000      216,000       252,000
        500,000        40,000         80,000       120,000       160,000       200,000      240,000       280,000
        550,000        44,000         88,000       132,000       176,000       220,000      264,000       308,000
        600,000        48,000         96,000       144,000       192,000       240,000      288,000       336,000
        650,000        52,000        104,000       156,000       208,000       260,000      312,000       364,000
        700,000        56,000        112,000       168,000       224,000       280,000      336,000       392,000
        750,000        60,000        120,000       180,000       240,000       300,000      360,000       420,000
        800,000        64,000        128,000       192,000       256,000       320,000      384,000       448,000
        850,000        68,000        136,000       204,000       272,000       340,000      408,000       476,000
        900,000        72,000        144,000       216,000       288,000       360,000      432,000       504,000
        950,000        76,000        152,000       228,000       304,000       380,000      456,000       532,000
</TABLE>
Amounts  under the  Retirement  Plan may be subject to reduction  because of the
limitations imposed under the Internal Revenue Code; however,  the extent of any
reduction will vary in individual cases according to  circumstances  existing at
the  time  pension  payments  commence.   The  Agway  Inc.   Employees'  Benefit
Equalization  Plan has been  established  to provide  for the amount of any such
reduction in annual pension benefits under the Retirement Plan.

The benefits  shown are computed on a straight  life basis and do not reflect an
offset for up to 50% of the Social Security benefit,  subject to certain minimum
benefits.  Also,  the benefits are based on  continuing  the  Retirement  Plan's
benefit  formulas as in effect on June 2000.  As of June 2000,  the officers and
their  respective  number of credited years of service under the Retirement Plan
were as follows: Messrs.  Cardarelli,  15; O'Neill, 11; Lahood, 30; and Edinger,
21.  Mr.  Fischer  does not  participate  in the  Retirement  Plan nor any other
long-term  incentive programs of Agway.  However, he participates in the Milford
Fertilizer Company Employees' Profit Sharing and Savings Plan. "Compensation" is
defined as the regular salary or wages,  as reported in the Salary column of the
Summary  Compensation  Table, which is paid to an employee for services rendered
to Agway Inc.,  including overtime,  vacation pay, or special pay and bonuses as
reported in the Bonus column of the  Executive  Compensation  disclosure on page
71.




                                       73

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

For a discussion of director compensation,  see Directors and Executive Officers
of the Registrant (Item 10) of this Form 10-K.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION

Agway  has  a  committee  of  certain directors, including the Chairman and Vice
Chairman  of the Board of Directors, which determines the compensation of Donald
P. Cardarelli, President and CEO of Agway Inc.  The  compensation  of  the other
executive officers of Agway Inc. is determined  by Mr. Cardarelli.  Salaries  of
all  executive  officers  are  included in the annual operating budget, which is
approved by the entire Board of Directors of Agway Inc.

None of the executive  officers or directors  who  participate  in  establishing
compensation   policies  had  interlocks  reportable  under  Section  402(J)  of
Regulation S-K.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

None  of  the  executive  officers  of  Agway,  either  individually  or in  the
aggregate,  own greater than 1% of any class of equity  securities of Agway Inc.
or its  subsidiaries.  Agway  is an  agricultural  cooperative  and  each of its
members,  including each director, owns one share of $25 par value common stock.
None of the directors, either individually or in the aggregate, own greater than
1% of any class of equity security of Agway Inc. or its subsidiaries.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Agway's  members,  including  its  directors,  are customers of Agway and/or its
subsidiaries.  They  purchase  products  from  Agway  in the  normal  course  of
operating  their farm businesses and may sell certain  agricultural  products to
Agway at market  prices.  The prices,  terms,  and conditions of any purchase or
sale transaction are on the same basis for all of Agway's members.




