Changes in consumer preferences and demands, the process of globalisation, etc. together with the pressure of the United States to continue liberalisation of the farm sector in Europe, have caused the European Union to adapt its policy. There has been a shift in the Common Agricultural Policy (CAP) towards a more decentralised approach. In this paper, it is analysed if this approach is justified for rural development, by describing the case of on-farm diversification in Flanders. Using survey results, it is tested if the decision to do on-farm diversification depends not only on farm and farmer characteristics (e.g. age and gender of the farmer, his or her education, having a successor, arable surface, farm type and financial situation) but also on the location of the farm. By including a location variable in the regression, the explanatory power improves and the influence of some variables changes. This suggests that location is important when trying to alter the decision of a farmer to do on-farm diversification. Therefore policy should be decentralised to a level where location differences can be dealt with. This decentralisation is to a certain extent already taken up in the Rural Development Policy in Flanders where location specificities are taken into account for when on-farm diversification in different zones is stimulated. The results support the idea of strengthening bottom-up policies as proposed in the new Rural Development Policy 2007-2013 of the EU and this not only for on-farm diversification, but for all parts of rural development.