If it were me, I would give him his milk once a day. I personally would do it at afternoon snack and I would put it in a sippy cup. I would give him finger foods for morning snack and lunch with a sippy cup of water. He is most likely smearing the food because he is full and it gives him something to do while the other kids eat. At 12 months he is more than capable of eating soft finger foods and I wouldn't puree his food either. I think if he decreases his milk intake the food smearing will stop.