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Split a vanilla bean down the middle with the point of a sharp knife. Cut it first in two, if the bean is very long. Scrape out the tiny seeds from the pod, and carefully drop the seeds and remaining husk in a medium jar. You can use a bean left over from some other recipe (e.g. vanilla custard or vanilla milk) but be aware the flavour will not be as strong. Also, you should make sure the bean is perfectly dry -- press it in paper, or toast it briefly in the oven.

Fill the jar with sugar, and shake well. For some fun variation, use icing sugar, or brown sugar, or any variety sugar. After a few hours, shake again. You can start using this vanilla sugar the next day, but the scent will grow more pronounced over the next few days.

Keep using the same beans to make more vanilla sugar in the same jar, until the flavour (and scent) diminishes noticeably. You should get 4-5 good jarfulls (but YMMV).

Use vanilla sugar wherever you might use the plain stuff: in tea or other drinks, in cakes, for icing, to make vanilla ice cream (not the orthodox way, which is to start from vanilla milk) or to sprinkle over fruit. Also a good thing to put in cocktails or other alcoholic beverages (see for instance vanilla vodka). You could possibly make candy with it, though I haven't tried.

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