                                       74

<PAGE>



                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
                                                                                                               PAGE
      (A)  INDEX TO DOCUMENT LIST                                                                            LOCATION
                                                                                                             --------
           <S>                                                                                                     <C>
           (1)  FINANCIAL STATEMENTS

                Among the  responses  to this Item  14(a)(1)  are the  following
                financial statements, which are included in Item 8 on page 32:

                (i)     Report of Independent Accountants.......................................................   34

                (ii)    Consolidated Balance Sheets, June 24, 2000 and June 26, 1999 ...........................   35

                (iii)   Consolidated Statements of Operations, fiscal years ended June 24, 2000,
                          June 26, 1999 and June 27, 1998.......................................................   36

                (iv)    Consolidated Statements of Comprehensive Income, fiscal years ended
                          June 24, 2000, June 26, 1999 and June 27, 1998........................................   37

                (v)     Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended
                          June 24, 2000, June 26, 1999 and June 27, 1998........................................   38

                (vi)    Consolidated Statements of Cash Flow, fiscal years ended June 24, 2000,
                          June 26, 1999 and June 27, 1998.......................................................   39

                (vii)   Notes to Consolidated Financial Statements..............................................   40

           (2)  FINANCIAL STATEMENT SCHEDULES

                (i)     The following schedules are presented:

                        Schedule I   -   Condensed Financial Information of Registrant, each of
                                         the three years in the period ended June 24, 2000......................   76

                        Schedule II  -   Valuation and Qualifying Accounts, fiscal years ended
                                         June 24, 2000, June 26, 1999 and June 27, 1998.........................   80

</TABLE>
Schedules  other  than  these  listed  above  have been  omitted as they are not
required,   inapplicable,  or  the  required  information  is  included  in  the
consolidated financial statements or notes thereto.



                                       75

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                            CONDENSED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)

                                     ASSETS
<TABLE>
<CAPTION>

                                                                                   JUNE 24, 2000    JUNE 26, 1999
                                                                                   -------------    --------------
<S>                                                                                <C>              <C>
Current assets:
      Cash......................................................................   $   23,508       $     2,902
      Trade accounts receivable (including notes receivable of $34,559 and
           $37,015, respectively), less allowance for doubtful accounts of
           $4,674 and $3,581, respectively......................................      105,796            92,342
      Inventories...............................................................       62,199            55,401
      Other current assets......................................................       23,368            45,740
                                                                                   -----------      ------------
           Total current assets.................................................      214,871           196,385

Investments in subsidiaries.....................................................      242,221           234,439

Properties and equipment, net...................................................       84,812            77,854

Net pension asset...............................................................      213,455           198,160

Net assets of discontinued operations...........................................       34,278            85,802

Other assets    ................................................................        8,005             7,560
                                                                                   -----------      ------------

           Total assets.........................................................   $  797,642       $   800,200
                                                                                   ===========      ============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
      Accounts payable..........................................................   $   21,184       $    18,154
      Operating advances payable to subsidiaries, net...........................      379,977           391,396
      Other current liabilities.................................................       64,174            56,015
                                                                                   -----------      ------------
           Total current liabilities............................................      465,335           465,565

Other liabilities...............................................................      149,716           135,688

Shareholders' equity............................................................      182,591           198,947
                                                                                   -----------      ------------

           Total liabilities and shareholders' equity...........................   $  797,642       $   800,200
                                                                                   ===========      ============
</TABLE>



                                       76

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
            CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                                         JUNE 24, 2000    JUNE 26, 1999     JUNE 27, 1998
                                                                         -------------    -------------     -------------
<S>                                                                      <C>              <C>               <C>
Net sales and revenues from:
      Product sales...................................................   $    504,697     $    531,214      $    613,186
      Other services..................................................         17,934           17,186            16,006
                                                                         ------------     ------------      ------------
           Total net sales and revenues...............................        522,631          548,400           629,192

Cost and expenses from:
      Products and plant operations...................................        475,163          497,512           573,617
      Selling, general and administrative activities..................         62,637           66,638            60,248
                                                                         ------------     ------------      ------------
           Total operating costs and expenses.........................        537,800          564,150           633,865
                                                                         ------------     ------------      ------------

