Vanilla extract is a solution of alcohol and water flavored with either natural or artificial vanilla flavor. Inexpensive vanilla extract contains vanillin (derived from wood pulp), corn syrup, alcohol and water. Expensive vanilla extract typically is the result of vanilla beans being macerated in alcohol. Natural vanilla beans (the seed pod of a tropical orchid) contain hundreds of aroma and flavor compounds, of which vanillin is the most prevalent.
There are currently three major varieties of vanilla: V. planifolia (aka Bourbon), which is grown on the island of Madagascar, V. tahitensis, grown on the island of Tahiti, and V. pompona, grown throughout Mexico, Central and South America. Care should be taken when buying Mexican vanilla, though, as quite a bit of it is flavored with the tonka bean, which has a coconutty-vanilla sweetness, but is also a source of coumarin and can be toxic to the liver.
Vanilla is expensive to produce, in fact it is the second most expensive spice in the world, only behind saffron. This is due to many factors, such as the hand pollination that must take place with every vanilla flower, harvest, which must be done by hand and checked daily to ensure optimal ripeness of the pod, and a multi-step process of curing the bean to develop the characteristic aroma and flavor. Vanilla beans are graded by weight, length, and moisture content, and contain around 2.5% vanillin. From start to finish, this process typically takes three months, and good weather is critical to the finished product.
Homemade vanilla extract is simple and cost-effective to make. Buy a dozen of the best vanilla beans you can afford. Take a 750 ml. bottle of spirit (this can be vodka for a neutral flavor, but Cognac or Bourbon works well with the aromas and flavors of the beans). Empty it into a pitcher, split the vanilla beans and add them to the bottle. Fill the bottle with the spirit, cap, and let this rest in a cool, dark place for six months, shaking once a week. Once the vanilla extract has aged and is fragrant, it is ready to use. After enough of the extract is used to expose the tops of the beans, the bottle can be refilled with the spirit of your choice, and one split vanilla bean should be added. This way, the flavor will always be replenished. Once the bottle of full of beans, they can be removed and placed into a canister of white sugar, where they will give up the last of their aroma to the sugar itself.