The ‘hidden’ sugar paper for this little side mission isn’t actually so hidden – they’re spread out around in the same locale near Lily, mostly placed innocuously near plants, Fennie’s or near NPCs.
These are located in the Astra Shelter area in Aesperia – you’ll find quite an abundance if you circle around Lynx, Lily, and near the surrounding area of Fennie’s. The coordinates for this should be around (-934.3, 862.3).
You’ll need to collect this ‘Sugar Paper’ prior to talking to Lily again before she mentions her ‘hide and seek’ game with Lina and you can proceed further.
This is all a precursor to finishing the side mission for Mr. Lynx, and the very first step is gathering these pieces (5) of Sugar Paper.
You’ll find some directly across from Mr. Lynx, underneath the shrubs, on top of the large metal containers next to the staircase leading towards Fennie’s, at the side of the stairs by Fennie’s, and placed in the corners of these stairs as well.
There’s five (5) total you’ll need to grab to complete the requirement before heading back to Lily, and there’s more than enough in the region for you to grab even if you don’t spot all of them.
If you’re having any difficulty seeing them, remember to keep an eye to the corners and edges of your surroundings, and near NPC characters.