Operating loss........................................................        (15,169)         (15,750)           (4,673)
Interest expense, net.................................................         (9,113)          (5,344)           (1,942)
Other income, net.....................................................         26,275           35,171            26,858
                                                                         ------------     ------------      ------------
Earnings from operations before income taxes
      and equity in earnings of subsidiaries .........................          1,993           14,077            20,243
Income tax benefit (expense)..........................................         (2,231)           6,087             4,983
                                                                         ------------     -------------     ------------
Income (loss) before equity in earnings of subsidiaries...............           (238)          20,164            25,226
Equity in earnings (loss) of unconsolidated subsidiaries..............          6,390           (7,223)           (9,210)
                                                                         ------------     -------------     ------------
Earnings from continuing operations...................................          6,152           12,941            16,016
Discontinued operations:
      Loss from operations, including tax benefit of
           $7,313, $6,086 and $2,090, respectively....................        (13,187)         (11,146)           (3,827)
      Loss on disposal of retail, net of tax benefit
           of $1,278..................................................         (2,342)               0                 0
                                                                         ------------     ------------      ------------
      Loss from discontinued operations...............................        (15,529)         (11,146)           (3,827)
Earnings (loss) before cumulative effect of an accounting
      change..........................................................         (9,377)           1,795            12,189
Cumulative effect of accounting change, net of tax
      expense of $16,500..............................................              0                0            28,956
                                                                         ------------     ------------      ------------
Net earnings (loss)...................................................         (9,377)           1,795            41,145
Retained earnings - beginning of year.................................        153,763          155,362           117,851
Dividends.............................................................         (3,165)          (3,394)           (3,634)
                                                                         ------------     ------------      ------------
Retained earnings - end of year.......................................   $    141,221     $    153,763      $    155,362
                                                                         ============     ============      ============
</TABLE>


                                       77

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                        CONDENSED STATEMENTS OF CASH FLOW
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                                                         JUNE 24, 2000     JUNE 26, 1999    JUNE 27, 1998
                                                                         -------------     -------------    -------------
<S>                                                                      <C>               <C>              <C>
Net cash flows from (used in) continuing operations...................   $      7,557      $    21,777      $    32,924
Net cash flows from (used in) discontinued operations.................         35,995             (391)             237
                                                                         ------------      ------------     ------------
Net cash flows from (used in) operating activities....................         43,552           21,386           33,161
Cash flows from investing activities:
      Purchases of property, plant and equipment......................        (18,984)         (18,015)         (15,189)
      Proceeds from disposal of business..............................          2,615           14,150                0
      Disposition of properties and equipment.........................          1,379              972                0
      Other...........................................................         (1,304)          (9,238)             352
                                                                         ------------      ------------     ------------
Net cash flows used in investing activities...........................        (16,294)         (12,131)         (14,837)
Cash flows from financing activities:
      Payments on capitalized leases..................................           (296)            (319)            (458)
      Cash dividends paid.............................................         (3,275)          (3,532)          (3,943)
      Other...........................................................         (3,081)          (4,950)          (9,523)
                                                                         ------------      ------------     ------------
Net cash flows used in financing activities...........................         (6,652)          (8,801)         (13,924)
Net increase in cash and equivalents..................................         20,606              454            4,400
Cash and equivalents at beginning of year.............................          2,902            2,448           (1,952)
                                                                         ------------      ------------     -------------
Cash and equivalents at end of year...................................   $     23,508      $     2,902      $     2,448
                                                                         ============      ============     =============

</TABLE>


                                       78

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                    NOTES TO CONDENSED FINANCIAL INFORMATION
                             (THOUSANDS OF DOLLARS)


BASIS OF PRESENTATION
In the preceding  condensed  financial  statements,  which  represent the parent
company only,  Agway's  investment in subsidiaries is stated at cost plus equity
in undistributed  earnings of subsidiaries since the date of acquisition.  These
financial  statements  should be read in conjunction  with Agway's  consolidated
financial statements.

