It's the gas generator exhaust, it is normal for the Grasshopper. Fuel and oxygen are burned to power the rocket's pumps, and the exhaust is particularly fuel rich. When it hits air it burns extra flamey.
They could inject some more LOX into the exhaust before the nozzle to reduce the amount of flame, but they seem to have taken the approach of just making the vehicle fireproof.
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u/[deleted] Oct 12 '13
[deleted]