It's the crankcase breather system on top of the valve cover. The rubber hose you see arcing over the top of everything is connected to your intake air filter housing (the round cookie tin shaped thing on the port side). The other end should be connected to the crankcase breather. The hose is there to conduct crankcase fumes into the intake where they will be burned up inside the engine
instead of stinking up the air.
Fumes coming from the crankcase can smell like exhaust, but you shouldn't see a lot of smoke coming out (a small amount can be normal). If you do you could have badly worn rings. If your engine looks clean and fairly new and unless it has been abused (low oil
or bad overheating) it is unlikely that a diesel
which can run for several thousand hours before it needs them renewed has bad rings.
Is it possible that the exhaust is coming from the hose at the valve cover end? If so you could have a stuck or badly worn intake valve.
You should first make sure that the hose is connected where it should. You may find you don't have a problem at all.