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

INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                    JUNE 2000        JUNE 1999
                                                                  -------------     ------------
<S>                                                               <C>               <C>
Raw materials..................................................   $      7,977      $     6,892
Finished goods.................................................         52,742           46,896
Supplies.......................................................          1,480            1,613
                                                                  -------------     ------------
                                                                  $     62,199      $    55,401
                                                                  =============     ============
</TABLE>
DEBT
Debt capital for Agway is supplied by its wholly owned  subsidiary,  AFC,  which
secures  financing  through  bank  borrowings  and  issuance of  corporate  debt
instruments.   The  payment  of   principal   and   interest  on  this  debt  is
unconditionally  guaranteed by Agway. This guarantee is full and  unconditional,
and joint and several. The total debt of AFC guaranteed by Agway is disclosed in
Note 10.

RELATED PARTY TRANSACTIONS
Transactions  between  Agway  Inc. and  its  unconsolidated  subsidiaries are as
follows:
<TABLE>
<CAPTION>
                                                                                              YEARS ENDED
                                                                         --------------------------------------------
                                                                           JUNE 2000        JUNE 1999      JUNE 1998
                                                                         -------------    ------------    -----------
<S>                                                                      <C>              <C>             <C>
Net sales and revenues................................................   $     3,307      $     4,637     $   36,445
Product and plant operation expenses..................................        14,108           19,648         12,638
Recovery of selling, general and administrative expenses..............        11,811           12,029         13,289
Interest expense, net.................................................        19,657           17,222         14,306
</TABLE>

CONTINGENCIES
Agway 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
Agway. Agway 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 results of operations, financial position, or liquidity of Agway.



                                       79

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------------
                       COL. A                                   COL. B                  COL. C              COL. D         COL. E
------------------------------------------------------------------------------------------------------------------------------------
                                                                                        ADDITIONS
                                                                BALANCE       CHARGED TO     CHARGED TO                    BALANCE
                                                              AT BEGINNING     COSTS AND     OTHER                         AT END
                     DESCRIPTION                               OF PERIOD       EXPENSES      ACCOUNTS      DEDUCTIONS     OF PERIOD
------------------------------------------------------------------------------------------------------------------------------------
                                                     for the year ended June 24, 2000
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>            <C>           <C>            <C>
Reserves deducted in the balance sheet from assets to which
they apply:
      Allowance for doubtful notes and accounts
           receivable (current).............................  $    6,139      $    2,639     $        0    $   1,574(a)   $    7,204
                                                              ==========      ==========     ==========    ============   ==========
      Allowance for doubtful leases receivable..............  $   29,978      $   11,737     $        0    $   9,179(a)   $   32,536
                                                              ==========      ==========     ==========    ============   ==========
      Reserve for other security investments................  $    1,010      $      417     $        0    $      0       $    1,427
                                                              ==========      ==========     ==========    ============   ==========
      Reserve for obsolete and slow moving inventory........  $      235      $       64     $        0    $      0       $      299
                                                              ==========      ==========     ==========    ============   ==========
      Surplus property reserve..............................  $      623      $        0     $        0    $      0       $      623
                                                              ==========      ==========     ==========    ============   ==========
      Income tax valuation allowance........................  $        0      $        0     $        0    $      0       $        0
                                                              ==========      ==========     ==========    ============   ==========
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                     for the year ended June 26, 1999
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>            <C>           <C>            <C>
Reserves deducted in the balance sheet from assets to which
they apply:
      Allowance for doubtful notes and accounts
           receivable (current).............................  $    7,172      $    1,003     $        0     $  2,036(a)   $    6,139
                                                              ==========      ==========     ==========     ===========   ==========
      Allowance for doubtful leases receivable..............  $   27,071      $    9,727     $        0     $  6,820(a)   $   29,978
                                                              ==========      ==========     ==========     ===========   ==========
      Reserve for other security investments................  $        0      $    1,010     $        0     $     0       $    1,010
                                                              ==========      ==========     ==========     ===========   ==========
      Reserve for obsolete and slow moving inventory........  $      100      $      135     $        0     $     0       $      235
                                                              ==========      ==========     ==========     ===========   ==========
      Surplus property reserve..............................  $      645      $        0     $        0     $     22(b)   $      623
                                                              ==========      ==========     ==========     ===========   ==========
      Income tax valuation allowance........................  $        0      $        0     $        0     $     0       $        0
                                                              ==========      ==========     ==========     ===========   ==========
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                     for the year ended June 27, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>            <C>           <C>            <C>
Reserves deducted in the balance sheet from assets to which
they apply:
      Allowance for doubtful notes and accounts
           receivable (current)..........................     $    7,227      $    1,553     $        0     $  1,608(a)   $    7,172
                                                              ==========      ==========     ==========     ===========   ==========
      Allowance for doubtful leases receivable...........     $   24,014      $    9,570     $        0     $  6,513(a)   $   27,071
                                                              ==========      ==========     ==========     ===========   ==========
      Reserve for obsolete and slow moving inventory.....     $      221      $      100     $        0     $    221      $      100
                                                              ==========      ==========     ==========     ===========   ==========
      Surplus property reserve...........................     $      696      $        0     $        0     $     51(b)   $      645
                                                              ==========      ==========     ==========     ===========   ==========
      Income tax valuation allowance.....................     $        0      $        0     $        0     $     0       $        0
                                                              ==========      ==========     ==========     ===========   ==========

