Vanilla extract is made by steeping vanilla beans in alcohol, which extracts the flavor compounds. The quality and type of vanilla beans, as well as the extraction process, significantly influence the flavor and price of the final product.

Pure Vanilla Extract: Made from real vanilla beans, pure vanilla extract typically contains at least 35% alcohol and is known for its rich, complex flavor.
Imitation Vanilla Extract: This is a synthetic product made primarily from vanillin, which is derived from sources like coal tar or wood pulp. It is significantly cheaper but lacks the depth of flavor found in pure extracts.

The high cost of vanilla extract can be attributed to several factors:

Labor-Intensive Cultivation: Vanilla is derived from the pods of orchids, primarily grown in tropical climates. The cultivation process is labor-intensive, requiring hand-pollination and careful harvesting, which contributes to its high price (Serious Eats).
Supply and Demand: The global demand for vanilla has increased, but production has struggled to keep pace due to environmental factors, leading to price surges.

To understand the flavor differences, a taste test was conducted comparing various vanilla extracts, including supermarket-grade pure vanilla, premium brands like Nielsen-Massey, imitation vanilla, and whole vanilla beans.

Baked Goods: In baked goods like cookies and ice cream, tasters found it difficult to distinguish between the flavors of different extracts, with no clear winner. This suggests that for many baking applications, cheaper imitation vanilla can suffice (Serious Eats).
Cold Preparations: In uncooked applications, such as eggnog, pure vanilla extract was preferred due to its more intense flavor and complexity. This indicates that if you're making cold desserts or beverages, investing in higher-quality vanilla might be worth it.

If you frequently use vanilla extract, making your own can be a budget-friendly option. Here’s a simple recipe:

4–6 whole vanilla beans
1 cup (8 oz.) of vodka or other 70+ proof alcohol

Split the vanilla beans lengthwise and scrape the seeds into a glass jar.
Cut the bean hulls into smaller pieces and add them to the jar.
Pour vodka over the beans, ensuring they are fully submerged.
Seal the jar and store it in a cool, dark place for at least 2 months, shaking it occasionally. For the best flavor, let it infuse for 6–12 months (Bon Appétit).

Making your own vanilla extract can be significantly cheaper. For example, the cost of making a quart of homemade extract can be around $30, compared to spending $180 or more on store-bought extracts over the same period (Will Cook for Friends).

When it comes to vanilla extract, the choice between cheap and expensive often depends on how you plan to use it. For baking purposes, imitation vanilla may suffice, while pure vanilla extract shines in uncooked dishes. If you're a frequent user, consider making your own extract for both quality and savings. Ultimately, understanding the differences in flavor and cost can help you make the best choice for your culinary needs.