How can my boy have malnutrition when he is aptly fed?

It is very common for toddlers and preschoolers to be low in iron like your son, he is not getting any animal protein low iron vegetables as far as I can read. More then that, milk interferes with iron absorption and at 29 months he should be on reduced fat milk as well. He's not malnourished, he is simply anemic. Add an iron fortified multivitamin to his regimen and he'll be fine.