</TABLE>
(a)   Accounts charged off, net of recoveries.
(b)   Locations sold.


                                       80

<PAGE>



ITEM 14(B).          REPORTS ON FORM 8-K
                     Agway  filed  a  report  on  Form  8-K  on  May  18,  2000,
                     announcing  the signing of a letter of intent with Southern
                     States  Cooperative,   Inc.  (Southern  States)  to  pursue
                     discussions  toward the creation of a relationship to serve
                     Agway consumer dealers in the  northeastern  United States.
                     The letter of intent  provides for the two  cooperatives to
                     work  together  to  develop  a  product   distribution  and
                     marketing  system that will serve  dealers with a full-line
                     of branded and non-branded  products,  as well as marketing
                     and advertising support to develop the cooperatives' brands
                     and trademarks over a larger geographic area.

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

                     Agway  filed a  report  on Form  8-K on  August  15,  2000,
                     announcing the July 31, 2000,  finalization of the purchase
                     by Southern  States of Agway's  consumer  wholesale  dealer
                     business.  The  aggregate  consideration  received by Agway
                     consisted of $9,080,000  in cash,  assumption of $1,963,000
                     of accounts payable by Southern  States,  and a $13,300,000
                     interest-bearing  promissory  note to Agway  from  Southern
                     States payable in 30 months.

ITEM 14(C)(1).       EXHIBITS  REQUIRED  BY  SECURITIES  AND EXCHANGE COMMISSION
                     REGULATION S-K

                     (i)  The   following    required    exhibits   are   hereby
                          incorporated   by   reference  to   previously   filed
                          Registration Statements on Forms S-1, S-2, S-3, or S-7
                          or on Form 10-Q filed on the dates as specified:

                          ARTICLES OF INCORPORATION AND BY-LAWS

                          3(a)  - Certificate creating series of preferred stock
                                  of Agway Inc. dated  July  5, 1977,  filed  by
                                  reference  to Exhibit  3(a)(5) of Registration
                                  Statement  on  Form  S-1,  File  No.  2-59896,
                                  dated  September  16, 1977.

                          3(b)  - Certificate creating series of Honorary Member
                                  Preferred Stock of Agway Inc.  dated  June 15,
                                  1981, filed by reference  to  Exhibit  1(c) of
                                  the Registration  Statement on  Form S-1, File
                                  No. 2-73928,  dated September 3, 1981.

