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Protip; if you're after gold-quality seeds, you can cultivate them yourself by planting silver-quality seeds with a Q1/Q2 fertilizer. Need silver-quality? - plant bronze-quality with Q1/Q2.
In general, to level up merchants you need to buy products from them, and it's usually quite a lot. When you make a purchase from them you will see their level bar go up slightly (it may not appear to move if you've only made a very small purchase)
As mentioned above, if you use gold quality fertilizer then a certain percentage of silver seeds you plant will be come gold seeds once you harvest them, but if you're doing the wine quest for the Inquisitor then you probably don't have the tech/ingredients for special fertilizers yet
Boost (hourglass): this type of fertilizer speed the time it will take for the crop to mature (by 20/40/60%)
Quality (star) this raise the amount of output from the crop, in seeds, products and waste. This will also determine the amount of upgraded seed.
There are 3 level of fertilizer
Peat (bronze): provide both boost and quality at bronze level. This will not upgrade any seed (but will increase the amount of seeds and products produced).
Silver: Quality I or Boost I (made at the church workbench and require some alchemy) Quality (star) will upgrade 1 seed if possible (and has increase yield of seeds/products, the output of seeds is always superior to the cost of replanting, so you stop losing seeds)
Gold: Quality II or Boost II (still made at the church workbench and require more advanced alchemy).
Quality II will upgrade 2 seeds to the next level if possible. The output of seeds is a very net positive. Almost allowing to double your production each harvest.
It's also important to note that the last fertilizer used is going to replace the previous type.
For example if you apply some Quality II (gold star) and then apply peat, the effect of your gold fertilizer will be gone and replaced by the lower (bronze star) quality from the peat (the speed will be improved). In such case, you should use Peat, then Quality II.
Look up the answer here, https://steamcommunity.com/app/599140/discussions/0/3466109980979064685/
Fargel_Linellar describes mechanics.
The tl;dr version is: if you buy something from / sell to a vendor, he/she will sell/rebuy it for the base price. So, the vendor earns money (and increases the level) only if you buy for an inflated price, or sell something for a decreased price.
It doesn't matter for the grape seeds (only the Merchant sells them, and he starts from tier 2, all but gold seeds already unlocked) but for other products, an easy way to level the tier is to sell them a couple of stacks of firewood, many vendors buy it.