I like using seeds as an example, because they make a nice toy model. They last a long time, and more of them can be produced through capital goods (that is, other seeds) and labor alone.

In this model, seeds have no inherent depreciation, and our hero would have bought them from a seller, e.g. a storefront. In a deflationary environment, the nominal value of capital goods decreases, so anyone holding seeds, whether as inventory (the seed store) or investment (planted in the ground), would take a loss.

You are correct that, given deflationary expectations, fewer people would plant seeds. That is exactly what this scenario is meant to illustrate. Fewer people doing work is called unemployment!

And to your last question, let us say that seeds can be used as food. As seed suppliers drop out of the market, this inescapable demand for food will indeed drive their price up. Deflationary spirals do not terminate in starvation: equilibrium is reached, because of basic necessities. But the equilibrium is at a lower output level, and with higher unemployment.