                          INSTRUMENTS  DEFINING  THE RIGHTS OF SECURITY HOLDERS,
                          INCLUDING INDENTURES

                          4(a)  -  The  Indenture  dated as of September 1, 1976
                                   between  Agway  Inc.  and  First  Trust  and
                                   Deposit  Company  of  Syracuse,  New  York,
                                   Trustee,  including  forms  of  Subordinated
                                   Debentures (Minimum 7% per annum) due July 1,
                                   2001,  and  Subordinated  Debentures (Minimum
                                   7.5%  per annum) due  July 1, 2001, filed  by
                                   reference  to  Exhibit 4 of  the Registration
                                   Statement (Form S-1), File No. 2-57227, dated
                                   September 21, 1976.

                          4(b)  -  The  Indenture  dated as of September 1, 1978
                                   between  Agway  Inc.  and  First  Trust  and
                                   Deposit  Company  of  Syracuse,  New  York,
                                   Trustee,  including  forms  of  Subordinated
                                   Debentures  (Minimum 7.5% per annum) due July
                                   1, 2003, and Subordinated Debentures (Minimum
                                   8%  per  annum)  due  July 1, 2003,  filed by
                                   reference  to  Exhibit 4 of  the Registration
                                   Statement (Form S-1), File  No. 2-62549 dated
                                   September 8, 1978.

                          4(c)  -  The  Indenture dated as of September 1, 1985,
                                   between  Agway  and  Key  Bank of Central New
                                   York of Syracuse,New York, Trustee, including
                                   forms  of  Subordinated  Member  Money Market
                                   Certificates  (Minimum  8%  per  annum)  due
                                   October  31, 2005,  and  Subordinated  Member
                                   Money  Market  Certificates (Minimum 7.5% per
                                   annum)   due  October  31,  2005,  filed   by
                                   reference  to  Exhibit  4 of the Registration
                                   Statement (Form S-2), File No. 2-99905, dated
                                   August 27, 1985.

                                       81

<PAGE>



ITEM 14(C)(1).       EXHIBITS  REQUIRED  BY  SECURITIES  AND EXCHANGE COMMISSION
                     REGULATION S-K


                          4(d)  -  The  Indenture dated as of September 1, 1986,
                                   between AFC and Key Bank of  Central New York
                                   of  Syracuse,  New  York, Trustee,  including
                                   forms  of  Subordinated  Member  Money Market
                                   Certificates  (Minimum  6%  per  annum)  due
                                   October  31,  2006,  and  Subordinated  Money
                                   Market  Certificates (Minimum 5.5% per annum)
                                   due  October 31, 2006, filed  by reference to
                                   Exhibit 4 of the Registration Statement (Form
                                   S-3), File  No. 33-8676, dated  September 11,
                                   1986.

                          4(e)  -  The  Supplemental  Indenture  dated  as  of
                                   October  1,  1986,  among AFC, Agway Inc. and
                                   Key Bank of Central New York of Syracuse, New
                                   York, Trustee,including forms of subordinated
                                   debt securities filed by reference to Exhibit
                                   4  of  the Registration Statement (Form S-3),
                                   File  No. 33-8676, dated  September 11, 1986.

                          4(f)  -  The  Indenture  dated  as of August 24, 1987,
                                   between AFC and Key Bank of Central  New York
                                   of  Syracuse,  New York,  Trustee,  including
                                   forms  of  Subordinated  Member  Money Market
                                   Certificates  (Minimum  6.5%  per  annum) due
                                   October  31,  2008,  and  Subordinated  Money
                                   Market  Certificates  (Minimum  6% per annum)
                                   due  October 31, 2008, filed  by reference to
                                   Exhibit 4 of the Registration Statement (Form
                                   S-3), File No.33-16734, dated August 31,1987.

