Is this a common thing?

Well, I'm going to play devil's advocate here. And mostly think out loud....

On the one hand, (and the part of me that feels most strongly), anything toy, teacup, mini is evil and plays to the designer dog syndrome (i.e. I need a small puppy that will fit into my cute purple handbag). This is a complete detioration of the breed standard and should be stopped.

I have a very small sheltie (she is barely 10 lb and has really tiny paws). We got her from a rescue group, not breeder and size was not really important to us when we got her. She is very smart, loyal, full of energy and any time we encounter another small dog that barks hysterically she is very reserved and minds her own business. I dont think she behaves any differently from any standard size sheltie and the vet always says she is very healthy. I must add here, that her size has been great given that we live in chicago and her small size allows me to get her in a bag with me on public transit or in a small bag in front of my bike when I need to bike somewhere for a picnic on a nice day and dont want to drive. I completely agree with you that dogs are not for fashion purposes etc, etc... but to me as long as the dogs are being bred properly and the breading does not cause any health problems, I dont see what the problem really is.
I have no idea what was on the mind of the breeder but as a sheltie owner without a family or an SUV to go everywhere I must admit I love her size (even though I HATE the "she is a fluffy small dog attitude" I get from people at times).

This is Pebbles :
http://www.flickr.com/photos/8697533@N05/4658211467/in/photostream/
 
My question is how are the "mini" sheltie breeders keeping them in size?

Shelties are considered a newer breed, so even championship breeders have difficulty producing puppies, who meet the standard height. It is not uncommon to have an undersized, oversized and in size puppy within the same litter. You can mate two 13 inch shelties and still end up with 17 inch tall puppies. The height of the parents do not determine the height of the offspring...

This leads to believe that these mini shelties were at some point bred to papillons or pomeranians or some other toy breed to down size them.

I could be totally wrong and off point, but it's just something that I find odd.

Yep, Ember is 13" Her sire and dam are 16" Diva's mom is 13" and she has a brother who is 18.5". If you look at Ember you can see the rounder eyes and snipier muzzle of the pom subtype. It isn't bad but its there and that is why she is spayed. When you compare her to Diva it is obvious and Diva's strength isn't her head. Diva's brother interesting enough looks more like a collie to me. Long leaner head.

How do they keep the size down simple by breeding to the smallest dogs they can find and keep doing it, with regarding to nothing else. The pom was one of the breeds made up the orgins of the sheltie bred. The genes are already there, you just have to start breeding for it. The collie was added late to help with type and to get rid of that pom look. So breeding for small 10-11" pom subtype dogs is not what the founders of the breed were after.
 
I hate when breeders breed down dogs on purpose. It actually really irritates me.

Aztec's sister was incredibly tiny...(about 10lbs) but both her parents were standard size. So it was hardly the breeder aiming for that.
 
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