From PinataIsland.info, the Viva Piñata wiki
Leafos presents you with the Packet of Seeds as part of the tutorial. This tool is used for planting grass. Initially, only short grass can be planted. But at level 11, a Long Grass Packet is available from Costolot's Store for 1,125 chocolate coins.
Grass is one of the components that many plants may need to grow. Some plants will only grow on grass. Others have to grow on the bank of water, in mud. Grass is also an important factor in a pinata's appear, visit, resident and romance requirements.
Similarly, you must pull up or cut down long grass in order to plant short grass.