                          4(g)  -  The  Indenture  dated  as of August 23, 1988,
                                   between AFC and Key Bank of Central New  York
                                   of  Syracuse, New  York, Trustee,  including
                                   forms  of  Subordinated  Member  Money Market
                                   Certificates  (Minimum  9.5%  per  annum) due
                                   October  31,  2000,  and  Subordinated Member
                                   Money  Market  Certificates  (Minimum  9% per
                                   annum) due October 31, 2008, and Subordinated
                                   Money  Market  Certificates  (Minimum  9% per
                                   annum) due October 31, 2000, and Subordinated
                                   Money  Market  Certificates (Minimum 8.5% per
                                   annum) due October 31,2008,filed by reference
                                   to  Exhibit 4  of  the Registration Statement
                                   (Form  S-3),  File No. 33-24093, dated August
                                   31, 1988.

                          4(h)  -  The  Supplemental  Indenture  dated  as  of
                                   October  14, 1988, among  AFC, Agway Inc. and
                                   Key  Bank  of  Central  New  York,  National
                                   Association, Trustee, amending the Indentures
                                   dated  as  of August 23, 1988, and August 24,
                                   1988, filed on October 18, 1988.

                          4(i)  -  The  Indenture  dated  as of August 23, 1989,
                                   among AFC, Agway Inc. and Key Bank of Central
                                   New  York  of  Syracuse,  New  York, Trustee,
                                   including forms of Subordinated  Money Market
                                   Certificates  and  Subordinated  Member Money
                                   Market  Certificates,  filed  by reference to
                                   Exhibit 4 of the Registration Statement (Form
                                   S-3), File No.33-30808, dated August 30,1989.

                          4(j)  -  The Supplemental Indenture dated as of August
                                   24, 1992, among AFC, Agway Inc. and  Key Bank
                                   of  New York, Trustee, amending the Indenture
                                   dated  as  of  August  23, 1989,  filed  by
                                   reference  to  Exhibit  4 of the Registration
                                   Statement  (Form  S-3),  File  No.  33-52418,
                                   dated September 25, 1992.

                          4(k)  -  Agreement  of  Resignation,  Appointment  and
                                   Acceptance  among  KeyCorp,  Key Bank of  New
                                   York, AFC  and Mellon Bank, F.S.B.,  dated as
                                   of  September 3, 1996, five agreements, filed
                                   by  reference  to  Exhibit  4(o) of Form S-3,
                                   File  No. 333-34781, dated September 2, 1997.



                                       82

<PAGE>



ITEM 14(C)(1).       EXHIBITS  REQUIRED  BY  SECURITIES  AND EXCHANGE COMMISSION
                     REGULATION S-K

                     (ii) The following exhibits are filed as a separate section
                          of this report:

                            3 -  BY-LAWS OF AGWAY INC., AS AMENDED APRIL 26,2000

                            4 -  INSTRUMENTS  DEFINING  THE  RIGHTS  OF SECURITY
                                 HOLDERS,  INCLUDING  INDENTURES
                                 (a) Letter dated  November 14,  1997,  from The
                                     Chase Manhattan Bank, Successor Trustee

                           10 -  MATERIAL CONTRACTS
                                 (a) Directors - Deferred Compensation Agreement
                                 (b) Board  Officers  -  Deferred  Compensation
                                     Agreement

                           12 -  STATEMENT RE COMPUTATION OF RATIOS

                           21 -  SUBSIDIARIES OF THE REGISTRANT

                           23 -  CONSENTS OF EXPERTS AND COUNSEL

                           27 -  FINANCIAL DATA SCHEDULE*


* Included with electronic filing only.

Note :   The  annual  report  on  Form  11-K for the year ended June 30, 2000 of
         Agway  Inc.  Employees'  401(k)  Thrift  Investment  Plan will be filed
         separately at a later date.

