Krampus turned all the children to gnomes. Talk to Gnome Buzz to find out more.
He is lactose intolerant. You just need milk!
Yup, only children are allowed. Find a kid that is not yet turned to gnome.
Great! Give Emily the milk so that she will give it to Krampus.
Obviously. You need to get some cookies.
Combine the cookies with the milk in the inventory. Give the milk-soaked cookies to Emily.