                                       83

<PAGE>



                                   SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) 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)

                                        By       /s/ Donald P. Cardarelli
                                           ------------------------------------
                                                    DONALD P. CARDARELLI
                                           PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                               (PRINCIPAL EXECUTIVE OFFICER)

                                        Date      September 19, 2000
                                            ------------------------------------

       Pursuant to the requirements of the Securities Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
                       SIGNATURE                          TITLE                                   DATE
                       ---------                          -----                                   ----


                 <S>                             <C>                                        <C>
                 /s/ Donald P. Cardarelli        President and Chief Executive Officer      September 19, 2000
                  (DONALD P. CARDARELLI)         (Principal Executive Officer)



                 /s/ Peter J. O'Neill            Senior Vice President,                     September 19, 2000
                  (PETER J. O'NEILL)                Finance & Control
                                                    (Principal Financial Officer
                                                    & Principal Accounting Officer)



                 /s/ Gary K. Van Slyke           Chairman of the                            September 19, 2000
                  (GARY K. VAN SLYKE)               Board and Director



                 /s/ Andrew J. Gilbert           Vice Chairman of the                       September 19, 2000
                  (ANDREW J. GILBERT)               Board and Director



                 /s/ Keith H. Carlisle           Director                                   September 19, 2000
                  (KEITH H. CARLISLE)



                 /s/ D. Gilbert Couser           Director                                   September 19, 2000
                  (D. GILBERT COUSER)
</TABLE>

                                       84

<PAGE>

<TABLE>
<CAPTION>

                       SIGNATURE                    TITLE                                            DATE
                       ---------                    -----                                            ----

                 <S>                             <C>                                         <C>
                 /s/ Ralph H. Heffner            Director                                    September 19, 2000
                  (RALPH H. HEFFNER)



                 /s/ Robert L. Marshman          Director                                    September 19, 2000
                  (ROBERT L. MARSHMAN)



                 /s/ Jeffrey B. Martin           Director                                    September 19, 2000
                  (JEFFREY B. MARTIN)



                 /s/ Samuel F. Minor             Director                                    September 19, 2000
                  (SAMUEL F. MINOR)



                 /s/ Richard H. Skellie          Director                                    September 19, 2000
                  (RICHARD H. SKELLIE)



                 /s/ Carl D. Smith               Director                                    September 19, 2000
                    (CARL D. SMITH)



                 /s/ Thomas E. Smith             Director                                    September 19, 2000
                   (THOMAS E. SMITH)



                 /s/ Joel L. Wenger              Director                                    September 19, 2000
                   (JOEL L. WENGER)



                 /s/ Edwin C. Whitehead          Director                                    September 19, 2000
                 (EDWIN C. WHITEHEAD)



                 /s/ William W. Young            Director                                    September 19, 2000
                  (WILLIAM W. YOUNG)

</TABLE>
                                       85

<PAGE>


SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

As of the date of this filing on Form 10-K, the Registrant has not had available
to be sent to  security  holders  the annual  report for fiscal  year ended June
24, 2000.  Subsequent  to  the  filing  of  the  annual report on Form 10-K, the
Registrant shall furnish security holders with annual reports.





                                       86
<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                ----------------




                                    EXHIBITS



                                   FILED WITH



                                    FORM 10-K

                                  JUNE 24, 2000



                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)



                                     OF THE



                       THE SECURITIES EXCHANGE ACT OF 1934



                                   ---------


                                   AGWAY INC.



<PAGE>

                                   AGWAY INC.
                                    FORM 10-K
                                    JUNE 2000
                                  EXHIBIT INDEX


Exhibit
Number         Title
-------        ------

(3)            By-Laws
               (ii)  Agway, Inc. By-Laws as amended to April 26, 2000

(4)            Instruments  defining the rights of security  holders,  including
               indentures  (a) Letter dated  November  14, 1997,  from The Chase
               Manhattan Bank, Successor Trustee

(10)           Material contracts
               (a)   Directors - Deferred Compensation Agreement
               (b)   Board Officers - Deferred Compensation Agreement

(12)           Statements re computation of ratios

(21)           Subsidiaries of registrant

(23)           Consent of experts and counsel

(27)           Financial data schedule*


*Included with electronic filing only.

Note:          The annual  report on  Form 11-K for the year ended June 30, 2000
               of  Agway Inc. Employees' 401(k) Thrift  Investment  Plan will be
               filed separately at a later date.